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G.R. No.

L-7185

August 31, 1955

to Dominguez and RFC's mortgage lien thereon registered, and that condition has already been fulfilled. It is, however, contended for the RFC that its obligation to pay "has been modified, if not extinguished" by plaintiff's letter of September 20, 1948, which reads as follows: September 20, 1948 The R. F. C.Manila SIRS: In connection with your guarantee to pay us the balance of P3,086.98 of the account of Mr. Delfin Dominguez for the purchase of lot No. 15, block 7 of our Riverside Subdivision, which lot has been conveyed to him on the strength of your guaranty to us the said balance, we want to inform you that, at the request of Mr. Dominguez, we are agreeable to have that amount paid us at the second release of proceeds of his loan, which he informs us will be on or about October 15, 1948. Yours truly, REALTY INVESTMENTS, INC.C. M. HONSKINS & CO., INC. By: (Sgd.) A. B. Aquino President Managing Agents

REHABILITATION FINANCE CORPORATION, petitioner, vs.COURT OF APPEALS and REALTY INVESTMENTS, INC., respondents.REYES, A., J.: On June 17, 1948, Delfin Dominguez signed a contract with Realty Investments, Inc., to purchase a registered lot belonging to the latter, making a down payment of P39.98 and promising to pay the balance of the stipulated price in 119 monthly installments. Some three months thereafter, to finance the improvement of a house Dominguez had built on the lot of Rehabilitation Finance Corporation—hereafter called the RFC— agreed to loan him P10,000 on the security of a mortgage upon said house and lot, and, at his instance, wrote Realty Investments a letter, dated September 17, 1948, requesting that the necessary documents for the transfer of title of the vendee be executed so that the same could be registered together with mortgage, this with the assurance that as soon as title to the lot had been issued in the name of Dominguez and the mortgage in favor of the RFC registered as first lien on the lot and the building thereon, the RFC would pay Realty Investments "the balance of the purchase price of the lot in the amount of P3,086.98." Complying with RFC's request and relying on its assurance of payment, Realty Investments, on the 20th of that same month, deeded over the lot to Dominguez "free of all liens and incumbrances" and thereafter the mortgage deed, which Dominguez had executed in favor of RFC three days before, was recorded in the Registry of Deeds for the City of Manila as first lien on the lot and the building thereon. It would appear that once the mortgage was registered, the RFC let Dominguez have P6,500 out of the proceeds of his loan, but that the remainder of the loan was never released because Dominguez defaulted in the payment of the amortizations due on the amount he had already received, and as a consequence the RFC foreclosed the mortgage, bought the mortgaged property in the foreclosure sale, and obtained title thereto upon failure of the mortgagor to exercise his right of redemption. Required to make good its promise to pay Realty Investments the balance of the purchase price of the lot, the RFC refused, and so Realty Investments commenced the present action in the Court of First Instance of Manila for the recovery of the said balance from either Delfin Dominguez or the RFC. The trial court allowed recovery from Dominguez, but absolved the RFC from the complaint. But on appeal, the Court of Appeals reversed that verdict, declared the judgment against Dominguez void for having been rendered after his exclusion from the case, and sentenced the RFC to pay plaintiff the amount claimed together with interests and costs. From this judgment the RFC has appealed to this Court. We find no merit in the appeal. While the amount sought to be recovered by plaintiff was originally owing from Dominguez, being the balance of the purchase price of the lot he had agreed to buy, the obligation of paying it to plaintiff has already been assumed by the RFC with no other condition than that title to the lot be first conveyed

Passing upon the above contention, the Court of Appeals says: "As narrated in the statement of the case, both Dominguez and the appellee kept appellant ignorant on the terms and conditions of their agreement concerning the loan of P10,000 and of the manner that sum was to be released, and in such circumstances plaintiff's letter of September 20, 1948, cannot be construed in the manner contended by appellee and sustained by the court, for plaintiff merely said in substance and effect that it was agreeable to have the balance of P3,086.98 of the account of Delfin Dominguez paid to it 'at the second release of proceeds of his loan, which he (Dominguez) informs us will be on or about October 15, 1948.' Defendant-appellee should know that it would be absurd for the plaintiff to waive appellee's guaranty contained in its letter of September 17, 1948, wherein Governor E. Ealdama bound the Rehabilitation Finance Corporation to pay the unpaid balance of the purchase price of the lot in question after title thereof was transferred in the name of Dominguez free from any incumbrance. If the Rehabilitation Finance Corporation was not to make any further release of funds on the loan, or if such release was to be subject to future developments, it was the duty of the Rehabilitation Finance Corporation to answer the latter's letter of September 20, 1948, and to inform appellant of the terms and conditions of the loan, but the officers of the appellee failed to do this. For this reason, appellee's contention in this respect is most unfair and cannot be upheld by the courts of justice. It was the Rehabilitation Finance Corporation that induced plaintiff to issue title to the lot free from all encumbrances to Dominguez on its guaranty, and it cannot

now without any fault of the plaintiff keep the lot in question and Dominguez' building without paying anything to the plaintiff. Under the circumstance of the case, appellant was not under any obligation of assuming Dominguez' right of redemption of the property foreclosed just to save said lot, payment for which was guaranteed by the Rehabilitation Finance Corporation." We are in accord with the above pronouncement. Plaintiff was induced to part with his title to a piece of real property upon RFC's assurance that it would itself pay the balance of the purchase price due from the purchaser after its mortgage lien thereon had been registered. Lulled by that assurance, plaintiff thereafter looked to the RFC, instead of the purchase, for payment. It is true that plaintiff later expressed willingness to have the payment made at a later date, when—so it was informed by the buyer— "the second release of proceeds of his loan" would take place. But it is evident that this period of grace was granted by plaintiff in the belief that the information furnished by the buyer was true, and, as found by the Court of Appeals (and this finding is conclusive upon this Court), RFC never made plaintiff know that said information was not correct. In those circumstances, we do not think it fair to construe plaintiff's letter to be anything more than a mere assent to a deferment of payment, and such assent should not be taken as willingness on its part to have the payment made only if and when there was to be second release of proceeds of the loan. It would be unreasonable to suppose that the creditor, already assured of payment by the RFC itself, would want to create uncertainty by making such payment dependent upon a contingency. In view of the foregoing, the decision appealed from is affirmed, with costs against the RFC.

G.R. No. 72593 April 30, 1987 CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners, vs.IFC LEASING AND ACCEPTANCE CORPORATION, respondent. GUTIERREZ, JR., J.: This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its resolution dated October 17, 1985, denying the motion for reconsideration. The antecedent facts culled from the petition are as follows: The petitioner is a corporation engaged in the logging business. It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed two (2) additional units of tractors. Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a corporation dealing in tractors and other heavy equipment business, offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an HDD-16-B. In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to inspect the job site. After conducting said inspection, the seller-assignor assured petitionercorporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66). With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice- president, respectively, agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. It also paid the down payment of Two Hundred Ten Thousand Pesos (P210,000.00). On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A"). At the same time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2"). Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the seller-assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and interest in the chattel mortgage in favor of the respondent.

Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to supervise the operations of the machines. Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69). On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors broke down and requested for the seller-assignor's usual prompt attention under the warranty (E exh. " 5 "). In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor sent to the job site its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-D," and "6-E"), but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78). Because of the breaking down of the tractors, the road building and simultaneous logging operations of petitioner-corporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79). Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to the respondent and the excess, if any, to be divided between the seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost (E exh. " 7 "). No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite several follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this case was filed by the respondent against the petitioners, the corporation, Wee, and Vergara. The complaint was filed by the respondent against the petitioners for the recovery of the principal sum of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit. The petitioners filed their amended answer praying for the dismissal of the complaint and asking the trial court to order the respondent to pay the petitioners damages in an amount at the sound discretion of the court, Twenty Thousand Pesos (P20,000.00) as

and for attorney's fees, and Five Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other and further relief as would be just under the premises. In a decision dated April 20, 1981, the trial court rendered the following judgment: WHEREFORE, judgment is hereby rendered: 1. ordering defendants to pay jointly and severally in their official and personal capacities the principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing interest thereafter at the rate of 12% per annum; 2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the principal and to pay the costs of the suit. Defendants' counterclaim is disallowed. (pp. 45-46, Rollo) On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the petitioners. Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following errors: I THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTSAPPELLANTS CLAIM OF WARRANTY. II THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN DUE COURSE. On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the decision of the trial court. The pertinent portions of the decision are as follows: xxx xxx xxx From the evidence presented by the parties on the issue of warranty, We are of the considered opinion that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the tractors and even admitting that in a contract of

sale unless a contrary intention appears, there is an implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the appellants and against the plaintiff-appellee who is the assignee of the promissory note and a holder of the same in due course. Warranty lies in this case only between Industrial Products Marketing and Consolidated Plywood Industries, Inc. The plaintiffappellant herein upon application by appellant corporation granted financing for the purchase of the questioned units of Fiat-Allis Crawler,Tractors. xxx xxx xxx Holding that breach of warranty if any, is not a defense available to appellants either to withdraw from the contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567, New Civil Code). We now come to the issue as to whether the plaintiff-appellee is a holder in due course of the promissory note. To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in financing and receivable discounting extending credit facilities to consumers and industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly authorized pursuant to R.A. 5980 otherwise known as the Financing Act. A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted or sold to the IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A") considering the following. it is in writing and signed by the maker; it contains an unconditional promise to pay a certain sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NIL); the promissory note was negotiated when it was transferred and delivered by IPM to the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the conditions that the note was complete and regular upon its face before the same was overdue and without notice, that it had been previously dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance Corporation held the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec. 57, NIL); the appellants engaged that they would pay the note according to its tenor, and admit the existence of the payee IPM and its capacity to endorse (Sec. 60, NIL). In view of the essential elements found in the questioned promissory note, We opine that the same is legally and conclusively enforceable against the defendantsappellants. WHEREFORE, finding the decision appealed from according to law and evidence, We find the appeal without merit and thus affirm the decision in toto. With costs against the appellants. (pp. 50-55, Rollo)

The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received by the petitioners on October 21, 1985. Hence, this petition was filed on the following grounds: I. ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER. II THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE. III. SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING. IV. THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE BECAUSE: A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW; B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLERASSIGNOR OF THE PROMISSORY NOTE. V. THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A SALE ON INSTALLMENTS TO A PURE LOAN. VI. THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR CANCELLED.

The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners' counterclaims before the court of origin. On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986, contended that the petition was filed out of time; that the promissory note is a negotiable instrument and respondent a holder in due course; that respondent is not liable for any breach of warranty; and finally, that the promissory note is admissible in evidence. The core issue herein is whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee. Preliminarily, it must be established at the outset that we consider the instant petition to have been filed on time because the petitioners' motion for reconsideration actually raised new issues. It cannot, therefore, be considered pro- formal. The petition is impressed with merit. First, there is no question that the seller-assignor breached its express 90-day warranty because the findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained by the records. The petitioner was clearly a victim of a warranty not honored by the maker. The Civil Code provides that: ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose; xxx xxx xxx

it likewise cannot be denied that as soon as the tractors broke down. and act accordingly. (Emphasis supplied) Going back to the core issue. Considering that paragraph (d). But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for adjudgement before taking extrajudicial steps to protect its interest. xxx xxx xxx ART. the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1.71). The power to rescind obligations is implied in reciprocal ones. It is patent then. 1566. However. 8. the party who deems the contract violated may consider it resolved or rescinded. must contain the so-called 'words of negotiable. . 1978 and every 15th of the month thereafter until fully paid. unilaterally rescinded its contract with the seller-assignor. Philippine Currency. about the breakdown based on the seller-assignor's express 90-day warranty. — The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. The pertinent portion of the note is as follows: FOR VALUE RECEIVED. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question. . These words serve as an expression of consent that the instrument may be transferred. the tractors became totally unserviceable and useless for the purpose for which they were purchased. must be payable to 'order' or 'bearer'. 1562. to be payable in 24 monthly installments starting July 15. the said principal sum. 1191. with damages in either case. De los Angeles (35 SCRA 102) we held: In other words. without previous court action.789. SEC. if the latter should become impossible. 1564. due to the seller-assignor's delay and its failure to comply with its warranty. 1565 and 1566.. having unilaterally and extrajudicially rescinded its contract with the sellerassignor. that the seller-assignor is liable for its breach of warranty against the petitioner. . the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price. The instrument in order to be considered negotiablility-i. we rule that the promissory note in question is not a negotiable instrument.093. AG & P. Thirdly. and the vendor was not aware of the hidden faults or defects in the thing sold. 1567. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even though he was not aware thereof. xxx xxx xxx ART. (Emphasis supplied). Article 2203). Articles 1191 and 1567 of the Civil Code provide that: ART.. He may also seek rescission. assuming the note is negotiable. (Emphasis supplied) Petitioner. in which case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against it. necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor sues it because of the rescission. . " it cannot be denied that the promissory note in question is not a negotiable instrument. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one.e. I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING. xxx xxx xxx When instrument is payable to order.. Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer. in case one of the obligors should not comply with what is incumbent upon him. Otherwise. the petitioner-corporation. WHEN PAYABLE TO ORDER. with which the latter complied by sending its mechanics. In the cases of articles 1561.ART. In the case of the University of the Philippines v. the petitioner-corporation notified the seller-assignor's sister company.. the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. . This provision shall not apply if the contrary has been stipulated. Secondly. xxx xxx xxx . The injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in either case. even after he has chosen fulfillment. but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. This liability as a general rule. thereafter.

and the respondent whereby the latter would pay the sellerassignor the entire purchase price and the seller-assignor. . Industrial Products Marketing. 27-29. to wit: ATTY. Lastly. which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith. Inc. the respondent. which is the respondent. it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. which is herein petitioner Consolidated Plywood Industries. one is an assignment of mortgage right and the other one is indorsement of the promissory note. PALACA: Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the promissory note which is as testified to by the witness was indorsed? (Counsel for Plaintiff nodding his head. there was an arrangement between the seller-assignor. xxx xxx xxx SEC. in turn. the records show that even the respondent itself admitted to being a mere assignee of the promissory note in question. The respondent knew that when the tractors turned out to be defective. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Notes and Selected Cases on Negotiable Instruments Law. Inc. which would justify its act of taking the promissory note as not amounting to bad faith. COURT: You confirm his manifestation? You are nodding your head? Do you confirm that? ATTY. February 13. page 38). The evidence presented in the instant case shows that prior to the sale on installment of the tractors. there was no need for the petitioner to implied the seller-assignor when it was sued by the respondent-assignee because the petitioner's defenses apply to both or either of either of them. it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners.These are the only two ways by which an instrument may be made payable to order. . the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional. the petitioner may raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing. Even assuming for the sake of argument that the promissory note is negotiable. ILAGAN: We stipulate it is one single transaction. There must always be a specified person named in the instrument. even conceding for purposes of discussion that the promissory note in question is a negotiable instrument. and that it was subject to the condition that the tractors sold were not defective.. Secondly. considering that the subject promissory note is not a negotiable instrument. you want to make a distinction. what is assigned are rights. Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it. A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note. Thus.) Then we have no further questions on cross. the respondent cannot be a holder in due course for a more significant reason. Actually. would assign its rights to the respondent which acquired the right to collect the price from the buyer. is not a holder in due course. As such. 1980). herein petitioner Consolidated Plywood Industries. the rights of the mortgagee were assigned to the IFC Leasing & Acceptance Corporation. "the instrument is payable only to the person designated therein and is therefore non-negotiable. Any other interpretation would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its incidents without being able to raise valid defenses available as against the assignor. TSN." (Campos and Campos. What counsel for defendants wants is that you stipulate that it is contained in one single transaction? ATTY. COURT: He puts it in a simple way as one-deed of sale and chattel mortgage were assigned. Therefore. the respondent failed to present any evidence to prove that it had no knowledge of any fact. . the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer.. the respondent is subject to all defenses which the petitioners may raise against the seller-assignor. A deed of sale is a transaction between two persons. 52. Third Edition. WHAT CONSTITUTES A HOLDER IN DUE COURSE. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. This being so. (pp. the seller-assignor which is the Industrial Products Marketing. (Emphasis supplied) Therefore. Without the words "or order" or"to the order of. — A holder in due course is a holder who has taken the instrument under the following conditions: xxx xxx xxx . and the assignee-financing company. ILAGAN: The Deed of Sale cannot be assigned.

When a finance company actively participates in a transaction of this type from its inception. . however. Third Edition. Orange Country Machine Works (34 Cal. We think the buyer-Mr. If this opinion imposes great burdens on finance companies it is a potent argument in favor of a rule which win afford public protection to the general buying public against unscrupulous dealers in personal property. Many times. . 1985. We note. The complaint against the petitioner before the trial court is DISMISSED. . . 1986. subrogating it to the right to collect the price from the buyer. 2d 766) involving similar facts. Industrial Products Marketing. 128). as well as its resolution dated October 17. are hereby ANNULLED and SET ASIDE. a negotiable instrument is subject to the same defenses as if it were non-negotiable. but would result in unjust enrichment on the part of both the assignerassignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an inequitable contract. (Mutual Finance Co. a finance company pays the full price and the note is indorsed to it. We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers. 44 ALR 2d 1 [1953]) (Campos and Campos. WHEREFORE. the decision of the respondent appellate court dated July 17. With the increasing frequency of installment buying in this country. 2d 649. . to wit: In installment sales. WHAT CONSTITUTES NOTICE OF DEFFECT. cannot be regarded as a holder in due course of said note. or knowledge of such facts that his action in taking the instrument amounts to bad faith. it was held that in a very real sense. in view of the foregoing. As against the argument that such a rule would seriously affect "a certain mode of transacting business adopted throughout the State. that since the sellerassignor has not been impleaded herein. there is no obstacle for the respondent to file a civil Suit and litigate its claims against the seller." a court in one case stated: It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies. — To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same. it is most probable that the tendency of the courts in the United States to protect the buyer against the finance company will . it cannot be regarded as a holder in due course of the note given in the transaction. therefore. p. the finance company was a moving force in the transaction from its very inception and acted as a party to it. . (Emphasis supplied) We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer.. Martin. with interest. SO ORDERED. the finance company will be subject to the defense of failure of consideration and cannot recover the purchase price from the buyer. the respondent. For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course. It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses that the petitioners have against the seller-assignor. Notes and Selected Cases on Negotiable Instruments Law. we find that both the trial and respondent appellate court erred in holding the promissory note in question to be negotiable. the person to whom it is negotiated must have had actual knowledge of the infirmity or defect. . the buyer usually issues a note payable to the seller to cover the purchase price. & Mrs. " Prescinding from the foregoing and setting aside other peripheral issues. 63 So. .. even assuming that the subject promissory note is negotiable. v. In the case of Commercial Credit Corporation v. a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors. General Public-should have some protection somewhere along the line. in pursuance of a previous arrangement with the seller.assignor in the rather unlikely possibility that it so desires.xxx xxx xxx (c) That he took it in good faith and for value (d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of deffect in the title of the person negotiating it xxx xxx xxx SEC. 56. In like manner. Such a ruling does not only violate the law and applicable jurisprudence.

Juana [3](Underscoring supplied). 1989 to the CSC.07%21. Binoya.Zingapan. 61. THE CIVIL SERVICE COMMISSION. JR.18%4.42%19. 101251. Martina 66.57%16. Ernesto T. Jose L. At the 2. .00%11. Wilhelmina de la P. Guillermo. Jaime C. Hence. Binoya. Napoleon 65.86% 7. private respondent Juana Banan (Rollo 17). 1989.84%13. 60. issued by respondent DARAB which revoked petitioner's permanent appointment as Municipal Agriculture Officer (MAO) and appointed. Banan filed a Motion for Reconsideration in which she pitted her qualifications against Sinon for the last slot in the 29 available MAO positions.88%23. 64.Zareno. Angel S. Florencio M. 65. Carlos G.39%28. Herminia C. Leonador.Sebastian.Callangan. who also affixed his signature on the same date.[ G. the reorganization of the MAF into the Department of Agriculture (the "DA") with the issuance of Executive Order No.01%21. Hilario S.94%12. 573 on November 22. 66.45%16. November 05. Vicente 76. in his stead. Isidro S. Danilo P. Gervacio.47% 27. Samuel O.50%6.Fiesta. 59. SINON. Pedro T. Napoleon 65. Benjamin 70. Cabana.39%28. respondent Banan filed an appeal with the DARAB for reevaluation of the qualifications of all those included in the aforementioned list made by the Placement Committee.99%18. Berlan.Aresta.Alvarez. 1989.66% [2](Underscoring supplied).47%27. Wilhemina de la P.04%7. the DARAB released Resolution No. 97 dated August 23.42%20. Pedro 67.Fiesta.18%29. 1990.Gervacio. Jose 61.Zareno. Pedro T.86%23. Benjamin 70.20%2. Vicente 76. Felicidad 61.Zingapan. Julian R. 61. 60. Ernesto T.67%29. No.01%3.Tambio.01%20. Bassig.52%25.99%19. Alice 74. 75. Alice 72. Tolentino. VS. Felicidad C. Berlan.64%9.13%8.Sebastian.73%5. 66. 61. RESPONDENTS. Rumpon. On August 23. Sinon. PETITIONER. Dominguez. 1988. De la Cruz. 61. Umbay. the Resolution dated 28 February 1989 of the DARAB was set aside. The list as prepared by the Placement Committee included the herein petitioner Sinon but excluded the respondent Banan: 1. 62. 1991 issued by the respondent CSC which denied petitioner's motion for the reconsideration of the respondent Commission's Resolution dated February 8.Soliman.50%6.Llopis. Cabana.76%25.32% Rosario. Llopis.. CAMPOS. Sinon received an appointment as MAO for Region II in Cagayan as approved by Regional Director Gumersindo D.00%11. 1991. Rodolfo 67. Sinon filed an appeal docketed as Civil Service Case No. 9. Resolution No. Umbay. Pedro 68.57%15. Pio P. Aquino.20% Felicisimo 65. Baliuag. Leonador.73%5. De la Cruz. Bassig. Bernardo 65.88%22.07%22. Somera.Alvarez.64% 10. Thus. Tolentino. Rumpon. Clemente 61.Guillermo.57%15. Herminia C. 2. Bernardo 61. Danilo P. 61. petitioner Sinon was displaced by the respondent Banan and this same resolution was duly approved by the Secretary of the Department of Agriculture.94%12. Lasam on the basis of the first evaluation made by the Placement Committee. and second. Cagayan. Guzman. Florencio M. DEPARTMENT OF AGRICULTURE-REORGANIZATION APPEALS BOARD AND JUANA BANAN. However. called for the evaluation of the following employees for the twenty nine positions of MAO in Region II. Benefranco . 62. Hilario S.86%24. Madrid. Pio P. 70.45%17. Baliuag. This appeal was granted mainly for two reasons: first. 116 dated 30 January 1987. Baggayan. Clemente 61. J. Aquino.29%17. 64.76%24.01%3.Callangan. Lino 61. 64. Samuel 64.[1] The antecedent facts are as follows: Prior to the reorganization of the then Ministry of Agriculture and Food (the "MAF"). 65.22%10.: This petition for certiorari seeks to annul the following Resolutions of the public respondents Civil Service Commission (the "CSC")* and Department of Agriculture Reorganization Appeals Board (the "DARAB").Soliman. Felicisimo 65.Madrid. Benefranco 64.61%14. Miguel. Lino 61. Agnes 69.29%18. 1991 issued by the respondent CSC affirming the aforementioned Resolution of respondent DARAB (Rollo 22). Isidro 75. Eliseo A.22% 67.R.18%4. Banan. 67. 97 in which the ranking for 29 MAO prepared by the Placement Committee was re-evaluated as follows: 1. Guzman.61%14.Thus.50%26.52%26. 66. Resolution dated July 11. 3. Rodolfo 67. while the petitioner Eliseo Sinon occupied the position of Fisheries Extension Specialist (FES) II in the Bureau of Fisheries and Aquatic Resources (BFAR) in the same region. 67. 70. on August 30. Somera. Leticia 60. Julian Jr. Angel 65.[4] On March 19.Miguel. Martina D. the respondent DARAB failed to file its Comment within the period required.13%8.** to wit: 1.Baggayan. In this re-evaluation. Resolution dated February 8. 68. 61. the private respondent Juana Banan was the incumbent Municipal Agricultural Officer (MAO) of the aforesaid Ministry in Region II. Agnes 70. the evaluation of the qualification of the employees is a question of fact which the appointing authority or the Placement Committee assisting him is in a better position to determine. However. Cagayan. 1992 ] ELISEO A. Tambio.84%13. 65.

Juana Banan earned 57.A. Thus. the CSC departed from its power which is limited only to that of "review". the decision of the DARAB in this case enjoys precedence over the Placement Committee. eligibility and other factors. it became imperative to "protect the security of tenure of Civil Service Officers and employees in the implementation of government reorganization". that employee association shall also have a representative in the Committee: Provided. relevant experience.66 while Ms. The arguments of the petitioner can be summed up as follows: 1). The Committee Shall consist of two (2) members appointed by the head of the department or agency. CSC. In order that the best qualified and most deserving persons shall be appointed in any reorganization.same time. she pointed out that to allow the findings of the Placement Committee to supercede the DARAB resolution which the Secretary of Agriculture had approved would be tantamount to giving precedence to the Placement Committee over the head of the agency. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. 1991. Under the Placement Committee's evaluation. 3). Mr.[5]Hence. the Court required the parties to file their respective Comments. a representative of the appointing authority. 6656. 2). and two (2) members duly elected by the employees holding positions in the first and second levels of the career service: Provided. Finally. Sinon garnered 60.[7] The main issue for Our consideration is this: whether or not the CSC committed grave abuse of discretion in reviewing and re-evaluating the rating or qualification of the petitioner Sinon. 1991. Congress passed Republic Act No. The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law.[10] It was under the same law of R. 573.We rule as follows. We disagree. Sinon 57. the CSC in effect revoked the appointment that the petitioner received as early as 30 August 1989 and which was deemed permanent by virtue of the approval of the Regional Director of the Department of Agriculture. Following the request of several parties for reevaluation. The decision of the agency RAB has the imprimatur of the Secretary of that agency and is therefore controlling in matters of appointment. Sinon filed Motion for Reconsideration of the February 8. Seemingly the findings of the two bodies are in conflict. On March 21. CSC was directing the appointment of a substitute of their own choice when the power to appoint was exclusively lodged in the appointing authority.66 while Ms.32% to private respondent from a rating of only 57. this petition was filed with a prayer for a writ of preliminary injunction. Banan obtained 59. the Court gave due course to the petition and required the parties to submit their respective Memoranda.[9] Contrary to the allegations of the petitioner. the CSC granted respondent Banan's Motion for Reconsideration and gave due course to her appointment by the DARAB. In giving petitioner a rating of only 57. 1987 and conferred with authority to review appeals and complaints of officials and employees affected by the reorganization.32 after assessing the contending parties qualification in education. The Placement Committee's function is recommendatory in nature. 6656 that the Placement Committee was created: Section 6. Without giving due course to the petition for a writ of preliminary injunction.[6] On 12 November 1992. Under this principle. that if there is a registered employee association with a majority of the employees as members. We do not find any evidence of grave abuse of discretion on the part of the CSC when it issued Resolution dated 8 February 1991 which in effect approved the appointment of respondent Banan over petitioner Sinon. after reviewing the Comment filed by the DARAB which had not been considered earlier in the Civil Service Case No. In issuing the Resolution of 8 February 1991. Sinon argues that the findings of the Placement Committee should prevail since it is specially mandated by RA 6656. as where the power is exercised in an arbitrary and despotic manner by reason of passion or hostility. Sinon strongly argued that the findings of the Placement Committee on the qualifications of the parties should be accorded deference and greater weight over that of the RAB. Mr.32. and/or restraining order to enjoin the execution of the assailed resolutions.66%. 116. on February 8. there shall be created a Placement Committee in each department or agency to assist the appointing authority in the judicious selection and placement of personnel. 1991. With the reorganization of the MAF into the DA with Executive Order No. According to the respondent CSC: Mr. the RAB in their decision gave Mr.32%. . 1991 Resolution which however was denied by the CSC in its assailed Resolution dated July 11.66% and at the same time according a rating of 59. or to act at all in contemplation of law. In giving due course to the appointment of respondent Banan in its Resolution of 8 February 1991. and hence encroached upon the power of appointment exclusively lodged in the appointing authority.[8] from his previous rating of 60. The agency's Reorganization Appeals Board was specially created by the Circular of the Office of the President dated October 2.

JOSIELEEN NAJARRO. the CSC is only being consistent with the law. No.[17] Neither do we find in the Resolution of 8 February 1991. the Secretary of Agriculture was the appointing authority.[14] In the case at bar. DOING BUSINESS UNDER THE NAME B.R.[18] Besides. the petition is DENIED with costs against the petitioner. efficiency. JOSE N. It involves the idea that another has the final decision. there was no directive from the CSC that may be misinterpreted as a usurpation of any appointing power. effectiveness and make it more responsive to the needs of its public clientele."[20] For as long as the CSC confines itself within the limits set out by law and does not encroach upon the prerogatives endowed to other authorities. Thus. Finally. these findings were re-evaluated and the report after such re-evaluation was submitted to and approved by the Secretary of Agriculture. OCCEÑA. while it is true that the appointment paper received by petitioner Sinon on 30 August 1989 for the position of MAO had not conferred any permanent status and was still subject to the following conditions attached to any appointment in the civil service: "Provided that there is no pending administrative case against the appointee. nor any decision by competent authority that will adversely affect the approval of the appointment.[19] There is no dispute that the position of MAO in the old staffing pattern is most comparable to the MAO in the new staffing pattern. he may further appeal within ten (10) days from the receipt thereof to the CSC. 86695. DOING BUSINESS UNDER THE NAME BEST BUILT CONSTRUCTION."[15] Hence. to "recommend"[13] is to present one's advice or choice as having one's approval or to represent or urge as advisable or expedient.[12] In contrast. Such application shall be considered by the committee in the placement and selection of personnel.further.E. the term incumbent officer and the privileges generally accorded to them would more aptly refer to Banan and not to petitioner Sinon whose appointment was never confirmed completely. the Solicitor General in behalf of the CSC correctly noted that the petitioner Sinon had conveniently omitted the then Secretary of Agriculture who had affixed his approval on the findings of the DARAB. [ G.[11] or to contribute effort in the complete accomplishment of an ultimate purpose intended to be effected by those engaged. to make it more viable in terms of the economy. (Underscoring ours). Hence. The truth is. It must be recalled that the whole purpose of reorganization is that it is a "process of restructuring the bureaucracy's organizational and functional set-up.[16] The fact that the DARAB is capable of re-evaluating the findings of the Placement Committee only to find that Sinon is not qualified should not be taken as a grave abuse of discretion. CONSTRUCTION. DOING BUSINESS UNDER . 1992 ] MARIA ELENA MALAGA. September 03. the Jurisprudence cited by the petitioner Sinon appears to be incorrect. that immediately upon the approval of the staffing pattern of the department or agency concerned. such staffing pattern shall be made known to all officers and employees of the agency who shall be invited to apply for any of the positions authorized therein. 1987 of the Office of the President created the agency Reorganization Appeals Board to address the problem of employees affected by the reorganizations. the Placement Committee was charged with the duty of exercising the same discretionary functions as the appointing authority in the judicious selection and placement of personnel when the law empowered it to "assist" the appointing authority. The CSC affirmed the findings of the DARAB. in affirming the appointment of Banan as recommended by the DARAB and approved by the Secretary of Agriculture. WHEREFORE. Because of all the foregoing circumstances. the Circular dated October 2. If the same employee is still not satisfied with the decision of the appointing authority. as authorized by law. The foregoing legal measures spell out the remedies of aggrieved parties which make it impossible to give the status of finality to any appointment until all protests or oppositions are duly heard. the petitioner cannot claim that he had been issued with a "complete" appointment. Neither is there any point in asserting that his appointment had "cured" whatever change was subsequently recommended by the DARAB. this Court must sustain the Commission. The same law also allows any officer or employee aggrieved by the appointments to file an appeal with the appointing authority who shall make a decision within thirty (30) days from the filing thereof.A. for as long as the re-evaluation of the qualifications filed by Banan was pending. Also. Petitioner Sinon knew fully well that as head of the agency. We cannot subscribe to petitioner Sinon's insistence that the public respondent CSC had disregarded the findings of the Placement Committee. To "assist" means to lend an aid to. any statement by the CSC directing the appointment of the respondent Banan. 6656 mandates that officers and employees holding permanent appointments shall be given preference for appointment to the new positions in the approved staffing pattern comparable to their former positions. Section 4 of R. Clearly. no pending protest against the appointment.

at 2 o'clock in the afternoon of December 12. AND THE ILOILO BUILDERS CORPORATION. PETITIONERS. 1988 bidding and the acceptance of their PRE-C1 documents. 26.[1] Petitioners Maria Elena Malaga and Josieleen Najarro. the trial court lifted the restraining order and denied the petition for preliminary injunction. which prohibits any court from issuing injunctions in cases involving infrastructure projects of the government. No Court in the Philippines shall have jurisdiction to issue any restraining order. underscoring supplied). after the bidding had been conducted and closed at eleven thirty in the morning of that date. 1818. 188. On January 2. 1988. Even if P.D. ALFREDO MATANGGA.E. or controversy involving an infrastructure project. In their opposition to the motion. 1988. Petitioner Jose Occeña submitted his own PRE-C1 on December 5. IAC. PENACHOS. or the operation of such public utility. or continuing the execution or implementation of any such project. however. On the same date. As a result. the defendants be directed not to award the project pending resolution of their complaint. preliminary injunctions and preliminary mandatory injunctions by P. 1988. fishery. or a mining. or pursuing any lawful activity necessary for such execution. RESPONDENTS. not one tainted with anomalies like the project at bar. the petition for the issuance of a writ of preliminary injunction would still fail because the sheriff's return showed that PBAC was served a .[2] On December 16. AND HON. 28.BENIGNO PANISTANTE. ENRICO TICAR AND TERESITA VILLANUEVA. use the mandatory provisions of the decree to avoid the consequences of their misdeeds (p. 1988. and who. to prohibit any person or persons.D. and that the bids would be received and opened on December 12. MANUEL R. It declared that the building sought to be constructed at the ISCOF was an infrastructure project of the government falling within the coverage of P.[3] where the Court allowed the issuance of a writ of preliminary injunction despite a similar prohibition found in P.D.: This controversy involves the extent and applicability of P. AS WELL AS IN THEIR RESPECTIVE PERSONAL CAPACITIES. and were unable to participate in the scheduled bidding. Lebaquin issued a restraining order prohibiting PBAC from conducting the bidding and awarding the project. Construction and Best Built Construction. stevedoring and arrastre contracts.1818 were applicable. LEBAQUIN. they were not included in the list of pre-qualified bidders. 385.D. vs. the prohibition presumed a valid and legal government project. preliminary injunction. CRUZ. 1818. They also asked that if the bidding had already been conducted. the PBAC refused without just cause to accept them. having been submitted after the cut-off time of ten o'clock in the morning of December 2. 1989. OCCEÑA. dispute.THE NAME THE FIRM OF JOSE N. pointing out that while ISCOF was a state college. at 3 o'clock in the afternoon. including among others public utilities for the transport of the goods or commodities. 1818. the plaintiffs argued against the applicability of P. Bids and Awards Committee (henceforth PBAC) caused the publication in the November 25. On December 12. P. IN THEIR RESPECTIVE CAPACITIES AS CHAIRMAN AND MEMBERS OF THE PREQUALIFICATION BIDS AND AWARDS COMMITTEE (PBAC) . JR. The facts are not disputed. 1988. The movants also contended that the question of the propriety of a preliminary injunction had become moot and academic because the restraining order was received late. implementation or operation. 1988 issues of the Western Visayas Daily an Invitation to Bid for the construction of a Micro Laboratory Building at ISCOF. IN HIS CAPACITY AS PRESIDENT OF ILOILO STATE COLLEGE OF FISHERIES. They also cited Filipinas Marble Corp. is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification. 1818. The notice announced that the last day for the submission of pre-qualification requirements (PRE C-1)* was December 2. could not secure the needed plans and other documents.D. or any public utility operated by the government. respectively doing business under the name of B. Even if it were not. submitted their prequalification documents at two o'clock in the afternoon of December 2. 1988. The decree reads pertinently as follows: Section 1. forest or other natural resource development project of the government. VS. it had its own charter and separate existence and was not part of the national government or of any local political subdivision. entity or government official from proceeding with. or preliminary mandatory injunction in any case. 1988. they sought the resetting of the December 12.D. All three of them were not allowed to participate in the bidding because their documents were considered late. The Court therein stated that: The government. The plaintiffs claimed that although they had submitted their PRE-C1 on time. In their prayer.D. J. the defendants filed a motion to lift the restraining order on the ground that the court was prohibited from issuing restraining orders. after ruining it. the petitioners filed a complaint with the Regional Trial Court of Iloilo against the chairman and members of PBAC in their official and personal capacities. 385 was never meant to protect officials of government-lending institutions who take over the management of a borrower corporation. 1988.. LODRIGIO L. lead that corporation to bankruptcy through mismanagement or misappropriation of its funds. Judge Lodrigio L.

1988. the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein were left blank.m. It is also stressed again that the prohibition under P. At any rate. administering special funds. for the purpose of inviting bidders to participate. (iii) to prevent collusion between a bidder and the PBAC. which discovered that the contractors had expired licenses. issued a mimeographed "Invitation to Bid" form. Furthermore.D. yet it was held at 10:00 o'clock in the morning. it should be considered a government institution whose infrastructure project is covered by P. 1988.D.E. it is reiterated that P. 1988 without indicating any time. B. specifications and proposal book forms should be made thirty days before the date of bidding.copy of the restraining order after the bidding sought to be restrained had already been held. 1988. and Best Built were received although filed late and were reviewed by the Award Committee. usually through a charter.'s temporary certificate of Renewal of Contractor's License was valid only until September 30. (ii) for PBAC to have a uniform basis for evaluating the bids. and not at the latest on November 12. which by law (P. the private respondents aver that the documents of B. while Best Built's license was valid only up to June 30. vested with special functions or jurisdiction by law. their pre-qualification documents which were admitted but stamped "submitted late. and government-owned or controlled corporations. 1988. 1988. who was not a party to the case.[5] And although the project in question was a "Construction. Exh. and Best Built file through their common representative. to wit: 1. B. 1988 at 3:00 p. The ISCOF president was not an indispensable party because the signing of the award was merely a ministerial function which he could perform only upon the recommendation of the Award Committee. the members of the PBAC could not be restrained from awarding the project because the authority to do so was lodged in the President of the ISCOF. chartered institutions.D. B-1) is to contain the particulars of the project subject of bidding for the purposes of (i) enabling bidders to make an intelligent and accurate bids. In the petitioners' Reply." the private respondents used an Invitation to Bid form for "Materials. and the disqualification became final on December 6. The time and date of bidding was published as December 12. This term includes regulatory agencies. At two o'clock in the afternoon.[7] They point out that these forms were issued only on December 2. not integrated within the department framework. 1988. 1818. The invitation to bid as published fixed the deadline of submission of prequalification document on December 2. 1988. As of ten o'clock in the morning of December 2. the issuance of plans."[6] The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot and academic because even if the bids had been opened before the restraining order was issued.E. Additionally. endowed with some if not all corporate powers.D. 1818 does not cover the ISCOF because of its separate and distinct corporate personality. The same Code describes a chartered institution thus: . Private respondents. they cannot now come to this Court to question the bidding proper in which they had not participated. the PBAC already refused to accept petitioners' documents. It finds for the petitioners. and enjoying operational autonomy." The petitioners were informed of their disqualification on the same date. 1818 could not apply to the present controversy because the project was vitiated with irregularities. 1988. 2 (5) Introductory Provisions). 1523 and since the operations and maintenance of the ISCOF are provided for in the General Appropriations Law. (Sec. In their Rejoinder. the private respondents insist that PBAC posted on the ISCOF bulletin board an announcement that the deadline for the submission of pre-qualification documents was at 10 o'clock of December 2. Having failed to take immediate action to compel PBAC to pre-qualify them despite their notice of disqualification. In their Comment. the project itself had not yet been awarded. 2. by opening to all the particulars of a project. 1594 and Implementing Rules. Regarding the schedule for pre-qualification. 3. The 1987 Administrative Code defines a government instrumentality as follows: Instrumentality refers to any agency of the National Government. the beginning of the 30-day period prior to the scheduled bidding. the private respondents maintain that since the members of the board of trustees of the ISCOF are all government officials under Section 7 of P.E. B.[4] In the petition now before us. The Court has considered the arguments of the parties in light of their testimonial and documentary evidence and the applicable laws and jurisprudence. Construction and Best Built Construction had filed only their letters of intent. Nenette Garuello.E. and the opening of bids would be held at 1 o'clock in the afternoon of December 12. they raise as an additional irregularity the violation of the rule that where the estimated project cost is from P1M to P5M.D. the complaint had already been duly amended to include him as a party defendant. yet after 10:00 o'clock of the given date.

It was there declared that the prohibition pertained to the issuance of injunctions or restraining orders by courts against administrative acts in controversies involving facts or the exercise of discretion in technical cases. that on issues definitely outside of this dimension and involving questions of law. 1988. 1818 was patterned. This schedule was changed and a notice of such change was merely posted at the ISCOF bulletin board. There are also indications in its charter that ISCOF is a government instrumentality.refers to any agency organized or operating under a special charter.[12] Second. non-compliance with the requirement will. or only ten days before the bidding scheduled for December 12. While it may be true that there were fourteen contractors who were pre-qualified despite the change in schedule. First. This term includes the state universities and colleges. or supplies and even the services of such employees as can be spared without serious detriment to public service. 605. PBAC has not denied that these forms were issued only on December 2. heads of bureaus and offices of the National Government are authorized to loan or transfer to it.[8] Nevertheless. such apparatus. collusion and fraud in the award of these contracts to the detriment of the public. vs. it was created in pursuance of the integrated fisheries development policy of the State.5M had been appropriated out of the funds of the National Treasury and it was also decreed in its charter that the funds and maintenance of the state college would henceforth be included in the General Appropriations Law. courts could not be prevented by P. 1594. PBAC shall provide prospective bidders with the Notice to Pre-qualification and other relevant information regarding the proposed work.[10] PBAC advertised the pre-qualification deadline as December 2. Lastly. the petitioners were disqualified because they failed to meet the new deadline and not because of their expired licenses. 1988. Prospective contractors shall be required to file their ARC-Contractors Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-qualification Statement for the Project (prior to the amendment of the rules. It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P. an additional amount of P1. Third. and vested by law with functions relating to specific constitutional policies or objectives. At the very latest. This purpose was defeated by the irregularities committed by PBAC. prescribing policies and guidelines for government infrastructure contracts. There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award of the project. Notably. render the same void and of no effect.[11] The fact that an invitation for bids has been communicated to a number of possible bidders is not necessarily sufficient to establish compliance with the requirements of the law if it is shown that other possible bidders have not been similarly notified. Justice Teodoro Padilla made it clear. The notice advanced the cutoff time for the submission of pre-qualification documents to 10 o'clock in the morning of December 2. (Sec. . In the case of Datiles and Co. as a general rule.D. PBAC should have issued them on November 12. 1988. 605 from exercising their power to restrain or prohibit administrative acts.D. PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these deadlines without prior notice to prospective participants. PBAC was required to issue to pre-qualified applicants the plans. First. 1988. it does not automatically follow that ISCOF is covered by the prohibition in the said decree. 1988.Chartered institution . upon request of the president of the state college. No. 1818. The purpose of the rules implementing P. Second.D. the law after which P. What is involved here is non-compliance with the procedural rules on bidding which required strict observance.** We have held that where the law requires a previous advertisement before government contracts can be awarded. We see no reason why the above ruling should not apply to P.[9] this Court interpreted a similar prohibition contained in P. Invitations to Bid shall be advertised for at least three times within a reasonable period but in no case less than two weeks in at least two newspapers of general circulations. without stating the hour thereof. The Court observed that to allow the courts to judge these matters would disturb the smooth functioning of the administrative machinery. a priority program of the government to effect the socio-economic life of the nation. however. It is apparent that the present controversy did not arise from the discretionary acts of the administrative body nor does it involve merely technical matters. after which date no PRE-C2 shall be submitted and received. The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC meeting held on December 6. 2 (12) Introductory Provisions).D. 1988. 1988. Under the Rules Implementing P.D. and the monetary authority of the state. 1818. the Treasurer of the Republic of the Philippines shall also be the exofficio Treasurer of the state college with its accounts and expenses to be audited by the Commission on Audit or its duly authorized representative. specifications and proposal book forms for the project to be bid thirty days before the date of bidding if the estimated project cost was between P1M and P5M. 1594 is to secure competitive bidding and to prevent favoritism. this was referred to as Pre-C1) not later than the deadline set in the published Invitation to Bid. this fact did not cure the defect of the irregular notice. and announced that the opening of bids would be at 3 o'clock in the afternoon of December 12. or 30 days before the scheduled bidding. and the opening of bids to 1 o'clock in the afternoon of December 12. Sucaldito. 1988. equipment.D.D.

Construction and Best Built Construction.. It was not because of their expired licenses. judgment is hereby rendered: a) upholding the restraining order dated December 12. to each pay separately to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages of P10. including the irregularities in the announcement of the bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of the restraining order and before they moved to lift such order. compensatory damage may not be awarded to them. 1988. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption. recognized. INC. defendant-appellant." This fait accompli has made the petition for a writ of preliminary injunction moot and academic. Enrico Ticar. Occeña Builders. they are liable in nominal damages at least in accordance with Article 2221 of the Civil Code. Moreover. vs.D. Costs against PBAC. Jr. L-18103 June 8. 1818. plaintiff-appellee. b) ordering the chairman and the members of the PBAC board of trustees. and the party to whom it is awarded cannot benefit from it. which states: Art. as private respondents now claim. No. however. G. J.00 each.: .It has been held that the three principles in public bidding are the offer to the public. liability shall attach only to the private respondents for the prejudice sustained by the petitioners as a result of the anomalies described above. and Best Built. or whoever among them is still incumbent therein. As there is no evidence of the actual loss suffered by the petitioners.E. and c) removing the said chairman and members from the PBAC board of trustees. or three days after the deadline. thus defeating the guaranty that contractors be placed on equal footing when they submit their bids. SO ORDERED.R. to be paid separately for each of petitioners B. Moral damages do not appear to be due either. Manuel R. and Teresita Villanueva.D. which has been violated or invaded by the defendant may be vindicated or. For such questionable acts. Hence. were not issued on time. Even so. 1988. Let a copy of this decision be sent to the Office of the Ombudsman. the plans and specifications which are the contractors' guide to an intelligent bid. It has been held in a long line of cases that a contract granted without the competitive bidding required by law is void. it was the lack of proper notice regarding the pre-qualification requirement and the bidding that caused the elimination of petitioners B. the challenged restraining order was not improperly issued by the respondent judge and the writ of preliminary injunction should not have been denied. for their malfeasance in office. WHEREFORE. that the subject project has already been "100% completed as to the Engineering Standard. an opportunity for competition and a basis for exact comparison of bids. P. Penachos. as not covered by the prohibition in P.[13] In the case at bar. The other petitioner. 1818 was not intended to shield from judicial scrutiny irregularites committed by administrative agencies such as the anomalies above described. Alfredo Matangga. 2221. Hence.MANILA OIL REFINING & BYPRODUCTS COMPANY. Nominal damages are adjudicated in order that a right of the plaintiff. We note from Annex Q of the private respondent's memorandum. The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of the plans and specifications that are to be the subject of their bids.00 each. We come now to the liabilities of the private respondents. These damages are to be assessed against the private respondents in the amount of P10.000. 1922 PHILIPPINE NATIONAL BANK..[14] It has not been shown that the irregularities committed by PBAC were induced by or participated in by any of the contractors. and not for the purpose of indemnifying the plaintiff for any loss suffered by him. is not entitled to relief because it admittedly submitted its pre-qualification documents on December 5.MALCOLM.000. namely. the Court cannot close its eyes to the evident bad faith that characterized the conduct of the private respondents.E.

Moreover. The attorney for the appellee contends that the Negotiable Instruments Law (Act No. and their memoranda have proved highly useful in the solution of the question. It is to the credit of the bar that although the sanction of judgement notes in the Philippines might prove of immediate value to clients. On May 8. rights to inquisition. and attorney's fees. from levy or sale. the provisions of the Code of Civil Procedure pertaining to counter claims argue against judgment notes.) RAFAEL LOPEZ. the advice of prominent attorneys-at-law with banking connections.000. 97. 96. These members of the bar responded promptly to the request of the court. . Later. The Philippine National Bank brought action in the Court of First Instance of Manila. and appeal.. he cannot afterwards maintain an action against the plaintiff therefor. and to the benefit of all laws exempting property. P. The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint. constitutes another indication of fundamental legal purposes.Treasurer The Manila Oil Refining and By-Products Company. in section 5. the manager and the treasurer of the Manila Oil Refining & ByProducts Company. to recover P61. failed to pay the promissory note on demand. INC.. and filed a motion confessing judgment. Inc. (Secs. with interest. objected strongly to the unsolicited representation of attorney Recto. because it is a portion of a uniform law which merely provides that. and to hereby authorize any attorney in the Philippine Islands. with the result that out of their independent investigations has come a practically unanimous protest against the recognition in this jurisdiction of judgment notes. in reality. contemplate that all defendants shall have an opportunity to be heard. 95. the one a judgment by cognovit actionem. The foregoing facts. 1920. No. Manager. (b) Authorizes a confession of judgment if the instrument be not paid at maturity.00 MANILA. Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal. together with interest and costs. On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank. On the contrary..000. the same section of the Negotiable Instruments.. Without defalcation. provides that "The negotiable character of an instrument otherwise negotiable is not affected by a provision which ". The practice of entering judgments in debt on warrants of attorney is of ancient origin. entered his appearance in representation of the defendant. has its advantages for it permits us to reach that solution which is best grounded in the solid principles of the law.1 Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a confession of judgment commonly called a judgment note. the amount of the note. such clauses shall not affect the negotiable character of the instrument. and that they are enforcible under the regular procedure. ____ Due ____ MANILA OIL REFINING & BY-PRODUCTS CO. Rector. and which will best advance the public interest. MANILA OIL REFINING & BY-PRODUCTS CO. executed and delivered to the Philippine National Bank. (Sgd. a written instrument reading as follows: RENEWAL. P61.) At least one provision of the substantive law. The Negotiable Instruments Law. Mr. Manila. and the other by confession . the provisions of the Code of Civil Procedure. especially as the Code provides that in case the defendant or his assignee omits to set up a counterclaim.The question of first impression raised in this case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity. costs. The defendant. 1920. In view of the importance of the subject to the business community. in jurisdiction where judgment notes are recognized. and all property exceptions.I.. 1356). that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (Civil Code. in case this note be not paid at maturity. and waives all errors. there were two kinds of judgments by confession. 2031) expressly recognizes judgment notes. in relation to constitutional safeguards relating to the right to take a man's property only after a day in court and after due process of law.I." The court is thus put in the position of having to determine the validity in the absence of statute of a provision in a note authorizing an attorney to appear and confess judgment against the maker.) VICENTE SOTELO. raise squarely the question which was suggested in the beginning of this opinion. every one of the attorneys has looked upon the matter in a big way. (Sgd. the maker authorizes any attorney to appear and confess judgment thereon for the principal amount. and when this was overruled. Value received. however. This situation. P. namely. was solicited.. in a sworn declaration. a release of all errors and waiver of all rights to inquisition and appeal. Further. At common law. Elias N. INC. however. presented an answer. . real or personal. an attorney associated with the Philippine National Bank. value received. In the course of time a warrant of attorney to confess judgement became a familiar common law security. Inc. that this provision of law can be taken to sanction judgments by confession. to appear in my name and confess judgment for the above sum with interest. art. May 8. and appellant's three assignments of error. cost of suit and attorney's fees of ten (10) per cent for collection. attorney Antonio Gonzalez appeared for the defendant and filed a demurrer." We do not believe.

The principle has also been applied to a stipulation in a contract that a party who breaks it may not be sued. Such agreements are iniquitous to the uttermost and should be promptly condemned by the courts. without antecedent process. S.. White ([1909]. to an agreement designating a person to be sued for its breach who is nowise liable and prohibiting action against any but him.. and if not.E. From what has been said. as it was by the common law. 36. St. xxx xxx xxx Again. and their bona fides often questioned. The instrument before us. through counsel. 645) a party to a written instrument of this character has the right to show a failure of consideration. 65.. entered the appearance of the defendant. and other rights. The Supreme Court of Missouri. W. Plaintiff filed a petition in the Circuit Court to which was attached the abovementioned instrument. xxx xxx xxx And if this instrument be considered as security for a debt. or elsewhere. until such time as they may receive express statutory recognition. In some courts.. Limited. 640). 120 S. with interest at the rate therein mentioned and the costs of suit.relicta verificatione. Va. while still other jurisdictions have refused to sanction them. any agreement as to the time for suing different from time allowed by the statute of limitations within which suit shall be brought or the right to sue be barred is held void. St. In some States. or writs of error thereon. actually reduces the courts to mere clerks to enter and record the judgment called for therein. Thus it is held that any stipulation between parties to a contract distinguishing between the different courts of the country is contrary to public policy. Possibly the leading case on the subject is First National Bank of Kansas City vs. This contract. 220 Mo. but this right is brushed to the wind by this instrument and the jurisdiction of the court to hear that controversy is by the whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced. is void as against the public policy of the state. we come to a question urged which goes to the very root of this case. to waive the issuing and service of process. Cas. Dehaven ([1912]. and consented that judgement be rendered in favor of the plaintiff as prayed in the petition. in so far as it goes beyond the usual provisions of a note. to a provision in a lease that the landlord shall have the right to take immediate judgment against the tenant in case of a default on his part. they have often been viewed with suspicion. without giving the notice and demand for possession and filing the complaint required by statute. Rep. [N. and to confess judgement in favor of the First National Bank of Kansas City for the amount that might then be due thereon. xxx xxx xxx We shall not pursue this question further. 1990. The record in this case discloses that on October 4. 16 Ann. under the law the right to appeal to this court or some other appellate court is granted to all persons against whom an adverse judgment is rendered. sec. as such public policy is found expressed in our laws and decisions. In the absence of statute. is another well-considered authority. 70 W.]. we do not feel that the case should be disposed of without discussing and passing upon that question. Cas. True it is that such right is not claimed in this case. The policy of our law has been against such hidden securities for debt. and to many other agreements of a similar tendency. homestead and exemption rights real and personal. and also the following material provision: "And we do hereby empower and authorize the said A. the defendant executed and delivered to the plaintiff an obligation in which the defendant authorized any attorney-at-law to appear for him in an action on the note at any time after the note became due in any court of record in the State of Missouri. 612). Courts guard with jealous eye any contract innovations upon their jurisdiction. unless authorized by statute. The field for fraud is too far enlarged by such an instrument. Oppression and tyranny would follow the footsteps of such a diversion in the way of security for debt. After the Circuit Court had entered a judgement. Nor do we thing that the policy of our law is such as to thus place a debtor in the absolute power of his creditor. and the judgement is reversed.R. B. statutes have been passed which have either expressly authorized confession of judgment on warrant of attorney. considered in the light of a contract. together with an attorney's fee of 10 per cent and also to waive and release all errors in said proceedings and judgment.A. as against public policy. or any prothonotary or attorney of any Court of . to a by-law of a benefit association that the decisions of its officers on claim shall be final and conclusive. as they have in some states. An attorney named Denham appeared pursuant to the authority given by the note sued on. [1914-A]. and whilst new and novel in this state. in part said: But going beyond the mere technical question in our preceding paragraph discussed. Ann.. 956. The notes referred to in the record contained waiver of presentment and protest. warrants of attorney to confess judgment are void. The case of Farquhar and Co. vs. 889. 1899. Our Recorder's Act is such that instruments intended as security for debt should find a place in the public records. A number of jurisdictions in the United States have accepted the common law view of judgments by confession. and all proceedings. The weight of opinion is that. speaking through Mr. there is a conflict of authority as to the validity of a warrant of attorney for the confession of judgement. it follows that the Circuit Court never had jurisdiction of the defendant. appeals. or have forbidden judgments of this character. Justice Graves. 738. By our statute (Rev. appeared specially and filed a motion to set it aside. 40 L. Farquhar Co. and this statutory right is by the instrument stricken down. 717. 132 Am. but it is a part of the bond and we hardly know why this pound of flesh has not been demanded. Such instruments procured by duress could shortly be placed in judgment in a foreign court and much distress result therefrom. or agent. the defendants.. it has never so found recognition in this state. 75 S.

White. The recognition of such a form of obligation would bring about a complete reorganization of commercial customs and practices. it is for the Legislature to so announce. xxx xxx xxx 889.A. We have no statutes. qui facit per alium. 640.. Strong reasons exist. Judgments by confession as appeared at common law were considered an amicable. 738. In one sense. are examples of such holding. They also save the time and money of the litigants and the government the expenses that a long litigation entails. as we have shown.. with reference to short-term obligations. It is pertinent to remark in this connection. S. we think. we must have recourse to the rules and principles of the common law. instruments of this character may be considered as special agreements. On the other hand. with all proper safeguards thrown around it. strong evidence. Rep. if at all. Dahaven. 65. binding the parties to the result as they themselves viewed it. in force at the time of the separation. have never been in very general use in this commonwealth.].. 16 Ann. as declared by its laws. and because the effect of the instrument is to strike down the right of appeal accorded by statute. Baker ([1919]. It can readily be seen that judgement notes. and to subject the people to wrongs and injuries not heretofore contemplated. that the old legal maxim.. and confess judgement. 70 W. [N. and to such judicial decisions and practices in Virginia. and cheap way to settle and secure debts. 180 Pac. 36. B. 220 Mo. [1914 A]. Cas. vs. it may be said that they are based on the practice of the English-American common law. regulating the subject. for denying its application. 612. that our cognovit statute does not cover the same field as that occupied by the common-law practice of taking judgments upon warrant of attorney. The policy of our law is. A case typical of those authorities which lend support to judgment notes is First National Bank of Las Cruces vs. 120 S.Record to appear for us and in our name to confess judgement against us and in favor of said A. Limited. because under these instruments the promissor bargains away his right to a day in court. because they enlarge the field for fraud. on consideration of the validity of the judgment note above described. that after nearly fifty years of judicial history this question. and does not impliedly or otherwise abrogate such practice. that such notes. Farquhar Co. in a per curiam decision. and authorizes a confession of judgment in any court of competent jurisdiction in an action to be brought upon said note. 717. 291). Such warrants of attorney are void as against public policy. This we are unwilling to do. in part. and that the doctrines of the common law are binding upon Philippine courts only in so far as they are founded on sound principles applicable to local conditions. however. defendant having had no day in court or opportunity to be heard." The Supreme Court of West Virginia. facit per se.. Va.E. we think. 40 L.) By just what course of reasoning it can be said by the courts that such judgments are against public policy we are unable to understand. 956. Ann. And in most states where they are current the use of them has grown up under statutes authorizing them. It strengthens his credit. authorize another to appear in court. 75 S. in part said: As both sides agree the question presented is one of first impression in this State. it may be said in their favor that it frequently enables a debtor to obtain money which he could by no possibility otherwise obtain. in force here. is as applicable here as in other cases. We are aware that the argument against them is that they enable the unconscionable creditor to take advantage of the necessities of the poor debtor and cut him off from his ordinary day in court. and may be most highly beneficial to him at times. If the practice is adopted into this state it ought to be. With reference to the conclusiveness of the decisions here mentioned. as are properly binding on us. We do not think so. It was a practice from time immemorial at common law. St. To give currency to such paper by judicial pronouncement would be to open the door to fraud and imposition. with power to enter up judgments on them.. and to our statute law. If conditions have arisen in this country which make the application of the common law undesirable. The Supreme Court of New Mexico. by proper power of attorney duly executed. Justice Miller. Cas. that no man shall suffer judgment at the hands of our courts without proper process and a day to be heard. said: In some of the states the judgments upon warrants of attorney are condemned as being against public policy. speaking through Mr. Such paper has heretofore had little if any currency here. We need not say in this case that a debtor may not. Our conclusion in this case is that a warrant of attorney given as security to a creditor accompanying a promissory note confers a valid power. are disadvantages to the commercial world which outweigh the considerations just mentioned. and by proper endorsement upon the writ waive service of process. easy. In the decision we are called upon to render. and regulating the practice of employing them in commercial transactions. and the common law comes down to us sanctioned as justified by the reason and experience of English-speaking peoples. But we do not wish to be understood as approving or intending to countenance the practice employing in this state commercial paper of the character here involved.R. to prevent fraud and imposition. In some of the states there judgments have been condemned by statute and of course in that case are not allowed. 132 Am. They are a quick remedy and serve to save the court's time. On the other hand. instead of resulting to the advantage of commercial life in the . applicable. It is contended. when holders of contracts of this character seek the aid of the courts and of their execution process to enforce them. as has Pennsylvania and many other states.. and First National Bank of Kansas City vs. W.. by act of the Legislature. and that the practice of taking judgments upon warrants of attorney as it was pursued in this case is not against any public policy of the state. for the above named sum with costs of suit and release of all errors and without stay of execution after the maturity of this note. and to prohibit the taking of judgments can be declared as against the public policy of the state. (Farquhar and Co.

vs. and make the courts involuntary parties thereto.Philippines might be the source of abuse and oppression. Without special finding as to costs in this instance. We are further of the opinion that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction. it is so ordered. G. We are of the opinion that warrants of attorney to confess judgment are not authorized nor contemplated by our law. J. NELL CO. If the bank has a meritorious case. 1988 EQUITABLE BANKING CORPORATION.THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. No. The judgment appealed from is set aside.. and the case is remanded to the lower court for further proceedings in accordance with this decision.R. MELENCIO-HERRERA. respondents. petitioner. 74451 May 25.: . the judgement is ultimately certain in the courts.

Javier agreed to have the skidders paid by way of a domestic letter of credit which defendant Casals promised to open in plaintiffs favor. 0051 and dated December 22. the Court finds that sometime in 1975 defendant Liberato Casals went to plaintiff Edward J.000. Plaintiff paid the shipping cost in the amount of P10. However. NELL CO. emanated from the case entitled "Edward J. 1976.In this Petition for Review on certiorari petitioner. on August 5. or ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of shipment. prays that the adverse judgment against it rendered by respondent Appellate Court. at first installment will be due one hundred eighty (180) days after date of shipment.00 because of the verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be opened..00 SHIPMENT: We will inform you the date and name of the vessel as soon as arranged. Defendant Casals represented himself as the majority stockholder. dock Manila P485.000. as summarized by the Trial Court and adopted by reference by Respondent Appellate Court. and its majority Resolution.000. to clear the title of the Estrada property belonging to defendant Casals which had been approved as security for the trust receipts to be issued by the bank. When Javier asked for cash payment for the skidders. through its president. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett . Accordingly. 1976. procurement and processing of logs and lumber products. which was followed by another check of same date. Casville Enterprises.B. plaintiff issued a check in the amount of P400. Accordingly. defendant Casals handed to plaintiff a check in the amount of P300.00 postdated August 4. Amado Claustro that he was interested in buying one of the plaintiff's garrett skidders. defendants Casals and Casville requested from plaintiff the delivery of one (1) unit of the bidders. Liberato V. xxx xxx xxx On July 15. president and general manager of Casville Enterprises. 1976 (Exhibit "C"). Apolonio Javier. 25112).1976. ordered from plaintiff two units of garrett skidders . 1975. 1976. Interest-14% per annum (Exhibit A) xxx xxx xxx . Casals. Apparently.1976..00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an additional amount of P100. April 24. with the information that an irrevocable Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30. complete with tools and cables. on board a Lorenzo shipping vessel. which had a plywood plant in Sta. Ana. the defendants said that they would need the sum of P300.. Inc. Plaintiff was a dealer of machineries. he was referred to plaintiffs executive vice-president. covering the abovementioned equipment. had a credit line with defendant Equitable Banking Corporation. 1 dated 4 October 1985. The facts pertinent to this Petition. vs. 1976.. and read: From the evidence submitted by the parties. plaintiff shipped to Cagayan de Oro City a Garrett skidder.00. defendant Casville. Equitable Banking Corporation.000. for negotiation in connection with the manner of payment. also in favor of Equitable Banking Corporation.000. on or before Saturday. Inc. defendant Casals. 2 be annulled and set aside. a firm engaged in the large scale production. TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. 1976 under the terms and conditions agreed upon (Exhibit "B") On May 3.00 (Exhibit "2") drawn against the First National City Bank and made payable to the order of Equitable Banking Corporation and with the following notation or memorandum: a/c of Casville Enterprises Inc. Although the marginal deposit was supposed to be produced by defendant Casville Enterprises. in a letter dated April 21. denying petitioner's Motion for Reconsideration. defendants Casville informed the plaintiff that their application for a letter of credit for the payment of the Garrett skidders had been approved by the Equitable Banking Corporation. Metro Manila. on December 22. defendant Casville Enterprises.. Inc.00/unit For two (2) units P970. and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. Plaintiff considered these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro or as reimbursement for the marginal deposit that plaintiff was supposed to pay. impressed with this assertion.000. 1975 (Exhibit "A") contained the following terms and conditions: Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin PRICE: F. defendant Casals informed him that his corporation. The purchase order for the garrett skidders bearing No..640.. Nell Co. in compliance with defendant Casvile's recognition request. In a letter dated August 3. dated 28 April 1986. to Cagayan de Oro. After defendant Casals talked with plaintiff's sales engineer. equipment and supplies. Nell Company and told its senior sales engineer. plaintiff agreed to advance the necessary amount in order to facilitate the transaction.O. in lieu of cash payment.

300. as partial satisfaction of plaintiff's claim against them. and Ashville f) Other terms and conditions that our bank may impose.000." Defendant Casville also stated that the three (3) enclosed postdated checks were intended as replacement of the checks that were previously issued to plaintiff to secure the sum of P427.00 (Exhibit "H"). On the same occasion. While the the instant case was being tried. In said letter. INC.300. b) One 36 months Letter of Credit for P606. 1976.00" and that the check covering said amount should be made payable "to the Order of EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc. plaintiffs credit and collection manager. P181. "G" and "H") in the total amount of P427. accompanied by a representative of defendant Casville. plaintiff became apprehensive and sent Umali on November 29. to inquire about the status of the application for the letters of credit. plaintiff discovered that the three checks (Exhibits "F. plaintiff was informed of the requirements imposed by the defendant bank pointing out that the "cash marginal required under paragraph (c) is 30% of Pl. executive vice president of defendant bank..300. under the following terms and conditions: a) On sight Letter of Credit for P485.091." and drawn against the first National City Bank (Exhibit "E-l"). without paying its obligation to the bank plaintiff filed the instant action. 1976 (Exhibit "D-l"). 50851 of the Register of Deeds of Rizal covering two pieces of real estate properties.00. As defendant Casville failed to pay its obligation to defendant bank. . When plaintiff was informed that no letters of credit were opened by the defendant bank in its favor and then discovered that defendant Casville had in the meanwhile withdrawn the entire amount of P427. e) Chattel Mortgage on the equipment. Subsequently.300.00 to clean up the Estrada property or a total of P427. defendant Casals was known to the bank as the one following up the application for the letters of credit. Cesar Umali.300. 1976 and drawn in the sum of Pl45. the latter foreclosed the mortgage executed by defendant Casville on the Estrada property which was sold in a public auction sale to a third party. Upon receiving the check for P427.00 (Exhibit "G") and P100. acting through defendant Casals.00 plus another P100.000. c) P300.00 CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts.00. went to see Severino Santos to find out the status of the credit line being sought by defendant Casville." Said check together with the cash disbursement voucher (Exhibit "2-A") containing the explanation: Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent.Skidders in favor of the Edward J. Plaintiff allowed some time before following up the application for the letters of credit knowing that it took time to process the same. Plaintiff entrusted the delivery of the check and the latter to defendant Casals because it believed that no one. defendants Casals and Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450. could encash the same as it was made payable to the defendant bank alone. Nell Co. The check did not contain the notation found in the previous check issued by the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a covering letter dated August 16. On August 9.00 (Exhibit "F"). Santos assured Umali that the letters of credit would be opened as soon as the requirements imposed by defendant bank in its letter dated August 11. Santos did not accept them because the terms and conditions required by the bank for the opening of the letter of credit had not yet been agreed on.00. All the new checks were postdated November 19.800.00.00. that were issued by defendant Casville as collateral were all dishonored for having been drawn against a closed account.1976 that went with the check (Exhibit "E"). defendant Casville wrote the bank applying for two letters of credit to cover its purchase from plaintiff of two Garrett skidders. 1976 had been complied with by defendant Casville. 11891 of the Register of Deeds of Quezon City and TCT No. then withdrew all the amount deposited. Meanwhile.000. when the three checks issued to it by defendant Casville were dishonored. After depositing said check.00 that plaintiff would advance to defendant bank for the account of defendant Casville. A covering letter (Exhibit "3") was also sent and when the three documents were presented to Severino Santos. defendant bank replied stating that it was ready to open the letters of credit upon defendant's compliance of the following terms and conditions: c) 30% cash margin deposit. 1976.300. including defendant Casals.000.<äre||anº•1àw> Both the check and the covering letter were sent to defendant bank through defendant Casals.000.000. upon their presentation for encashment." In a letter dated August 11.300. However. e) We shall chattel mortgage the equipments purchased even after payment of the first L/C as additional security for the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of the bank.000. Besides. plaintiff issued a check for P427.500.00 or P327.00.00 entrusted to him by plaintiff defendant Casals immediately deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant Casville's checking account. 1976. d) Acceptable Real Estate Collateral to secure the Trust Receipts. Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. On August 16. defendant Casals delivered to plaintiff TCT No. defendant Casville. payable to the "order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES.

the pertinent portion of which reads: xxx xxx xxx Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay plaintiff..1976 EQUITABLE BANKING CORPORATION. the sum of P427. and ordered the Bank to pay NELL the value of the check in the sum of P427. or as an agent. held the Bank liable for the mistake of its employees. Indeed. provides: . Such mistake was crucial and was. the Trial Court rendered judgment.00. Proportionate cost against all the defendants. (NELL. INC. SO ORDERED. had previously applied for in favor of the appellee (Exhibit D-1." should have placed the teller on guard and he should have clarified the matter with his superiors. What is left for the Court to determine.00. and which the Bank teller credited to the account of Casville. "appear on the face of the check after or under the name of defendant bank. Inc. 4. for short) for the value of the second check issued by NELL. jointly and severally. xxx xxx xxx We disagree. affirmed by Respondent Court in toto. the teller decided to rely on his own judgment and at the risk of making a wrong decision. until the said sum is fully paid. Explained the Trial Court: The Court finds that the check in question was payable only to the defendant bank and to no one else. Nell Co. 3 As worded. p. representing the amount of plaintiff's check which defendant bank erroneously credited to the account of defendant Casville and which defendants Casal and Casville misappropriated. the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. the directive was for the appellant bank to apply the value of the check as payment for the letter of credit which Casville Enterprises. the payee was still the latter. without doubt. the proximate cause of plaintiffs defraudation.00 . therefore. 1) The subject check was equivocal and patently ambiguous. The issuance of the subject check was precisely to meet the bank's prior requirement of payment before issuing the letter of credit previously applied for by Casville Enterprises in favor of the appellee. with the latter being the ultimate beneficiary. By making the check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES. is only the liability of defendant bank to plaintiff. for Casville Enterprises. That ambiguity is to be taken contra proferentem that is. Exhibit "E-l. Although the words "A/C OF CASVILLE ENTERPRISES INC. construed against NELL who caused the ambiguity and could have also avoided it by the exercise of a little more care. for the account of Casville Enterprises. Not only did they show lack of interest in disputing plaintiff's claim by not appearing in most of the hearings. with 12% interest thereon from April 5.300. xxx xxx xxx Resolving that issue. The addition of the words A/C OF CASVILLE ENTERPRISES INC. however. August 17. The addition of said words did not in any way make Casville Enterprises. the Bank) is liable to private respondent Edward J. In the light of the other facts. xxx xxx xxx Respondent Appellate Court upheld the above conclusions stating in addition: 1) The appellee made the subject check payable to appellant's order. Inc." which was made payable to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES INC. Article 1377 of the Civil Code. Instead of doing so.000. Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of P25. Inc. but they also assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability. 5). The Trial Court found that the amount of the second check had been erroneously credited to the Casville account. Inc. But said teller should have exercised more prudence in the handling of Id check because it was not made out in the usual manner. with legal interest. it could be accepted as deposit to the account of the party named after the symbols "A/C." or payable to the Bank as trustee.Defendants Casals and Casville hardly disputed their liability to plaintiff. the bank teller who received it was fully aware that the check was not negotiable since he stamped thereon the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 1977. the Payee of the instrument for the words merely indicated for whose account or in connection with what account the check was issued by the plaintiff. The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly. credited the entire amount in the name of defendant Casville although the latter was not the payee named in the check.300. Thus.

" including its three documents because the terms and conditions required by the Bank for the opening of the Letter of Credit had not yet been agreed on. 780 [1951]. which Casals. suppressed from the Bank officials and teller. and its majority Resolution.1964. 1992 CALTEX (PHILIPPINES). Republic of the Philippines vs. respondents. WHEREFORE. INC. 4. Neither was it a crossed check." to Casals who. vs. et al." separately boxed. initially. consequently. who was aware of the negotiations regarding the Letter of Credit. one of whom must suffer the consequence of a breach of trust. (d) NELL had received three (3) postdated checks all dated 16 November. In the last analysis. were the proximate cause of its own defraudation: (a) The original check of 5 August 1976. Exhibit "E-l. 89 Phil. 1377. 1976 from Casvine to secure the subject check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks. A/C of Casville Enterprises Inc. dated 4 October 1985. to advance the marginal deposit for the same. Exhibit "E.. obviously. and who had rejected the previous check. 2) Contrary to the finding of respondent Appellate Court. (c) NELL was extremely accommodating to Casals. sinisterly enough. Evidencing the real nature of the transaction was merely a separate covering letter. . L-15895. January 30. 97753 August 10. No. nor that the subject check would be utilized by Casals for a purpose other than for opening the letter of credit.No. to "Equitable Banking Corporation. SO ORDERED.. Maria vs. and "Non-negotiable. 61 Phil. and the Amended Complaint against petitioner bank is hereby ordered dismissed. Thus. and simply meant that thereafter the same check could no longer be negotiated. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward Ashville J Nell Co. the one who made it possible by his act of confidence must bear the loss. are hereby SET ASIDE. issuance and delivery of the 16 August 1976 check. it was NELL's own acts." NELL changed the payee in the subject check. J. Branch XI." upon Casals request. Edward J. The Decision of the then Court of First Instance of Rizal. Never had it suspected that those postdated checks would be dishonored. dated 16 August 1976. Nano. August 17. As between two innocent persons. Hongkong and Shanghai Banking Corporation. 1976. et al. and not by NELL as the drawer of the check. Exhibit "E". 10 SCRA 8). abnormal for the seller of goods. Teller. (b) NELL entrusted the subject check and its covering letter. 3) NELL's own acts and omissions in connection with the drawing.REGALADO. Thus it was that Casals did not purposely present the subject check to the Executive Vice-President of the Bank. the Petition is granted and the Decision of respondent Appellate Court.. It is. to facilitate the sales transaction.R. Thus.COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY.Art. the subject check was. Exhibit "2. NELL even advanced the marginal deposit for the garrett skidder. indeed." was payable to the order solely of "Equitable Banking Corporation. G. was made only by the Bank teller in accordance with customary bank practice." and its implicit trust in Casals. not non-negotiable. Equitable Banking Corporation. the price of which is to be covered by a letter of credit. Sta. NELL also eliminated both the cash disbursement voucher accompanying the check which read: Payment for marginal deposit and other expense re opening of L/C for account of Casville Enterprises. had his own antagonistic interests to promote. Exhibit "2. Nell Company. and the memorandum: a/c of Casville Enterprises Inc. NELL was erroneously confident that its interests were sufficiently protected. which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it and. denying petitioner's Motion for Reconsideration.: . The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. it must bear the loss (Blondeau. dated 28 April 1986.. however. No costs..is modified in that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private respondent. vs. 625 [1935].. The rubber-stamping transversall on the face of the subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines. petitioner.

Accordingly. 1982. Angel dela Cruz" as well as "the details of Mr. 54-68). as follows: (Joint Partial Stipulation of Facts and Statement of Issues. 207. 4. 3. No copy of the requested documents was furnished herein defendant.00). defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.000 5 Mar. 280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561). 82 90023 to 90050 28 112.000 9 Mar. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss.120. Angel dela Cruz informed Mr.000 9 Mar. if he desired replacement of said lost CTDs (TSN. The undisputed background of this case. Sometime in November. defendant. defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7. 7. 2 which dismissed the complaint filed therein by herein petitioner against respondent bank. the earlier decision of the Regional Trial Court of Manila.000 4 Mar. pp. appears of record: 1. 82 70147 to 90150 4 16. Defendant's Exhibits 1 to 280). Mr. 48-50). said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated. pp. On the same date. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564). p. a commercial banking institution. 208). 1982. 8. 1982. 23615 1 affirming with modifications. On November 26. p. Branch XLII.000 26 Feb. 5. Credit Manager of plaintiff Caltex (Phils. Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's Exhibit 281). 82 74602 to 74691 90 360." by said depositor (TSN. 82 89991 to 90000 10 40. Timoteo Tiangco. went to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines. February 9. February 9. 82 74701 to 74740 40 160. as found by the court a quo and adopted by respondent court.000 ——— ———— Total 280 P1. . pp. 6062). that he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate. On March 25. 10. 1987. 1991 in CA-G.R.000 9 Mar.000 ===== ======== 2. Quantity Amount 22 Feb. 1987. Inc. On various dates. 82 74797 to 94800 4 16. 82 90101 to 90120 20 P80.000 8 Mar. 82 90127 to 90146 20 80.. set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity (TSN. that he lost all the certificates of time deposit in dispute. Sometime in March 1982. 82 90001 to 90020 20 80.000 5 Mar. 1987. as required by defendant bank's procedure. plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel products from the latter (Original Record. On March 18. On the basis of said affidavit of loss. Aranas. 82 90251 to 90272 22 88. 1982.000.00. Original Records. 6. among others.000. 9. CTD CTD Dates Serial Nos.000 5 Mar. February 9. Mr. the Sucat Branch Manger. 1983 (Defendant's Exhibit 566).000 2 Mar. Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875. through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of P1. 1982. 82 89965 to 89986 22 88. CV No.120. On December 8.This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on March 8.) Inc.

In effect.. 90101 Metro Manila. hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments. it is important to note that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor. after date. the court a quo rendered its decision dismissing the instant complaint. or at a fixed or determinable future time. praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1. . Witness. (Sgd. Section 1 Act No. respondent court affirmed the lower court's dismissal of the complaint. the depositor referred (sic) in these certificates states that it was Angel dela Cruz? witness: a Yes.00CERTIFICATE OF DEPOSIT Rate 16%Date of Maturity FEB. 3 On appeal. After trial. 4 The instant petition is bereft of merit. It is noted that Mr. the depositor.000& 00 CTS Pesos. with interest at the rate of 16% per cent per annum. PhilippinesSUCAT OFFICEP 4. upon presentation and surrender of this certificate. Therefore. Witness? witness: . enumerates the requisites for an instrument to become negotiable. pp. testified in open court that the depositor reffered to in the CTDs is no other than Mr. Timoteo P. While it may be true that the word "bearer" appears rather boldly in the CTDs issued. 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY. Illegible) —————————— ——————————— AUTHORIZED SIGNATURES 5 Respondent court ruled that the CTDs in question are non-negotiable instruments. Philippine Currency. and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. you are saying that per books of the bank. 1983. SECURITY BANKAND TRUST COMPANY6778 Ayala Ave. the latter set-off and applied the time deposits in question to the payment of the matured loan (TSN. viz: (a) It must be in writing and signed by the maker or drawer. nationalizing as follows: . certain amount follows.00 plus accrued interest and compounded interest therein at 16% per annum. 1987. 1982. and A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this recourse. 23.11. and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount. 2031. 12. (2) that petitioner did not become a holder in due course of the said certificates of deposit. otherwise known as the Negotiable Instruments Law. the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5. The parties' bone of contention is with regard to requisite (d) set forth above. (d) Must be payable to order or to bearer. Atty. repayable to said depositor 731 days. the words "has deposited" a (e) Where the instrument is addressed to a drawee. as earlier stated. your Honor. Makati No. (b) Must contain an unconditional promise or order to pay a sum certain in money.000. Angel de la Cruz. In view of the foregoing. 1984 FEB 22. Security Bank's Branch Manager way back in 1982. not to whoever purports to be the "bearer" but only to the specified person indicated therein. Calida: q In other words Mr. Mr. 6 We disagree with these findings and conclusions. the text of the instrument(s) themselves manifest with clarity that they are payable. the appellee bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay said depositor the amount indicated thereon at the stipulated date. and hereby hold that the CTDs in question are negotiable instruments. moral and exemplary damages as well as attorney's fees. In April 1983. (c) Must be payable on demand. he must be named or otherwise indicated therein with reasonable certainty. The CTDs in question undoubtedly meet the requirements of the law for negotiability. Illegible) (Sgd. 130-131).000. SECURITY BANK SUCAT OFFICE P4. February 9. xxx xxx xxx Atty.120. plaintiff filed the instant complaint. Tiangco. Calida: q And no other person or entity or company. . The document further provides that the amount deposited shall be "repayable to said depositor" on the period indicated.

this disquisition in Intergrated Realty Corporation. These certificates of deposit were negotiated to us by Mr. according to the document. If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only. as plaintiff. et al. moved for a bill of particularity therein 17 praying." but obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. This time. 9 In the construction of a bill or note. as defendant in the court below. your Honor.00 to petitioner without informing respondent bank thereof at any time. wrote: ". if such truly was the fact. a valid negotiation thereof for the true purpose and agreement between it and De la Cruz. petitioner's credit manager could have easily said so. requires both delivery and indorsement. the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing. 14 A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. yet as they have constituted the writing to be the only outward and visible expression of their meaning. And who. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. or omission. therefore. What the parties meant must be determined by what they said. J. 7 xxx xxx xxx Atty. but what is the meaning of the words they have used. the intention of the parties is to control. Besides. as ultimately ascertained. The records reveal that Angel de la Cruz. it could have with facility so expressed that fact in clear and categorical terms in the documents. from the face of the instrument itself. vs. plaintiff corporation opposed the motion. the amounts are to be repayable to the bearer of the documents or. he cannot. whosoever may be the bearer at the time of presentment. for that matter. the answer is in the negative. among others.a None. and cannot be denied or disproved as against the person relying thereon. For. 15 In the law of evidence. 1982 addressed to respondent Security Bank. although petitioner seeks to deflect this fact. when respondent bank. 11 Contrary to what respondent court held. 12 The next query is whether petitioner can rightfully recover on the CTDs. Unfortunately for petitioner. act. Having opposed the motion. an admission or representation is rendered conclusive upon the person making it. 10 While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties.) 13 This admission is conclusive upon petitioner. it could have proved. 8 xxx xxx xxx On this score. instead of using the words "to guarantee" in the letter aforequoted. et al. the CTDs are negotiable instruments. whenever a party has. whom petitioner chose not to implead in this suit for reasons of its own. 16 If it were true that the CTDs were delivered as payment and not as security. The documents provide that the amounts deposited shall be repayable to the depositor. or omission. the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde.000. Jr. be permitted to falsify it. is the depositor? It is the "bearer. Calida: q Mr. Caltex Credit Manager. . Thus. delivered the CTDs amounting to P1. not what the parties may have secretly intended as contradistinguished from what their words express. Aranas.120. petitioner now labors under the presumption that evidence willfully suppressed would be adverse if produced. Hence. by his own declaration. intentionally and deliberately led another to believe a particular thing true. the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. be required to aver with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it. although the CTDs are bearer instruments. Witness. if it can be legally ascertained. Under the doctrine of estoppel. The duty of the court in such case is to ascertain.Q. 20 is apropos: . that is. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself. no other words are to be added to it or substituted in its stead. who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned? witness: a Angel dela Cruz is the depositor. instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD. Philippine National Bank. On the wordings of the documents. that petitioner. and to act upon such belief." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. 19 Under the foregoing circumstances. its protestations notwithstanding. the amounts deposited are repayable to whoever may be the bearer thereof. Rather. petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned. Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours. act. In a letter dated November 26.. 18 Had it produced the receipt prayed for. in any litigation arising out of such declaration. . that the CTDs were delivered as payment and not as security.

Respondent bank duly complied with this statutory requirement. 28 On this matter. The instrument proving the right pledged shall be delivered to the creditor. unless it appears in a public instrument. . Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein. 1625. if any. in the event of non-payment of the principal obligation. and if negotiable. whether as purchaser. there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation. right or action shall produce no effect as against third persons. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. 29 The issues agreed upon by them for resolution in this case are: 1. evidenced by negotiable instruments. we quote therefrom: The character of the transaction between the parties is to be determined by their intention. Accordingly. petitioner. . therefore. An assignment of credit. Here. even if sufficient on its face to make an absolute conveyance. 3. Finally. . Whether or not the CTDs as worded are negotiable instruments. neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. 2096. should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer. 23 As such holder of collateral security. necessarily. appears to have been absolute. an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. as between petitioner and respondent bank. 26 On the other hand. 25 Consequently. must be contractually provided for. Contrarily. The pertinent law on this point is that where the holder has a lien on the instrument arising from contract. and that accordingly the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership. Art. . for obvious reasons. 24 which inceptively provide: Art. not being provided for by the Negotiable Instruments Law. may also be pledged. it is not a pledge. If it was intended to secure the payment of money. in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. shall be governed by the Civil Code provisions on pledge of incorporeal rights. however. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract. who is in possession of it. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of the assignment (Annex "C"). mere delivery of the bearer CTDs would have sufficed. Adverting again to the Court's pronouncements in Lopez. the Civil Code specifically declares: Art. or the instrument is recorded in the Registry of Property in case the assignment involves real property. petitioner faults respondent court for refusing to delve into the question of whether or not private respondent observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates therefor. Petitioner's insistence that the CTDs were negotiated to it begs the question. . supra. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's outstanding account with defendant. Aside from the fact that the CTDs were only delivered but not indorsed. 2. a negotiation for such purpose cannot be effected by mere delivery of the instrument since. even though a transfer. or the bearer thereof. but if there was some other intention. 27 With regard to this other mode of transfer.. However. Whether or not plaintiff is entitled to the proceeds of the CTDs. the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. the latter has definitely the better right over the CTDs in question. the terms thereof and the subsequent disposition of such security. Incorporeal rights. on the ground that petitioner failed to raised that issue in the lower court. the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. 21 and a holder may be the payee or indorsee of a bill or note. if regarded by itself. he is deemed a holder for value to the extent of his lien. 2095. 22 In the present case. Under the Negotiable Instruments Law. Necessarily. he would be a pledgee but the requirements therefor and the effects thereof. assignee or lien holder of the CTDs. must be indorsed. it must be construed as a pledge. . but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely. the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. regardless of what language was used or what the form of the transfer was. the factual findings of respondent court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. 4. 5. It has been said that a transfer of property by the debtor to a creditor.

merely established. which it invokes.6.) xxx xxx xxx The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed owner" to apply to the judge or court of G. would render a pre-trial delimitation of issues a useless exercise. be not paid a third person. 33 competent jurisdiction for the issuance of a duplicate of the lost instrument. 2003 SPOUSES EDUARDO B. not mandatory.. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. even assuming arguendo that said issue of negligence was raised in the court below. as well as in order to prevent the ownership of the instrument that a duplicate be issued him. may apply to the judge or court of competent jurisdiction. LAMEC'S** REALTY AND DEVELOPMENT CORP. The very first article cited by petitioner speaks for itself. an option in favor of the party liable thereon who. 37 Articles 548 to 558 of the Code of Commerce. J. to obviate the element of surprise. 34 The word "may" is usually permissive. and. Whether or not the parties can recover damages. EVANGELISTA. 148864 August 21. as correctly analyzed by private respondent. The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. even assuming their applicability to the CTDs in the case at bar. Significantly. (Emphasis ours. with appropriate citation of some doctrinal authorities. 31 Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. on the modified premises above set forth. As respondent court correctly observed." this word shows that it is not mandatory but discretional. Art 548. 30 Questions raised on appeal must be within the issues framed by the parties and.PUNO. We agree with private respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action. if accepted.MERCATOR FINANCE CORP. Respondents. Thus. on which petitioner seeks to anchor respondent bank's supposed negligence. No. and the REGISTER OF DEEDS OF BULACAN. on the other. for some valid ground. will reveal that said provisions. Hence. consequently. Where the provision reads "may. and none establishes a mandatory precedent requirement therefor. Petitioners. The dispossessed owner. interest or dividends due or about to become due. except such as may involve privileged or impeaching matters. the petition is DENIED and the appealed decision is hereby AFFIRMED. of which respondent bank's supposed negligence is only one. 35 It is an auxiliary verb indicating liberty. Still. asking that the principal. 32 To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. petitioner's submission. EVANGELISTA and EPIFANIA C. parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial. are merely permissive and not mandatory. vs. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost instruments payable to bearer. LYDIA P. issues not raised in the trial court cannot be raised for the first time on appeal. opportunity.R. WHEREFORE. no matter for what cause it may be. on the one hand.: . attorney's fees and litigation expenses from each other. may elect to refuse to issue a replacement of the instrument. the foregoing enumeration does not include the issue of negligence on the part of respondent bank. SALAZAR. 36 Moreover. permission and possibility. a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same. SO ORDERED. none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein. petitioner still cannot have the odds in its favor.

The appellate court held: The appellants’ insistence that the loans secured by the mortgage they executed were not personally theirs but those of Embassy Farms. c. ("Embassy Farms"). It is crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms. they assailed the validity of the foreclosure proceedings conducted by Mercator. there is no factual issue to be litigated. and the succeeding promissory notes8 restructuring the loan. aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the indebtedness of Embassy Farms. but alleged that they are the present registered owner. Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. Inc. they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations.’"5 It contended that since petitioners and Embassy Farms signed the promissory note6 as co-makers. there is no genuine issue regarding their liability. and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTYFOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844. The mortgage. Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.78) PESOS. are before this Court on a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. They did not receive the proceeds of the loan evidenced by a promissory note.14 Thus. That the principal contract of loan is void for lack of consideration. the continuing suretyship agreement and the subsequent promissory notes restructuring the loan. assailing the decision of the Court of Appeals dismissing their petition. Lydia P. Thus.Petitioners. to pay defendant Mercator Finance Corporation the amount of indebtedness. Lamecs Realty and Development Corporation. Evangelista below the words Embassy Farms. in the light of the foregoing is untenable. but again were unsuccessful. There being no principal obligation on which the mortgage rests. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith. Due to their failure to pay the obligation. Evangelista. Whether or not the sale made by defendant Mercator Finance Corp.13 Petitioners’ motion for reconsideration was denied for lack of merit.) by affixing their signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms. The fact that they signed the subject promissory notes in the(ir) . and the transfer of the titles to her name. Inc. Mercator admitted that petitioners were the owners of the subject parcels of land. Petitioners filed a complaint1 for annulment of titles against respondents. the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation ("Lamecs"). the parties agreed on the following issues: a. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Lamecs admitted the prior ownership of petitioners of the subject parcels of land." On the promissory note appears (sic) the signatures of Eduardo B. Epifania C. Inc.) Plaintiffs(. Thus. as all of it went to Embassy Farms. the subsequent sale of the same parcels of land to respondent Lydia P.10 After pre-trial. Mercator Finance Corporation. relying on the validity of the title of Mercator. contended that "on February 16. hence. are null and void.9 During pre-trial. and the Register of Deeds of Bulacan.12 The RTC granted the motion for summary judgment and dismissed the complaint. Mercator moved for summary judgment on the ground that except as to the amount of damages. Salazar. They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation ("Mercator") only as officers of Embassy Farms. and lastly. It. the issuance of the transfer certificates of title to it. d. Whether or not the parties are entitled to damages. Inc. the real estate mortgage is void. It held: A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase "jointly and severally. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp.625. the sale to it as the highest bidder in the public auction.4 With the void mortgage. Salazar ("Salazar"). plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation ‘for and in consideration of certain loans. is null and void. Inc. Petitioners claimed being the registered owners of five (5) parcels of land2 contained in the Real Estate Mortgage3 executed by them and Embassy Farms. is (sic) null and void. 1982. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the indebtedness of Embassy Farms. then petitioners are jointly and severally liable with Embassy Farms. foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. in favor of Lydia Salazar and that executed by the latter in favor of defendant Lamecs Realty and Development Corp. the foreclosure and subsequent sale of the mortgaged properties are valid. Evangelista and another signature of Eduardo B. Spouses Evangelista ("Petitioners"). Inc. however.11 Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue. but in their personal capacity as well(. petitioners went up to the Court of Appeals. there is a need for a full-blown trial. is clearly self-serving and misplaced. b.

267.78). the appellants lose sight of the fact that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property (Lustan vs. On so flimsy a ground as lack of consideration. Inc. 1982 . (w)e may even venture to say that the complaint was not worth the time of the courts. 1988)?" Petitioners’ "procrastination for about nine (9) years is difficult to understand. 675). Inc.87 December 16. to save the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor.). These documentary evidence prove that petitioners are solidary obligors with Embassy Farms. Petitioners do not deny that they obtained a loan from Mercator. issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the nonmoving party. this petition where they allege that: The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in affirming in toto the May 4.267. and Embassy Farms. Evangelista below it."16 A motion for reconsideration by petitioners was likewise denied for lack of merit. Even assuming arguendo that they did not. 1997 (when the certificate of sale was issued on January 12. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property."19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious. 128-131.18 we affirm. In constituting a mortgage over their own property in order to secure the purported corporate debt of Embassy Farms. in installments as follows: September 16. with the signature of Eduardo B. I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office.267. 118. However. 1982 . x x x. plausible and fairly arguable defense. Evangelista and Epifania C.15 (emphases in the original) The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties.. thereby deciding the case in a way probably not in accord with applicable decisions of this Honorable Court.87 January 16. the appellants undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who.87 November 16. as shown by affidavits. it is essential for the nonmoving party to confirm the existence of genuine issues where he has substantial. 1983 .personal capacities and as officers of the said debtor corporation is manifest on the very face of the said documents of indebtedness (pp.17 Thus.87 October 16. Evangelista) Surety (Epifania C. Evangelista) Surety . 1982 . depositions or admissions accompanying the motion. 1998 order of the trial court granting respondent’s motion for summary judgment despite the existence of genuine issues as to material facts and its non-entitlement to a judgment as a matter of law.e. as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial. The promissory note22 states: For value received. were free to discharge the same by payment (Articles 1302 [3] and 1303. viz: (Embassy Farms.P154.21 In the case at bar.P154.87 xxx xxx xxx The note was signed at the bottom by petitioners Eduardo B.P154.625. i. a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844. Civil Code of the Philippines). Orig.267.) Principal (Eduardo B. A genuine issue means "an issue of fact which calls for the presentation of evidence. Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation.P154.267. there are no genuine issues raised by petitioners. Philippine currency. Court of Appeals.P154. The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners."20 To forestall summary judgment.. Evangelista. 1982 . 266 SCRA 663. why then did they commence the suit only on August 12. 1983 .87 February 16.267.P154. 1987. Rec. Inc. and the certificates of title in the name of Mercator on September 27. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial. x x x.

A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Section 17 of the Negotiable Instruments Law states. Court of Appeals. faithful and prompt payment and discharge of any and all indebtedness of EMBASSY FARMS.THE PHILIPPINE NATIONAL BANK.26 Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety. A separate action or actions may be brought and prosecuted against the Surety whether or not the action is also brought and prosecuted against the Principal and whether or not the Principal be joined in any such action or actions. the following rules of construction apply: xxx xxx xxx G. they are deemed to be jointly and severally liable thereon. George A. it is presumed that they have made the writing the only repository and memorial of truth.28 We held in Tarnate v. assuming arguendo that there is an ambiguity. 16454 (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. KAUFFMAN. a consideration moving to the principal alone being sufficient. EVANGELISTA and EPIFANIA C.29 that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were long-term accommodations. Courts can interpret a contract only if there is doubt in its letter. – Where the language of the instrument is ambiguous or there are omissions therein. likewise prove that petitioners are solidarily liable with Embassy Farms. 1982. EVANGELISTA (hereinafter called Surety).Construction where instrument is ambiguous. The promissory notes24 subsequently executed by petitioners and Embassy Farms.27 Having executed the suretyship agreement. (3) The obligations hereunder are joint and several and independent of the obligations of the Principal. jointly and severally unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION (hereinafter called Creditor). there can be no dispute on the personal liability of petitioners. Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form. Petitioners also insist that the promissory note does not convey their true intent in executing the document.R. Kauffman. 1921 GEORGE A. INC. Even if petitioners intended to sign the note merely as officers of Embassy Farms. EDUARDO B. xxx xxx xxx erase the fact that they subsequently executed a continuing suretyship agreement. STREET. the petition is dismissed. an examination of the promissory note shows no such ambiguity. A surety is one who is solidarily liable with the principal. Besides. vs. Treble costs against the petitioners.1âwphi1 The defense is unavailing.(Mercator Finance Corporation) Creditor To: MERCATOR FINANCE COPORATION (1) For valuable and/or other consideration. Lastly. the full. defendant-appellant.25 But. then the ambiguity should be resolved against it.: At the time of the transaction which gave rise to this litigation the plaintiff. still this does not September 29. SO ORDERED. restructuring their loan. plaintiff-appellee. J. No. then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing. the parol evidence rule does not apply in this case. (hereinafter called Principal) to the Creditor. and whatever is not found in the writing must be understood to have been waived and abandoned. was the president of a domestic corporation engaged chiefly in the . xxx xxx xxx The agreement was signed by petitioners on February 16. viz: SECTION 17. IN VIEW WHEREOF.

50 Upon receiving this telegraphic message. whose credit was secured at the bank by warehouse receipts on Philippine products. Meanwhile Wicks. which was delivered in payment of the telegraphic order.) PHILIPPINE NATIONAL BANK. P.000 should be made to the plaintiff in New York City. but the company did have credit to that extent. based upon the proposition that. no right of action can be vested in him for the breach thereof. including exchange and cost of message. Accordingly. Amount 3/8 % Stamp P18 Rate P90. .50. Kauffman. 1918. if not exclusively. it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any Payable through Philippine National Bank.Sold to Messrs. pursuant to its agreement. inasmuch as the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit. Foreign Department. declared a dividend of P100. In view. advising him that $45. it must be assumed that the obligation of the bank was supported by adequate consideration. "In this situation. of which the plaintiff was entitled to the sum of P98. George B. Kauffman. the board of directors of said company. the treasurer of the Philippine Fiber and Produce Company.000. and demanded the money. however.000 had been placed to his credit in the New York agency of the Philippine National Bank.355. — "if there exists a cause of action against the defendant. the defendant appealed. of the failure of the bank to substantiate these allegations. On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: Pay George A.337.000 from its surplus earnings for the year 1917. In this court the defense is mainly. CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK. directing the withholding of payment had been received in New York. presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45. Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned. New York. He was informed that the total cost of said transfer. the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman. 1918. thereupon drew and delivered a check for that amount on the Philippine National Bank. $45. and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole.50. and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item in the account of said company. the message from the Philippine National Bank of October 11. the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum. Account of Philippine Fiber and Produce Company.355.I. or to offer any other proof showing failure of consideration. and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15. On February 5. and it is alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. and payment was therefore refused. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City..To G. Manila. treasurer of the Philippine Fiber and Produce Company. would be P90. 1918. as treasurer of the Philippine Fiber and Produce Company. Manager. Wicks. 1918. New York." — we here quote the words of the appellant's brief. was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce Company. It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said telegraphic order.) Y LERMA. This memorandum receipt is in the following language: October 9th. cabled to Kauffman in New York. for overdraft in current account. New York. and judgment having been there entered favorably to the plaintiff. In view of these facts. In this connection it appears that on October 9. As evidence of this transaction a document was made out and delivered to Wicks. Total P90. which is referred to by the bank's assistant cashier as its official receipt. (Sgd.exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company. Manila. or more. Wicks. or a greater part thereof.355.50. of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. and the same was accepted by the officer selling the exchange in payment of the transfer in question. (Sgd. By this time. the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90. Philippine Fiber and Produce Company. to the plaintiff in New York City. A. Manila. upon account of the Philippine Fiber and Produce Company. This amount was accordingly placed to his credit on the books of the company. with interest and costs. however. Foreign $45. in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. account Philippine Fiber Produce Co. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested.000.000.

This provision states an exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them. 22 Phil. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person. and no rights properly speaking arise in respect to said instrument until it is delivered. Manila Railroad Co. of course. or merely an incidental interest.. 38 Phil. vs. is to rely upon the intention of the parties as disclosed by their contract. although it affords complete proof of the obligation actually assumed by the bank.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui.. transmitted by the defendant bank to its New York branch. Code.) The paragraph introducing the exception which we are now to consider is in these words: Should the contract contain any stipulation in favor of a third person. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it. . 340. par. the rights of the plaintiff cannot be considered to as there used. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question. or at least by direction of the party purchasing he exchange. Estate of Martinez. 894. If a third person claims an enforcible interest in the contract. it would be difficult to conceive of a case arising under it. In the case before us there was an order. the right of the plaintiff to maintain the present action is clear enough. but in favor of the Philippine Fiber and Produce Company. (Art. is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him? The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code. is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Leonard. in this jurisdiction at least. Compañia Trasatlantica and Atlantic. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment. Ibañez de Aldecoa vs. 2.contract with the plaintiff. to cause a sum of money to be paid to the plaintiff in New York City. But this order was not made payable "to order or "to bearer... In other words." as required in subsection (d) of that Act. (Uy Tam and Uy Yet vs. whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui. the party which contracted in its own name with the defendant. and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made. cannot itself be viewed in the light of a negotiable instrument. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. Leonard (30 Phil. Suffice it to say that Justice Trent. speaking for the court in that case. whether they stipulated for him. Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce Company agreed on October 9. he may demand its fulfillment. must be understood to imply revocation by the mutual consent of the contracting parties. for the payment of a specified sum of money to George A. Hongkong and Shanghai Banking Corporation. Kauffman. and the question is whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City." The question thus placed before us is one purely of law. provided he has given notice of his acceptance to the person bound before the stipulation has been revoked.) In the case of Uy Tam and Uy Yet vs. and indeed if the provision in question were not applicable to the facts now before us. and unless the present action can be maintained under the provision. 1257. or its representative in New York City. 873. and in harmony with this general rule are numerous decisions of this court (Wolfson vs.. supra. 572. and already set out above. sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So. Gulf and Pacific Co. Civ. Leonard. 1918. and inasmuch as it never left the possession of the bank." (Uy Tam and Uy Yet vs. 471). there was no delivery in the sense intended in section 16 of the same Law. the plaintiff admittedly has no case. we believe the fairest test. supra. for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted. the question must be settled by determining whether the contracting parties desired to tender him such an interest. it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. 20 Phil. the ordinary rules of construction and interpretation of writings must be observed. 584.) In the light of the conclusion thus stated. it is true. and at the very threshold of the discussion it can be stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law.

Rama. Jr.R. DE LA VICTORIA.BELLOSILLO. Mabanto. Presiding Judge. 1995 LORETO D.In the course of the argument attention was directed to the case of Legniti vs. wherein it is held that. It is so ordered. Thus. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure. before the Regional Trial Court of Cebu City. wish is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. JOSE P. XVII. as City Fiscal of Mandaue City and in his personal capacity as garnishee. and Dario D. decided by the Court of Appeals of the State of New York on March 1. Upon the considerations already stated. it was said." As we view it there is nothing in the decision referred to decisive of the question now before us. we are of the opinion that the right of action exists. Jr. and the judgment must be affirmed. Rep. Cebu City. No.HON. Bank (130 N. with costs against the appellant. After trial judgment was rendered ordering the defendants to pay . 1921. G. SESBREÑO.. Br. BURGOS. a bank incurs a simple contractual obligation.. petitioner. 597). therefore. respondents. RTC. mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. Mechanics. and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. vs. J. 111190 June 27. etc. "Cable transfers.E. and RAUL H.. by selling a cable transfer of funds on a foreign country in ordinary course. All these transaction are matters of purchase and sale create no trust relationship.: RAUL H.

was then detailed. 7 According to the trial court. As ordinarily understood. Jr. there was no sufficient reason for petitioner to hold the checks because they were no longer government funds and presumably delivered to the payee. 16 of the Negotiable Instruments Law. the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment. It recognized the role of petitioner as custodian of the checks. At the same time however it considered the checks as no longer government funds and presumed delivered to the payee based on the last sentence . 16 of the Negotiable Instruments Law. because they were not yet delivered to him.. funds. 4 On 20 April 1993 the motion for reconsideration was denied.'s judgment debt. the trial court ordered its execution. or cash due or belonging to Mabanto. on 15 January 1992 a writ of execution was issued.000. is public funds. Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger to the litigation. (2) whether the salary check of a government official or employee funded with public funds can be subject to garnishment. property or anything of value belonging to Mabanto. Additionally. were already released by the Department of Justice duly signed by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. Jr. credit. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto. within fifteen (15) days from receipt 2 taking into consideration the provisions of Sec. With regard to the contempt charge. but that said checks were not yet properties of Mabanto.00 to the plaintiff. The thesis of petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of garnishment proceedings. the trial court was not morally convinced of petitioner's guilt. the source of the salary of Mabanto.. Jr. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues raised. Jr. except his salary and RATA checks. had already been released through petitioner by the Department of Justice duly signed by the officer concerned. and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be applied to Mabanto. The notice directed petitioner not to disburse. on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in possession of any money. private respondent herein.. finding no more legal obstacle to act on the motion for examination of the garnishees. Jr. the checks of Mabanto. petitioner as custodian of the checks was under obligation to hold them for the judgment creditor. 3 It opined that the checks of Mabanto. under penalty of law.. He receives his compensation in the form of checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of office. Petitioner has well argued his case. they were still public funds which could not be subject to garnishment. Jr.. Jr.. On the other hand. Petitioner became a virtual party to.P11. He further claimed that. Rule 39 of the Rules of Court. Jr. Jr. every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.. as such. His only duty was to turn over the garnished checks to the trial court which issued the order of execution. On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. transfer. directed petitioner on 4 November 1992 to submit his report showing the amount of the garnished salaries of Mabanto. while his explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a written explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the notice should have been sent to the Finance Officer of the Department of Justice. Under Sec. Jr. pars. 12. Petitioner reiterates his position that the salary checks were not owned by Mabanto. Upon service of the writ of garnishment. 1 On 10 March 1992 private respondent filed a motion before the trial court for examination of the garnishees. conformably with the last sentence of Sec. The explanation however was not submitted to the trial court for action since the stenographic reporter failed to attach it to the record. For. On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992. on motion of the latter. delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. The decision having become final and executory.. (f) and (i). Jr. As Assistant City Fiscal. 5 Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter: and. or a forced intervenor in. Petitioner insists that he had no authority to segregate a portion of the salary of Mabanto. This order was questioned by the defendants before the Court of Appeals. writ of execution and notice of garnishment was justified.. Thus the trial court. On 25 May 1992 the petition pending before the Court of Appeals was dismissed. monies. On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4 November 1992. release or convey to any other person except to the deputy sheriff concerned the salary checks or other checks. The trial court explained that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution. until delivered to him. However.

1986. Consequently.g. Until that time the check belongs to the government." But that is invoking only the general rule. G. 9 The rationale behind this doctrine is obvious consideration of public policy.: On July 6. No. 85419 March 9.SIMA WEI and/or LEE KIAN HUAT. In Tiro v." Yet. In the case at bench. Jr.. MARY CHENG UY. we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto. a valid and intentional delivery by him is presumed. SO ORDERED.of Sec. We have also established therein the compelling reasons. as exceptions thereto. the writ of execution. ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES. plaintiff-petitioner. Proof to the contrary is its own finding that the checks were in the custody of petitioner. It is worth to note that the ruling referred to the validity of advance execution of judgments.CAMPOS. before there is actual delivery of the check. the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat. . and the notice of garnishment was justified. JR. SAMSON TUNG.R. in the possession of petitioner. he cannot assign it without the consent of the Government. which were not taken into account by the trial court. the petition is GRANTED. Court of Appeals. as appropriated by law.. the presumption is not conclusive because the last portion of the provision says "until the contrary is proved. J. The notice of garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED." However this phrase was deleted by the trial court for no apparent reason. Hontanosas 8 we ruled that — The salary check of a government officer or employee such as a teacher does not belong to him before it is physically delivered to him. subject of the petition are SET ASIDE. the trial court expressed the additional ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution. 17. 16 of the Negotiable Instruments Law which states: "And where the instrument is no longer in the possession of a party whose signature appears thereon. 1993 DEVELOPMENT BANK OF RIZAL. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of Cebu City. they did not belong to him and still had the character of public funds. but a careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. vs. Br. Inasmuch as said checks had not yet been delivered to Mabanto. the payee has no power over it. In denying petitioner's motion for reconsideration. it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual knowledge of the non-entitlement of private respondent to the checks in question. As a necessary consequence of being public fund. San Diego 10 that — The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects. a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. 11 Our precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is valid.. Jr. The Court succinctly stated in Commissioner of Public Highways v. e. WHEREFORE. citing our ruling in Philippine Commercial Industrial Bank v. Accordingly. defendantsrespondents. the checks may not be garnished to satisfy the judgment..

on the two checks. Section 16 of the Negotiable Instruments Law.032. bearing respectively the serial numbers 384934. is not only a written evidence of a contract right but is also a species of property.450. Just as a deed to a piece of land must be delivered in order to convey title to the grantee. the name of the payee. The allegations of the petitioner in the original complaint show that the two (2) China Bank checks. and the alternative defendants. Sima Wei made partial payments on the note. Branch Manager of the Balintawak branch of Producers Bank. 4 Without the initial delivery of the instrument from the drawer to the payee. and (2) To enforce payment of two checks executed by Sima Wei. that the transaction was legal and regular. Caloocan City.820. of the Producers Bank. assigning the following as the alleged errors of the Court of Appeals: 1 (1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFFPETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTSRESPONDENTS HEREIN. . (2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13. For reasons not shown. 1983 with interest at 32% per annum.00 on or before June 24. provides in part: Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. petitioner Bank. The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants. which governs checks. filed this Petition for Review by Certiorari. whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.02. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. . . until and unless the check is delivered to the payee or his representative.02 on a promissory note executed by respondent Sima Wei on June 9. and (3) an act or omission of the defendant in violation of said legal right. there can be no liability on the instrument. represented by its Legal Liquidator. (2) correlative obligation of the defendant. were not delivered to the payee. On appeal from the orders of dismissal of the Regional Trial Court. President of Plastic Corporation. for the amount of P550. who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation. Thus. Cheng Uy. to pay the balance due on the promissory note. instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation. Samson Tung. of which a check is. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance. the petitioner herein. petitioner filed the complaint as aforestated.032.450. inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. numbered 384934 and 384935. A negotiable instrument. Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines. on two causes of action: (1) To enforce payment of the balance of P1. such delivery must be intended to give effect to the instrument. Moreover. 1983. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. including Sima Wei. A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. sued respondent Sima Wei on the promissory note. In the original complaint. RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS. The trial court granted the defendants' Motions to Dismiss. as plaintiff. The antecedent facts of this case are as follows: In consideration for a loan extended by petitioner Bank to respondent Sima Wei. Hence. defendants filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. the mere fact that he has done these does not give rise to any liability on his part. leaving a balance of P1.Mary Cheng Uy. However. relying on the assurance of respondent Samson Tung. at the Balintawak branch. Except for Lee Kian Huat. The essential elements are: (1) legal right of the plaintiff. Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation. 1983. * to which the petitioner Bank. for the amount of P500. actual or constructive. 3 Delivery of an instrument means transfer of possession. the payee and the drawee bank.000.00 and 384935.000. 2 The normal parties to a check are the drawer. from one person to another. the amount payable and the drawer's signature. the latter executed and delivered to the former a promissory note.00. Without the delivery of said checks to petitioner-payee. the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. founded on said checks. On November 18.000. these checks came into the possession of respondent Lee Kian Huat. petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict — a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative . The Court of Appeals affirmed this decision. in the alternative or otherwise. and drawn against the China Banking Corporation. the former did not acquire any right or interest therein and cannot therefore assert any cause of action. payable to petitioner. engaging to pay the petitioner Bank or order the amount of P1.

Since petitioner Bank never received the checks on which it based its action against said respondents. 192413 June 13. it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Therefore. Respondents. It had no right or interest in the checks which could have been violated by said respondents. 2012 Rizal Commercial Banking Corporation. With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13. However. petitioner Bank has a right of action against her for the balance due thereon. J. if the allegations in the complaint are found to be true. in the alternative or otherwise. It therefore has no cause of action against the respondents. If at all. It is well-settled that a party cannot change his theory on appeal. it is Sima Wei. as We have earlier explained. these checks were never delivered to petitioner Bank.Hi-Tri Development Corporation and Luz R.: 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. that there was delivery to petitioner Bank. Bakunawa. in the alternative or otherwise. Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of the Court of . We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of delivery. without admitting. anything which the respondents may have done with respect to said checks could not have prejudiced petitioner Bank. insofar as the other respondents are concerned. it never owned them (the checks) nor did it acquire any interest therein. consistent with this decision. in order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any amount under the promissory note allegedly signed by her.SERENO. In the light of the foregoing. unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause. SO ORDERED. Petitioner. Thus. No. 5 Notwithstanding the above. who would have a cause of action against her co-respondents. And even granting. as this would in effect deprive the other party of his day in court. the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. vs.R. the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. the case is REMANDED to the trial court for a trial on the merits. G. Rule 3 of the Rules of Court. Bakunawa (Bakunawa). On the first cause of action. 6 None of these exceptions were alleged by respondent Sima Wei. the drawer.respondents. petitioner Bank has no privity with them. Petitioner Bank has therefore no cause of action against said respondents.

Being part and parcel of said complaint.29.019. the Spouses Bakunawa.00".019. filed with the RTC the action below for Escheat [(Civil Case No. 324986. a certain Teresita Millan ("Millan"). 06-244)].514. As a result.D. All throughout the proceedings in Civil Case No. However. during the pendency of the abovementioned case and without the knowledge of [Hi-Tri and Spouses Bakunawa].514.019. 103724. 2008. the Spouses Bakunawa. [Manuel Bakunawa. and 4.000. Jerry Montemayor.] Bakunawa and her husband Manuel.724. 06-244. Q-91-10719 [in 1991].000. praying that: 1. ER 034469 and refrained from canceling or negotiating it. 98827. escheated to the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic. docketed as Civil Case No. Instead of only the amount of "P 1. 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] ("P 1. and unclaimed balances held by the branches of various banks in the Philippines. 2003.514. viz: "We understand that the deposit corresponding to the amount of Php 1. Sometime in 1990. Mendoza.019. [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan.019. 324985. Consequently. 2003.019. Millan was informed that the Manager’s Check was available for her withdrawal. retained custody of RCBC Manager’s Check No. The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in turn. [Manuel Bakunawa.514. and consistent with their prayer in Civil Case No.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.00.29. Branch 99. Millan refused to accept back the P 1.000.29" for the intended purchase. Manager and Head of RCBC’s Asset Management.514. [which is] inclusive [of] the amount of ["]P 1.29")["].29".514.019.00. with the promise that she will take care of clearing whatever preliminary obstacles there may[]be to effect a "completion of the sale". Millan was not able to clear said obstacles. upon advice of their counsel.085. These lots were sequestered by the Presidential Commission on Good Government [(PCGG)]. and TCT Nos.514. Q-91-10719. the Spouses Bakunawa rescinded the sale and offered to return to Millan her down[]payment of P 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.29".000. through Hi-Tri] inquired from RCBC-Ermita the availability of the P 1. On April 30. 324985 and 324986 of the Quezon City Register of Deeds.514. subject of the special proceedings. 98828 and 98829 of the Marikina Register of Deeds.29).514. 1991. against certain deposits.019.019. a Manager’s Check from RCBC-Ermita in the amount of P 1. through Hi-Tri] wrote x x x RCBC. a copy of the Sworn Statement executed by Florentino N.71".514. On April 17. Millan made a down[]payment of "P 1.29-credit existing in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as of January 31.Appeals (CA).29 under RCBC Manager’s Check No. Allegedly. payable to Millan’s 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.514. Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC bank account once an order to debit is issued upon the payee’s presentation . The trial court declared the amounts.3 The assailed RTC judgments included an unclaimed balance in the amount of P 1. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of P 50. 679 (P. credits. through the [Office of the Solicitor General (OSG)]. x x x Republic. [HiTri and Spouses Bakunawa] were however dismayed when they were informed that the amount was already subject of the escheat proceedings before the RTC. she being the payee. 2006. as amended by Presidential Decree No. 679). now deceased ("Spouses Bakunawa") are registered owners of six (6) parcels of land covered by TCT Nos. However.29 down[]payment. 3.019. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of P 2. offered to buy said lots for "P 6.019. We quote the narration of facts of the CA4 as follows: x x x Luz [R. x x x RCBC reported the "P 1.2 The case before the RTC involved the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. On January 31. 98827. 103724.000. 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 (P 1. especially during negotiations for a possible settlement of the case. 98828 and 98829. through her representative. Disbursement & Sundry Department ("AMDSD") was posted within the premises of RCBC-Ermita.019. for one reason or another.29 stated in the Manager’s Check is currently the subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial Court. the Hi-Tri Development Corporation ("Hi-Tri") took out on October 28.29. maintained by RCBC in its Ermita Business Center branch. ER 034469. 2.514. But during negotiations and evidently prior to said settlement. 2008. [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of "P 3. 3936. On December 14. through their company.

citations. x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that: "The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s Check No. The CA Ruling On 26 November 2009. the CA held that the Decision and Order of the RTC were void for want of jurisdiction.6 RCBC failed to prove that the latter had communicated with the purchaser of the Manager’s 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 trial court explained that the Republic had proven compliance with the requirements of publication and notice. According to the appellate court. Since the Corporation never received any statements of account from RCBC to that effect. respondents filed an Omnibus Motion dated 11 June 2008. [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-quoted. Consequently. 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. and unclaimed balances subject of Civil Case No. RCBC would have issued a statement to that effect. continued to be actively maintained and operated. In a letter dated May 19. as they were not informed of the ongoing escheat proceedings." (Emphases. as well as the status thereof. 06-244 escheated to the Republic. 2008.514. thereafter. Q-91-10719) between them and Rosmil since 1991. They alleged that the deposit was subject of an ongoing dispute (Civil Case No. The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the Republic. and repeatedly reminded the Corporation that the deposit would be considered dormant absent any fund movement. 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.) The RTC Ruling . The CA ruled that the bank’s failure to notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to present evidence to substantiate their claim. Since the payee rejected the negotiated Manager’s Check. which served as notice to all those who may be affected and prejudiced by the Complaint for Escheat. We wish to point out that if there was any attempt on the part of RCBC to consider the amount indicated in the Manager’s Check separate from the Corporation’s bank account.019. xxx xxx xxx The escheat proceedings before the Makati City RTC continued. Respondents argued that they had meritorious grounds to ask reconsideration of the Decision or.5 On 3 November 2008. to seek intervention in the case. between 28 January 2008 and 1 February 2008. Respondents claim that they were not able to participate in the trial. By simple operation of law.29 held by RCBC as allocated funds intended for the payment of the Manager’s Check issued in favor of Rosmil. the Bank’s obligation to do so prescribed as early as October 2001.514. On 19 May 2008. Consequently. Among those included in the order of forfeiture was the amount of P 1." On April 28. since pay-out of said amount was never ordered. the trial court rendered its assailed Decision declaring the deposits. credits. They asked that they be included as party-defendants or. and more importantly. It explained that the jurisdictional requirement of individual notice by personal service was distinct from the requirement of notice by publication. ER034469 does not form part of the Bank’s own account. Consequently. the RTC issued an Order denying the motion of respondents. 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. it ruled that the alternative prayer to intervene was filed out of time. 06-244. the deposit that was supposed to be allocated for the payment of the Manager’s Check was supposed to remain part of the Corporation[’s] RCBC bank account. Furthermore. which. presentation of the Manager’s Check was never made. in the alternative. the funds covered by the manager’s check in issue became a deposit/credit susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of Treasury.29 continues to form part of the funds in the Corporation’s RCBC bank account. ER034469 in the escheat proceedings docketed as Civil Case No. 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. We hereby demand your confirmation that the amount of Php 1. Finally. the funds covered by the Manager’s Check No. as required by Rule 37 of the Rules of Court.019. the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November 2008 Order of the RTC. 2008. Contrary to what Hi-Tri hopes for. and that they were interested parties to that case.of the Manager’s Check. alternatively. and annotations were omitted. xxx xxx xxx Granting arguendo that the Bank was duty-bound to make good the check. For this reason. in violation of their right to due process. seeking the partial reconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment of the Manager’s Check. allowed to intervene in the case and their motion considered as an answer-in-intervention.

At the time of issuing summons in the action above provided for. We quote the pertinent provision of Act No. cashier. the Government of the Republic of the Philippines will apply to the court for the relief demanded in the complaint. Whether or not the allocated funds may be escheated in favor of the Republic Discussion Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service upon respondents is a jurisdictional requirement in escheat proceedings. Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by personal service II. building and loan association or trust corporation is located. we cull the main issues as follows: I. or managing officer of each defendant bank. and that failure to effect personal service on them rendered the Decision and the Order of the RTC void for want of jurisdiction. if there are several. building and loan association or trust corporation are unclaimed as hereinbefore stated. at such time as the court may order. a judgment of escheat is conclusive upon persons notified by . of such summons. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the Treasurer III. if there be any. Upon the trial. other than those named as defendants therein. as amended. and if it be determined that such unclaimed balances in any defendant bank. and requiring them to appear within sixty days after the publication or first publication. and render the appropriate judgment thereon. if they have any. there shall be a statement of the date of publication. or first publication. either in English. in the City of Manila. (Emphasis supplied.11 Thus. 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. as to depositors or other claimants of the unclaimed balances. building and loan association or trust corporation and all such creditors or depositors.12 Jurisdiction is secured by the power of the court over the res. published in the locality where the bank.9 A notice about the forthcoming escheat proceedings must also be issued and published. 3936. in which shall be joined as parties the bank. the clerk of court shall also issue a notice signed by him. building and loan association or trust corporation is situated. and shall have full and complete jurisdiction to hear and determine the issues herein. building and loan association or trust corporation and by publication of a copy of such summons in a newspaper of general circulation. the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a jurisdictional requirement.) Hence. and show cause. the court must hear all parties who have appeared therein. then the court shall render judgment in favor of the Government of the Republic of the Philippines. if there are several. It hinges its claim on the theory that the funds represented by the Manager’s Check were deemed transferred to the credit of the payee or holder upon its issuance. 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. 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. on the rule on service of processes. in Filipino. claiming any interest in any unclaimed balance mentioned in said complaint.Issue After a perusal of the arguments presented by the parties. and the service of the summons on the defendant banks. said summons required to be published as above. 3. All or any of such creditors or depositors or banks.13 Consequently. or in a local dialect. 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. or managing officer of the defendant bank. 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. Upon the publication or the completion of the publication. if there are several. and directed to all persons. of said summons and notice. of the summons and notice. to wit: Sec. service of processes is made by delivery of a copy of the complaint and summons upon the president. building and loan associations or trust corporations. and in case there is none. cashier. building and loan association or trust corporations may be included in one action. insofar as banks are concerned. Escheat proceedings are actions in rem. 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. Accordingly. Whenever the Solicitor General shall be informed of such unclaimed balances. and at the end of the copy of such notice so published. A copy of said notice shall be attached to. Service of process in such action or actions shall be made by delivery of a copy of the complaint and summons to the president. and referring to the complaint therein.10 whereby an action is brought against the thing itself instead of the person. declaring that said unclaimed balances have escheated to the Government of the Republic of the Philippines and commanding said bank. giving the title and number of said action. and published with the copy of. or any of them. 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.8 On the other hand. Any person interested may appear in said action and become a party thereto. an action may be instituted and carried to judgment without personal service upon the depositors or other claimants.

abandoned. or who have not made further deposits or withdrawals during the preceding ten years or more. should it fail to comply with the legally outlined procedure to the prejudice of the depositor. respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund allocated for the payment of the Manager’s Check. 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. all banks. the nature of the same. the bank. and the amount thereof. or without an owner. if interested parties have come forward and lain claim to the property. without there being an interested person having a legal claim thereto. That immediately before filing the above sworn statement. 3936.14 Nevertheless. banks and other similar institutions are under obligation to communicate with owners of dormant accounts.) As seen in the afore-quoted provision."21 Otherwise. of all credits and deposits held by them in favor of persons known to be dead. Immediately after the taking effect of this Act and within the month of January of every odd year. or unclaimed property. 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. and if the latter. since the funds represented by the Manager’s Check were deemed transferred to the credit of the payee upon issuance of the check. building and loan associations. (b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security. custody. and trust corporations shall forward to the Treasurer of the Philippines a statement. or trust corporation concerned for at least sixty days from the date of filing thereof: Provided. by virtue of its sovereignty. or left without an owner. as the state is only interested in escheating balances that have been abandoned and left without an owner. If the depositor simply does not wish to touch the funds in the meantime. steps in and claims abandoned. arranged in alphabetical order according to the names of creditors and depositors. it is not liable for failing to send a separate notice to the payee. the law sets a detailed system for notifying depositors of unclaimed balances. pursuant to the law.18 We emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts. They reason that. we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Manager’s Check in the escheat proceedings. then the bank is no longer obligated to include the account in its sworn statement. the state inquires into the status.advertisement. (Emphasis supplied. Accordingly. in any event. of their respective managing officers. because it did not have the address of Rosmil. building and loan associations. as amended. Petitioner argues that. if any. 2. forgotten. under oath. 3936.15 In the case of dormant accounts. 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. 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. and (d) The interest due on such unclaimed balance."17 However. (c) The date when the person in whose favor the unclaimed balance stands died. forgotten. the bank may not raise the defense provided under Section 5 of Act No. The purpose of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed. the courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state. building and loan association. A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank.20 It is not the intent of the law to force depositors into unnecessary litigation and defense of their rights. In contrast.16 If after the proceedings the property remains without a lawful owner interested to claim it. Petitioner asserts22 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 Manager’s Check. before filing a sworn statement. Petitioner avers that it was not under any obligation to record the address of the payee of a Manager’s Check. 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. building and loan association. or the date when he made his last deposit or withdrawal. It explains that. the property shall be reverted to the state "to forestall an open invitation to self-service by the first comers. only those "whose favor such unclaimed balances stand" are entitled to receive notices.19 Act No. as publication is considered a general and constructive notice to all persons interested. if known. since . but still asserts ownership and dominion over the dormant account. 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. Escheat proceedings refer to the judicial process in which the state. left vacant. This notification is meant to inform them that their deposit could be escheated if left unclaimed. 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. and trust corporations. In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to the Republic. the proper party entitled to the notices was the payee – Rosmil – and not respondents. Petitioner then contends that. as amended.

does not tender it to the intended payee.) Petitioner acknowledges that the Manager’s Check was procured by respondents. in the name of the bank. the assigned fund is deemed to remain part of the account of Hi-Tri. subject of the Manager’s Check. we rule that the allocated deposit. a valid and intentional delivery by him is presumed until the contrary is proved. the delivery. An order to debit the account of respondents was never made. in such case. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable. As between immediate parties and as regards a remote party other than a holder in due course. We reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. the bank becomes liable only after it accepts or certifies the check. G. respondents should have been informed that the deposit had been left inactive for more than 10 years.26 Here. when effectual.R. 16. SO ORDERED. which procured the Manager’s Check. or indorsing. against the bank itself. should be excluded from the escheat proceedings. 1922 .27 After the check is accepted for payment. we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable:31 Sec.28 Typically. Hence. and not for the purpose of transferring the property in the instrument. when presumed.R. the instrument remained undelivered. We take this failure to appeal as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic. with itself as the drawee. 107261 are hereby AFFIRMED. and that the allocated fund is still held by the bank. (Emphasis supplied.30 Nevertheless. in order to be effectual. There are checks of a special type called manager’s or cashier’s checks. accepting. There was no contention that they were the procurers of the Manager’s Check. SP No. An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee).32 When Rosmil did not accept the Manager’s Check offered by respondents. drawing. In fact. – Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. and that the amount to be paid for the check would be sourced from the deposit account of Hi-Tri. a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. or fails to make an effective delivery. must be made either by or under the authority of the party making. the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand. petitioner confirms that the Manager’s Check was never negotiated or presented for payment to its Ermita Branch. a named sum of money. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals in CA-G. a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn.24 requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer. 17230 March 17. rendering the instrument incomplete. as the case may be. And where the instrument is no longer in the possession of a party whose signature appears thereon. the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents.34 As a result.Delivery. Respondents further posit that their ownership of the funds was evidenced by their continued custody of the Manager’s Check. But where the instrument is in the hands of a holder in due course. Since the bank issues the check in its name.the funds were part of the Compromise Agreement between respondents and Rosmil in a separate civil case. In addition. and that it may be subjected to escheat proceedings if left unclaimed. As it is obvious from their foregoing actions that they have not abandoned their claim over the fund. We further note that there is nothing in the records that would show that the OSG appealed the assailed CA judgments. Petitioner does not dispute the fact that respondents retained custody of the instrument.33 Since there was no delivery. WHEREFORE the Petition is DENIED. the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.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.1âwphi1 After a careful review of the RTC records. These are bills of exchange drawn by the bank’s manager or cashier. As the Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to other persons. the check is deemed accepted in advance. because the instrument – although accepted in advance – remains undelivered.29 Ordinarily. or for a special purpose only. No. we find that it is no longer necessary to remand the case for hearing to determine whether the claim of respondents was valid. It is undisputed that there was no effective delivery of the check. and. presentment of the check to the bank for payment did not occur. the latter retained custody of the instrument instead of cancelling it. the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee. we have already settled that respondents retained ownership of the funds. In case the procurer of the manager’s or cashier’s check retains custody of the instrument. the delivery may be shown to have been conditional.

all in the year 1919. August 22. alleges the drawing of the sight draft. 1919. August 18. March 17. vs. Concurrent therewith. with interest on the amount paid by him at 10 per cent per annum thereon from the time of payment. executed to the defendant Aw Yong Chiow Soo four certain promissory notes: The first.000. Japan. to the defendant Aw Yong Chiow Soo. for the payment of which he became liable upon his indorsement for the sum of 33.. and because the bank had requested the plaintiff to pay the draft.. The defendant then alleges the making of the written statement by Tan Liuan of August 18. For answer. the defendant Aw Yong Chiow Soo drew a bill of exchange or sight draft. for P21. and that Tan Liuan and Co. 2 Kaisandori 5-Chone. or from the legal representative of. Promissory note dated Manila. above quoted. to him. or any part thereof. Tan Liuan made the following written statement: In consideration for the indorsement by Jose Velasco at my request of a draft drawn by Aw Yong Chiow Soo on Messrs. including all expenses and attorney's fees. AW YONG CHIOW SOO. On the same day. Jing Kee and Co. for the amount of the draft.000. The complaints alleges the execution of the notes by the defendant Tan Liuan and Co. for the sum of 33. and did. Aw Yong Chiow Soo makes a general denial. 1991. expenses and attorney's fees which he shall pay on account of his indorsement of said draft. for P12. On that date. on February 19.000). plaintiff-appelle. 3. Aw Yong Chiow Soo was a creditor of the defendant Tan Liuan and Co. 1919. the full amount with all costs.500 Yen. commenced this action against the defendants. dated February 23d.000. 1919. and it is claimed that all of the money was paid to Tan Liauan and Co. for P33. the above-mentioned promissory notes being attached hereto and made a part hereof. for the sum of P12. dated March 27th. for six (6) months. Promissory note dated Manila. for six (6) months. of which refusal the defendant Aw Yong Chiow Soo was duly notified. the second. conforming to the agreement. one of the promissory notes was executed to guarantee Aw Yong Chiow Soo against any liability in case that Tan Liuan or the plaintiff would not pay the sight draft. no part of which plaintiff received.JOSE VELASCO. it was duly indorsed by the plaintiff. evidenced by the promissory notes above described. March 17. and that.000. 1919.000. any amount which I may receive on account of said claim assigned to me over and above the amount paid by me. or liquidator of said Tan Liuan and Co. and later the plaintiff was requested to. this defendant and the . amounting to eighty-seven thousand pesos (P87. within ten days after he shall have been obligated to pay the amount of said draft. and. for P16. February 18. Jing Kee and Co. I hereby assign. and if I am obliged to pay said draft. Kobe.000. the defendant unqualifiedly indorsed the four promissory notes to the plaintiff. In the ordinary course of business.. The plaintiff was then induced to. now if the drawer of said draft or the said Aw Yong Chiow Soo shall pay the said draft so that I am relieved from all responsibility in connection therewith and the expenses incurred on account thereof. for the sum of P16. for P38. 2 Kaisandori 5-Chone. 1919. which are described as follows: 1. the draft was dishonored when presented. for six (6) months. the defendant Aw Yong Chiow Soo made the following written statement: For value received and to me in hand paid.. I promise to pay to Jose Velasco.. as a further and separate defense. 1919. then I will reassign the said claim against Tan Liuan and Co.. dated March 17th. and fully autnorize the said Jose Velasco to collect and receive the said amount from Tan Liuan and Co. and AW YONG CHIOW SOO. evidenced by four (4) promissory notes. and the bank cashed the draft. or oder. defendants.000. 1919.500 Yen and presented to the Philippine National Bank by which it was cashed. and that it was an accommodation only. transfer and deliver to Jose Velasco the whole amount of my credit against Tan Liuan and Co.TAN LIUAN & CO. and the fourth. dated February 18th.000. shall be delivered to the said Aw Yong Chiow Soo. and that payment was refused. and did. was insolvent. the plaintiff made the following written statement: Aw Yong Chiow Soo having this day transferred to me his claim of credit against the firm of Tan Liuan and Co. 2. March 27. TAN LIUAN. who. interest and expenses. as collateral security in consideration of my having indorsed his draft made by him on Messrs. February 23. Promissory note dated Manila. personally execute to the Philippine National Bank his promissory note. 4.. That the defendant Aw Yong Chiow Soo indorsed the notes to the plaintiff. UY TENGPIAO. which at first it refused to cash.500 Yen on Jing Kee and Co. for the sum of P38. for six (6) months. Promissory note dated Manila. Kobe. 1920. and each payable six months after its respective date. that at their maturity they were duly presented to Tan Liuan and Co. appellant. the third. and Aw Yong Chiow So delivered the money to the defendant Tan Liuan. endorse it. in favor of the Philippine National Bank. for the sum of P21. That by reason thereof. STATEMENT The defendant Tan Liuan and Co.

the he would endeavor to collect the notes in full. this defendant has been released and discharged of all liability.: It will be noted that two of the promissory notes are dated in February. assumes all liability for the amount of the draft and promises to pay the plaintiff and release him from all liability. and (c) of the next preceding section. and the lower court rendered judgment against the defendants Tan Liuan and Co. and the last March 27th. and does not owe him anything. SEC. for the full amount of the notes.. 66. SEC. the remainder. 38.— The indorsement must be written on the instrument itself or upon a paper attached thereto. In legal effect. Section 30 of Act No. or that it was liable for the payment of either of them. Tan Liuan and Co.— An indorsement may be either special or in blank. known as "The Negotiable Instruments Law. Indorsement. JOHNS. 30. and that three of the promissory notes were then due and payable. Time of indorsement. It is also alleged that the palintiff has not paid the draft or made any effort to collect it from Tan Liuan. should be paid to Aw Yong Chiow Soo against whom judgment was rendered for the amount of P46. it is negotiated by the indorsement of the holder completed by delivery. every negotiation is deemed prima facie to have been effected before the instrument was overdue. Such an indorsement does not impair the negotiable character of the instrument. That this defendant is not liable to the plaintiff on any contract. In other words. for the purpose of showing the true relations of that firm to the transaction. Although it is claimed taht Tan Liuan and Co. drawer. and is executed by Tan Liuan and Co. Kinds of indorsement. with costs and expenses. and that the action is premature.70.— Every indorser who indorses without qualification. SEC. the case was tried. without additional words. if payable to order. from which the plaintiff should only receive a sufficient amount to fully compensate him as an indorser of the draft. If payable to bearer. under an agreement that. in case Jing Kee and Co. or that he should have any judgment against this defendant. in favor of Aw Yong Chiow Soo. When person deemed indorser. 1919. 31. and that. unless he clearly indicates by appropriate words his intention to be bound in some other capacity. should pay the draft. to wit. From this. the plaintiff should return to this defendant any amount which he should collect over the amount of his personal claim. The written statement of Tan Liuan is dated August 18.135. What constitutes negotiation.70. That each promissory note is payable six months after date. is an acknowledgment of the reciept from Aw Yong Chiow Soo of the four promissory notes as collateral security for his indorsement of the draft. in the event the plaintiff is released from his liability. if he is required to pay the draft. but in the event that the plaintiff was required to pay the draft. 1919. That. and that.— A person placing his signature upon an instrument otherwise than as maker. SEC. and that within ten days after the plaintiff had assumed and paid the amount of the draft. but that. that the third is dated March 17th. 63. presumption.135. is a sufficient indorsement. the plaintiff would transfer the note to this defendant. all in 1919. or that it should pay the plaintiff P46. he will then reassign the notes to the defendant. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. or acceptor is deemed to be an indorser. and from the proceeds would first reimburse himself and then pay any remainder to the defendant.— A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. and it is very apparent that the written statement of Tan Liuan and Co. Aw Yong Chiow Soo. and oral testimony is not admisible to vary or contradict the terms of a written instrument. and Tan Liuan and Uy Tengpiao. was signed. Tan Liuan.70 should be defendant Tan Liuan and Co. under the agreement. and that. P46. and is drawn by Aw Yong Chiow Soo upon Jing Kee and Co. in favor of the Philippine National Bank. The signature of the indorser. Upon such issues. 45. and the law fixes the liability of an unqualified indorser. payable thirty days after date. its name does not appear in or upon the draft. of the Philippine Legislature. he will then pay any remainder to the defendant Aw Yong Chiow Soo. Tan Liuan and Co." says: SEC. by reason of the contract between the plaintiff and the defendant. SEC. by that writing. warrants to all subsequent holders in due course — (a) The matters and things mentioned in subdivisions (a). — An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. SEC. Qualified indorsement.— Except where an indorsement bears date after the maturity of the instrument. if any. claiming that the lower court erred in rendering judgment against it upon the four promissory notes. or conditional. and . and it may also be either restrictive or qualified.plaintiff agreed that this defendant should transfer to him all of its interest in the four promissory notes. the defendant Aw Yong Chiow Soo only appealed. plaintiff's written statement of August 18th. how made. (b). 33. J..135. The sight draft is dated March 17. it is negotiated by delivery. received the proceeds from the draft. fail to pay the judgment. of August 18th. any amount which he may receive on account of the promissory notes over and above the amount which he is required to pay. The indorsement of Aw Yong Chiow Soo of the notes to the plaintiff was unqualified. Liability of general indorser. 2031. would pay the plaintiff the full amount which plaintiff had obligated himself to pay. if collected.

and Aw Yong Chiow Soo knew that Tan Liuan and Co. as the case may be. he engages that on due presentment. two of the notes had been protested. it shall be accepted or paid.(b) That the instrument is at the time of his indorsement valid and subsisting. As collateral and to indemnify and protect plaintiff from any liability. the first of which was past due when it was indorsed. At the time of the execution of the notes. 114. he will pay the amount thereof to the holder. according to its tenor. in addition. and the judgment of the lower court is affirmed. The purpose and intent of the August written statements was to explain the transactions between the parties. Three of the notes were past due at the time the written agreements were made. says: Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. Aw Yong Chiow Soo. and it was dishonored. Three of the notes had matured at the time they were indorsed and the written instruments signed. So ordered. or both. and that none of the notes would be paid if presented. he will pay the amount thereof to the holder. or to any subsequent indorser who may be compelled to pay it. because the last two notes were not protested. Although the draft was drawn by Aw Yong Chiow Soo. payable thirty days after sight. — Notice of dishonor is not required to be given to the drawer in either of the following cases: xxx xxx xxx Presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. and had no reason to expect that the notes would be paid if presented. and the Negotiable Instruments Act says that — Every indorser who indorses without qualification. etc. and the necessary proceedings on dishonor be duly taken. and that the notes were indorsed by Aw Yong Chiow Soo to palintiff. was insolvent. warrants to all subsequent holders in due course. The draft was drawn on March 18.When notice need not be given to drawer. to protect and hold him harmless in his indorsement of the draft.. and the necessary proceedings on dishonor be duly taken. at the time the unqualified indorsement was made. (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. If it was not its purpose or intent to assume and agree to pay the notes. There is no claim or pretense that its claim was prejudiced or that it lost any legal right. it shall be accepted or paid. the first two had been duly presented and dishonored. of section 114. it was dishonored. with costs in favor of the plaintiff. being an unqualified indorser. When a person makes an unqualified indorsement of a promissory note. The statements do not make any reference to the legal liability of Aw Yong Chiow Soo as an indorser of the notes. or to any subsequent indorser who may be compelled to pay it. Aw Yong Chiow Soo was a creditor of Tan Liuan and Co. or both. and parol testimony is not admissible to explain or defeat such liability. and the testimony is conclusive taht plaintiff's indorsement was required by the bank as one of the conditions upon which it would cash the draft. and the plaintiff was required by the bank to execute his note for its amount. to whom the proceeds from the draft were paid. for the amount of the notes. SEC. and the evidence shows that. and that if it be dishonored. as collateral. Aw Yong Chiow Soo. the Negotiable Instruments Law specifies and defines his liability. there is no merit in the defense. And subdivision (d). Section 80 of the Act says: . and the testimony is conclusive that Tan Liuan and Co. which it held against Tan Liuan and Co. And. it should have indorsed them "without recourse. the law fixes its liability. The action here is not based upon the draft. and that if it be dishonored." or in such a manner as to discliam any personal liability. engages that on due presentment. the bill of exchange was drawn by the defendant. 1919. Aw Yong Chiow Soo indorsed the promissory notes. and it was the bill of exchange which was indorsed by the plaintiff. before they were indorsed. to the plaintiff and did not in any manner qualify its indorsement. as the case may be. do not and were never contended to fully discharge and release that firm from its liability as an indorser. but has been required by the bank to make his promissory note for the amount of the draft. In other words. according to its tenor. With all due respect to the able and ingenious brief for the appellant. an to specify that Aw Yong Chiow Soo should have any proceeds from the notes after the draft had been fully paid therefrom and the plaintiff released from his liability as an indorser. It is founded upon the promissory notes. and that Aw Yong Chiow Soo knew it. was insolvent. The plaintiff did not receive any part of the proceeds of the draft. Here.

be packed for shipment and delivery the next day. SAN CARLOS MILLING CO. likewise a bank in which plaintiff maintained a deposit.000. conspiring together with one Alfredo Dolores. sent an exchange contract to plaintiff corporation offering the sum of P201. Before delivering the money. and that the loss was due to the dishonesty of plaintiff's employees and the negligence of plaintiff's general agent. to whom had been given a general power of attorney but without power of substitution. and he left the bank and shortly afterwards returned with another check for P1. that the check had been endorsed for deposit. where it was paid by the China Banking On the same day the cashier of the Bank of the Philippine Islands received a letter. . Wilson.: Plaintiff corporation. 1933 Corporation. and upon the defendant bank refusing to credit plaintiff with the amount withdrawn by the two forged checks of P200. named in the letter. that they had dealt with the accredited representatives of the company in the due course of business. which was then the current rate of exchange.000 in bills of various denominations. The next day. its agent under general power of attorney with authority of substitution. HULL. the China Banking Corporation was absolved even if the endorsement of Newland Baldwin on the check was a forgery.) NEWLAND BALDWIN For Agent The endorsement to which the name of Newland Baldwin was affixed was spurious. Whereupon the money was turned over to Dolores. About a year thereafter Wilson..000. sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation of Manila of $100. purporting to be signed by Newland Baldwin as agent.000. The principal employee in the Manila office was one Joseph L. and Dolores. Cooper. P10. In plaintiff's Manila office. desiring to go on vacation. The agent did not keep in his personal possession either the code-book or the blank checks of either the Bank of the Philippine Islands or the China Banking Corporation. the manger's check was deposited with the Bank of the Philippine Islands by the following endorsement: For deposit only with Bank of the Philippine Islands. No. never under the sole supervision of Dolores as the representative of plaintiff. and that as the prior endorsement had in law been guaranteed by the Bank of the Philippine Islands. On the same date. L-37467 December 11. and finally on the suggestion of the defendant bank.BANK OF THE PHILIPPINE ISLANDS and CHINA BANKING CORPORATION. vs.000 and passed the cashier's check in the ordinary course of business through the clearing house. The Bank of the Philippine Islands presented many special defenses. By (Sgd.00. the bank asked Dolores for P1 to cover the cost of packing the money. LTD. to credit of account of San Carlos Milling Co. The money was transferred by cable. a messenger-clerk in plaintiff's Manila office. directing that P200. where he turned the money over to Wilson and received as his share. Wilson.. 1927. In 1926 Cooper. Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of the Philippine Islands but never in so large an amount. At the trial the China Banking Corporation contended that they had drawn a check to the credit of the plaintiff company. A manager's check on the China Banking Corporation for P201. The business in the Philippine Islands was in the hands of Alfred D. gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with the Bank of the Philippine Islands. The Bank of the Philippine Islands thereupon credited the current account of plaintiff in the sum of P201. and maintains its main office in these Islands in the City of Manila. and according to the record.000 payable to San Carlos Milling Company or order was receipted for by Dolores. an amended complaint was filed by plaintiff against both the Bank of the Philippine Islands and the China Banking Corporation.net Please send us certified check in our favor when transfer is received. is authorized to engaged in business in the Philippine Islands. defendants-appellees. On this contract was forged the name of Newland Baldwin and typed on the body of the contract was a note:lawphil.. but in the main their contentions were that they had been guilty of no negligence. Shortly thereafter the crime was discovered. plaintiff-appellant.R. and shortly afterwards returned with the check for the sum of P200. when they presented the cashier's check to it for payment.G. purporting to be signed by Newland Baldwin. one of the banks in Manila in which plaintiff maintained a deposit. besides the general agent. September 28. suit was brought against the Bank of the Philippine Islands. Wilson could draw checks in the name of the plaintiff on the China Banking Corporation. who took it to plaintiff's office. most of the time there was employed a woman stenographer and cashier. purporting to be signed by Newland Baldwin. J. Baldwin was authorized to draw checks on either of the depositaries. Ltd.000 and P1. and upon its receipt the China Banking Corporation. Dolores witnessed the counting and packing of the money. organized under the laws of the Territory of Hawaii.

and if it pays a forged check. in none was the claimant a regular depositor of the bank. Even if we would treat the China Banking Corporation's cashier's check the same as the check of a depositor and attempt to apply the doctrines of the Great Eastern Life Insurance Co. and they solicit deposits in order that they can use the money for that very purpose. It is an elementary principle both of banking and of the Negotiable Instruments Law that — A bank is bound to know the signatures of its customers. A bank that cashes a check must know to whom it pays. and as Newland Baldwin. the agent. the money was in fact paid to plaintiff corporation. to the Bank of the Philippine Islands said in part: ". even if some of them were also those of depositors in that bank. the fact that these signatures were forged is beyond question.000 was that of depositor and banker. It is a matter of general knowledge that most endorsements for deposit only. nor is it believed that Baldwin signed checks in blank and turned them over to Wilson. plaintiff could not recover. . was not guilty of negligence. . and that as the cause of loss was the criminal actions of Wilson and Dolores. In the first place. it must be considered as making the payment out of its own funds. Hongkong & Shanghai Banking Corporation and National Bank (43 Phil. Furthermore. the trial court held that the deposit of P201. nor in any of the cases cited.000. There is a mild assertion on the part of the defendant bank that the disputed signatures of Newland Baldwin were genuine and that he had been in the habit of signing checks in blank and turning the checks so signed over to Wilson. It accepted the check and duly credited plaintiff's account with the amount on the face of the check. As above stated. it will be seen that it drew its check payable to the order of plaintiff and delivered it to plaintiff's agent who was authorized to receive it. which ground would likewise defeat recovery. creditor and debtor.000 in the Bank of the Philippine Islands being the result of a forged endorsement. In the event of your refusal to pay. As. we cannot agree with the theory of plaintiff that the Bank of the Philippine Islands was an intermeddling bank. however.After trial in which much testimony was taken. Returning to the relation between plaintiff and the Bank of the Philippine Islands. that the Bank of the Philippine Islands acted in good faith in the ordinary course of its business. we would at the same time have to hold that the Bank of the Philippine Islands was indebted to the China Banking Corporation in the same amount. and the China Banking Corporation was not bound to inspect and verify all endorsements of the check. 678). on two checks on which the name of Baldwin was forged as drawer. therefore plaintiff was guilty of negligence. We now come to consider the legal effect of payment by the bank to Dolores of the sum of P201.000) pesos. Plaintiff in its letter of December 23. 683. we must hold that the China Banking Corporation is indebted neither to plaintiff nor to the Bank of the Philippine Islands.. together with interest thereon at the agreed rate of 3 ½ per cent per annum on daily balances of our credit in account current with your bank to this date. employees of plaintiff. was the endorsement for deposit only. Plaintiff was not harmed by the transaction as the only result was the removal of that sum of money from a bank from which Wilson could have drawn it out in his own name to a bank where Wilson would not have authority to draw checks and where funds could only be drawn out by the check of Baldwin. In the many cases cited by plaintiff where the bank that cashed the forged endorsement was held as an intermeddler. the relation of depositor and banker did not exist. but the bank was only a gratuitous bailee. In connection with the cashier's check. Banks are run for gain. we now leave to demand that you pay over to us the entire amount of said manager's check of two hundred one thousand (P201.. It did not take it up as a separate account but it transferred the credit to plaintiff's current account as a depositor of that bank. and therefore under article 1902 of the Civil Code which should control the case.000. plaintiff brings this appeal and makes nine assignments of error which we do not deem it necessary to discuss in detail. (7 C. banks are not gratuitous bailees of the funds deposited with them by their customers. In this case the action was neither gratuitous nor was it a bailment." Such language might well be treated as a ratification of the deposit. this duty was therefore upon the Bank of the Philippine Islands. It must be noted that this was not a presenting of the check for cash payment but for deposit only. The proof as to the falsity of the questioned signatures of Baldwin places the matter beyond reasonable doubt. and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. As to the China Banking Corporation. and hold the China Banking Corporation indebted to plaintiff. had not exercised adequate supervision over plaintiff's Manila office. The bank would have been justified in accepting the check for deposit even with only a typed endorsement. The contention of the bank that it was a gratuitous bailee is without merit. vs. are informal. we shall claim interest at the legal rate of 6 per cent from and after the date of this demand inasmuch as we desire to withdraw and make use of the money. it is absolutely contrary to what the bank did. It is therefore clear that the relation of plaintiff with the Bank of the Philippine Islands in regard to this item of P201. On the other hand. we will now consider the effect of the deposit of P201.) .J. and the judgment of the lower court far as it absolves the China Banking Corporation from responsibility is affirmed. Most are by means of a rubber stamp. It had a right to rely upon the endorsement of the Bank of the Philippine Islands when it gave the latter bank credit for its own cashier's check. 1928. From the decision of the trial court absolving the defendants.

until payment. with legal interest thereon from December 23. the messenger to whom it entrusted this large sum of money. The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks. together with costs in both instances. The signatures to the check being forged. These. for the sum of P200.There is no act of the plaintiff that led the Bank of the Philippine Islands astray.1928. . If it was in fact lulled into a false sense of security. The judgment absolving the Bank of the Philippine Islands must therefore be reversed. even today the bank represents that it has a relief that they are genuine signatures.001. under section 23 of the Negotiable Instruments Law they are not a charge against plaintiff nor are the checks of any value to the defendant. it was by the effrontery of Dolores. So ordered. they never questioned at the time its employees should have used care. defendant-appellee. and a judgment entered in favor of plaintiff-appellant and against the Bank of the Philippine Islands. In fact.

285. Foerster's wife. has even less force.. de Foerster was his stenographer. L-38816 November 3. By: (Sgd. indicative of right of his wife and clerk to do the same . Dolores Salcedo. it is a sufficient answer to state that no such special defense was relied upon by the bank in the trial court. the bank made itself responsible to the drug company for the amounts represented by the checks.) U. judgment of the trial court will be affirmed.. Angel Padilla. Upon the discovery of anomalies. Foerster also acted as a collector for the company. Inc. it is sufficient to state that no trust fund was involved. plaintiffappellee..R.. Carmen E. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. to the effect that Foerster had implied authority to indorse all checks made out in the name of the Insular Drug Co.. (Arcade Realty Co. E.285. The checks were in that bank placed in the personal account of Foerster. The next point relied upon by the bank. 75 N. de Foerster. 547. Inc.) Carmen E. with the Iloilo branch of the Philippine National Bank. United States Savings Institution [1870]. Corn Exchange Bank [1917]. People vs. By: (Sgd. THE PHILIPPINE NATIONAL BANK.. After the indorsement on the checks was written "Received payment prior indorsement guaranteed by Philippine National bank. others. Manager..) U. Some of the checks were drawn against the Bank of Philippine National Bank. Not only did the bank permit Foerster to indorse checks and then place them to his personal account. "Insular Drug Co." The indorsement on the checks took various forms. and Foerster's clerk. 46 Mo. Estanislao Salcedo. Foerster. The drug company saw fit to stand on the proposition that checks drawn in its favor were improperly and illegally cashed by the bank for Foerster and placed in his personal account. Foerster was formerly a salesman of drug company for the Islands of Panay and Negros.) Carmen E. (Sgd. Standard Steam Specialty Co. Inc. The record consists of the testimony of Alfred Von Arend. 1933INSULAR DRUG CO. Iloilo Branch. Foerster with the bank. ET AL. de Froster". this is a case where 132 checks made out in the name of the Insular Drug Co..E. Instead.. The meagre record and the statement of facts agreed upon by the attorneys for the contending parties disclose the following facts: The Insular Drug Co... and the bank did not try to go back of this proposition. President and Manager of the Insular Drug Co. mentioned by both parties rest on a different states of facts.) Further speaking to the errors specified by the bank." etc. Foerster and Carmen E. admitting that Foerster had right to indorse the checks. Inc. some being "Insular Drug Company. vs. By: (Sgd.. The bank could tell by the checks themselves that the money belonged to the Insular Drug Co.. including those of Juan Llorente. there are elementary principles governing the relationship between a bank and its customers which are controlling. vs. Foerster".92. Foerster committed suicide. In this connection it should be explained that Carmen E. the bank argues that the drug company was never defrauded at all.. were brought to the branch office of the Philippine National Bank in Iloilo by Foerster. is a Philippine corporation with offices in the City of Manila.E.92 with legal interest and costs. Foerster" other being "Insular Drug Co. but the bank has not done so. and not to Foerster or his wife or his clerk.) Carmen E.) U. 278. a salesman of the drug company.. others "Insular Drug Co..THE PHILIPPINE NATIONAL BANK. In first place.. However. and must same by the consequences if the agent who indorses the same is without authority. 180 Cal. The Insular Drug Company claims that it never received the face value of 132 checks here in the question covering a total of P18. 318. In brief.. There is no Philippine authority which directly fits the proven facts.) Carmen E. INC... and that the checks drawn on the Bank of the Philippine Islands can not be differentiated from those drawn on the Philippine National Bank because of the indorsement by the latter.. While the evidence on the extent of the loss suffered by the drug company is not nearly as clear as it should be. But there is no evidence showing that the bank knew that Foerster was misappropriating the funds of his principal. China Banking Corporation ([1930]. 208). Foerster deposited checks. de Foerster. that no proof was adduced. Agent (Sgd. Foerster. 55 Phil..: This is an appeal taken by Philippine National Bank from a judgment of the Court of First Instance of Manila requiring bank to pay to the Insular Drug Co.. Bank of Commerce [1919]. de Foerster"..) Carmen E. but it went farther and permitted Foerster's wife and clerk to indorse the checks. J. Inc.) U. the sum of P18. appellant.. Any person taking checks made payable to a corporation. He was instructed to take the checks which came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India. By: (Sgd. thus making it possible for Foerster to defraud the drug company. Eventually the Manila office of the drug company investigated the transactions of Foerster. 220 N. The Philippine National Bank was content to submit the case without presenting evidence in its behalf. Much more could be said about this case. Graham vs. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the drug company which thus suffered no loss.Y... Inc. which can act only by agent does so at his peril. As a consequence of the indorsements on checks the amounts therein stated were subsequently withdrawn by U. No. that the fact that bank acted in good faith does not relieve it from responsibility.. U. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals without there being made authority from the drug company to do so. Australia and China and deposit the amounts to the credit of the drug company. (Sgd.Y. Inc. others "(Sgd. Carmen E. Bank of North America [1879]. The case of Fulton Iron Works Co. (Sgd. Agent. . Inc. Bacaldo. the costs of this instance to be paid by appellant. and a fourth party.. vs. de Foerster". Inc.MALCOLM. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. and of exhibits obtained from the Philippine National Bank showing transactions of U. defendants.. but it suffices to state in conclusion that bank will have to stand the loss occasioned by the negligence of its agents.) V. de Foerster. Inc. Overruling the errors assigned. one (Sgd. de Foerster. vs. 186. de Foerster.G.

000 Japanese military notes. 1943. he asked Ramos to hand print it because Ramos' signature was not clear. Below "Enrique P. Pedro Encarnacion. In April and May. As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the province. ET AL. the USAFFE forces to which he was attached surrendered. Provincial Treasurer of Lanao did not have that amount in cash.: In August. defendants-appellees. 1944.000 and P25. 1942. and the balance of P400. V. in typewriting are words and figures also in typewriting. under the signature.000. he gave Ramos P300.000 which he had received from the Provincial Treasurer of Lanao. 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon. The balance to be deposited in the Philippine National Bank to the credit of M. four bottles of sulphatia sole. 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500.000 only.000 drawn on the Philippine National Bank. at the back of the document he wrote in longhand the following: Pay to the order of Enrique P. vs. accompanied by his agents and by Ramos himself. leaving a balance unpaid of P45. "517 Isabel Street" and about ¹/8 of an inch therefrom.000. plaintiff-appellant. According to Laya he had previously deposited P500. the court rendered a decision dismissing the complaint with costs against plaintiff-appellant.000 in emergency notes and a check for P500. the amount of Check No. 1382 to Enrique P.R. that of this amount. After hearing. the edges of the check appear to have been burned. According to Montinola's version. 1382 issued on May 2. About April 26. to be sure that it was genuine and negotiable. As such disbursing officer. was the emergency currency which had been issued since January. M. Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was selling only P30. namely. Montinola filed a complaint in the Court of First Instance of Manila against the Philippine National Bank and the Provincial Treasurer of Misamis Oriental to collect the sum of P100. No. Ramos" also in green ink but made in handwriting.000 Montinola would pay him P90. Ramos was inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. Montinola. went to the neighboring Province Lanao to procure a cash advance in the amount of P800. Montinola P30.000 tablets. 1942 by the Provincial Treasurer of Misamis Oriental to Mariano V. particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces. Ramos on April 30. V.000 emergency notes in the Philippine National Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit.000 in Japanese military notes but that Montinola gave him only two checks of P20. "pay to the order of" — in rubber stamp and in violet color are placed about one inch from the top. sometime in June. M. are a facsimile of the signature of Ramos.. On May 2.000 of the check and for this reason. Montinola". Ramos and supposedly indorsed to Montinola. Enrique P. thru the recommendation of Provincial Treasurer Laya. 1944 or the first days of January. Ramos duly indorsed the check to him. L-2861 February 26. his assistant agent M. In April of that year 1942. There is a signature which apparently reads "M. Mariano V. that he and Ramos finally agreed to the sale of the check for P850. 1951 ENRIQUE P. Montinola. Ramos was made a prisoner of war until February 12. Ramos is hand printed in green ink.G. In this he was ." To the above description we may add that the name of M. J.MONTEMAYOR. that after examining it President Carmona told him that it was negotiable but that he should not let the Japanese catch him with it because possession of the same would indicate that he was still waiting for the return of the Americans to the Philippines. each bottle containing 1. Ramos allegedly indorsed this check No. Montinola" in typewriting which is approximately 5/8 an inch below the stamped words "pay to the order of". that upon payment of the full price. V. Montinola has appealed from that decision directly to this Court inasmuch as the amount in controversy exceeds P50. P450. the Japanese forces entered the capital of Misamis Oriental. 1942. 1382 for P100. Laya did not have enough cash to cover the check so he gave Ramos P400. Ramos further said that in exchange for this assignment of P30.000 was paid in kind. Ramos worked under him as assistant agent in the bank branch aforementioned. M. V. There is no dispute as to the following facts. V. he was released and he resumed his status as a civilian. The circumstances and conditions under which the negotiation or transfer was made are in controversy. payable in installments. Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him. but there are words stamped apparently in rubber stamp which. According to Montinola.000.THE PHILIPPINE NATIONAL BANK. Ubaldo D. 1947. This is followed by the words "Enrique P. offered to sell him the check. after which. 1942. and on June 10. V. according to Montinola. This indorsement which now appears on the back of the document is described in detail by trial court as follows: The endorsement now appearing at the back of the check (see Exhibit A-1) may be described as follows: The woods. and each tablet valued at P100. 1945. So.000. 1942. went to see President Carmona of the Philippine National Bank in Manila about said check. About the last days of December. Laya was the Provincial Treasurer of Misamis Oriental. needing money with which to buy foodstuffs and medicine. the currency being used in Mindanao.000 in emergency notes and a check No. MONTINOLA. V.000 was paid to Ramos in Japanese military notes in five installments. Ramos.000. Ramos.000 for the use of the USAFFE in Cagayan de Misamis.

was to pay Ramos P90. it may be stated that looking at the face of the check (Exhibit A) we see that the left third portion of the paper has been cut off perpendicularly and severed from the remaining 2/3 portion. Ramos which had been written by him at the back of the check. Montinola 517 Isabel Street". evidencing said payment. it is well to give a further description of it as we shall later. in its well-prepared decision. the supposed participation of M. Exhibit A-1. signed by M. What appears thereon is the indosement testified to by Montinola and described by the trial court as reproduced above. Montinola. we quote with approval what the trial court presided over by Judge Conrado V. at the trial. a nearby house. Cortado stated that when he (Cortado). and that in order to justify the nondelivery of the document and to discourage Ramos from getting it back. both signed by Montinola and M. Exhibit A. the rubber stamp was already in the house of Montinola. V.000 was issued by Montinola. blotting and smearing and pasting of the check renders it difficult if not impossible to read some of the words and figures on the check. the oval line in violet. all this tearing. that is. create doubts as to whether or not really Ramos made the indorsement as it now appears at the back of Exhibit A. When Montinola filed his complaint in 1947 he stated therein that the check had been lost. which back bears a larger smear right under the blot. who told the court that the agreement between Ramos and Montinola was that the latter. testified that Ramos carried in his pocket the said rubber stamp as well as the ink pad. (b) Again Cortado. and to keep and attach this triangular portion and the rectangular ¹/3 portion to the rest of the document. Said present indorsement occupies a good portion of the back of the check. he (Montinola) had to resort to the mutilation of the document. Ramos demanded the return of the check to him. and stamped it in his house. on the other hand. But the check is badly mutilated. Ramos in it and the writing originally appearing on the reverse side of the check.corroborated by Atty. one for Montinola and the other for Ramos." of the words "Enrique P. A-1) stated that Ramos typewrote these words outside of the premises of Montinola. The indorsement or writing described by M. burning. as aforesaid. in his own house. As to how said present indorsement came to be written.000. he (Simeon) prepared a document evidencing said payment of P20. which seems to have penetrated to the back of the check (Exhibit A-1). Atadero. Montinola" "and "517 Isabel Street". bottled. testified that Ramos typewrote the words "Enrique P. The unusually big space occupied by the indorsement on the back of the check and the discrepancies in the versions of Montinola and his witness Cortado just noted. V. Sanchez. there is a big blot with indelible ink about the right middle portion. Had Montinola really paid in full the sum of P850. Simeon Ramos Jr. Ramos. the circumstances surrounding its preparation. and in its place was placed the present indorsement appearing thereon. Obviously Cortado had no recollection as to how such marks ever were stamped at the back of the check. the entire check is pasted on both sides with cellophane. and its condition can best be appreciated by seeing it. V. torn and partly burned. A different indorsement. does not now appear at the back of said check. we agree with trial court that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30. The balance to be deposited to the credit of M. he presented the check itself and had its face marked Exhibit A and the back thereof Exhibit A-1.000 in Japanese Military Notes as consideration for the check? The following observations are in point: (a) According to plaintiff's witness Gregorio A.000 only. Ramos". on the other hand. Montinola and Ramos returned in group to the house of Montinola.000 of the check. speaking of the endorsement as it now appears at the back of the check (Exh. Cortado. even death by himself or his guerrilla forces if he did not return said check. .000 would be paid in a few days. the edges of the severed portions as well as of the remaining major portion. finally. In explanation of the mutilation of the check Montinola told the court that several months after indorsing and delivering the check to him. This writing was in some mysterious way obliterated. Montinola the amount of P30. V. he (Simeon) prepared another document with two copies.000 was issued by Montinola. and finally sign his name too far below the main indorsement. V. that when the first check for P20. for the sale to him of P30. Montinola" and the line in the form of cane handle crossing the word "street" in the words and figures "517 Isabel Street" in the endorsement Exhibit A-1 "unusual" to him. threatening Montinola with bodily harm. and it was on the table of the upper floor of the house. and that as far as he could remember this writing did not appear on the instrument and he had no knowledge as to how it happened to be there. One thing difficult to understand is why Ramos should go into the laborious task of placing the rubber stamp "Pay to the order of" and afterwards move to the typewriter and write the words "Enrique P. Speaking of the rubber stamp used at the back of the check and which produced the words "pay to the order of". and so in lieu thereof he filed a supposed photostic copy. enclosing "P.000 in Japanese military notes. but not black and sharp as the blot itself. Montinola. Ramos-according to the latter-does not now appear at the back of the check. says on these points: The allegedly indorsement: "Pay to the order of Enrique P. with the understanding that the balance of P45. However. It has already been described in detail. Before going into a discussion of the merits of the version given by Ramos and Montinola as to the indorsement or writing at the back of the check. As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check. a triangular portion of the upper right hand corner of said remaining 2/3 portion has been similarly cut off and severed. where cut bear traces of burning and searing.000 of the value of the document and that he was instructing the bank to deposit to his credit the balance. that when the second check for P25. Roughly. now appears. together with the stamp pad used to stamp the same.

it is pasted in cellophane. Under the circumstances. inasmuch as the bank has not yet accepted or certified the check. received by him for the use of the guerrillas. If he believed he was standing by his rights. Laya. since liberation. that when he informed Ramos that he did not have it in the house. he took extreme pains and precautions to save the check from the possible ravages of the war. The acts done by the very plaintiff on a document so important and valuable to him. threatened his life and demanded from him the return of the check. A) we now find the words in parenthesis "Agent. etc. (d) It seems that Montinola was not so sure as to what he had testified to in reference to the consideration he paid for the check. Montinola told Provincial Treasurer Elizalde of Misamis Oriental that "Ramos endorsed it (referring to check) to me for goods in kind. armed with a revolver. and that before the alleged loss. the alleged owner thereof. really Ramos did not have anything more to do with this check for the reason that Montinola had obtained in full the amount thereof. had it photographed. When Montinola testified this way in court. 14-20. 1947.000 in cash from June to December 1944. according to . And then. medicine. From the foregoing the court concludes that plaintiff Montinola came into the possession of the check in question about the end of December 1944 by reason of the fact that M. those words did not appear under the signature of Ubaldo D. Phil. the question is: Why should Montinola be afraid of Ramos? Montinola claims that Ramos went there about April.(c) Another circumstances which bears heavily upon the claim of plaintiff Montinola that he acquired the full value of the check and paid the full consideration therefor is the present condition of said check..000. but in some deposit outside thereof and that Ramos promised to return the next day. "Agent. pp. partially blotted. so much so that a photostatic copy thereof was merely attached to the complaint (see paragraph 7 of the complaint). Conceding at the moment these facts to be true. V. then the bank is not only drawee but also a drawer of the check. (R. and that upon the return of Ramos the next day he showed the two parts of the check. On the face of the check (Exh.000 Japanese money. considering the fact that it involves his life savings. 31-33. The condition of the check as it was produced is such that it was partially burned. In this he was corroborated by the payee M. that is. It this is true. testifying in court." In said letter Exhibit 3. there could not be any reason why Ramos should have threatened Montinola as stated by the latter. on A. burned the sides with a parrafin candle to show traces of burning. the most logical conclusion is that Ramos wanted the check at all costs because Montinola did not acquire the check to such an extent that it borders on intentional cancellation thereof (see Sections 119-123 Negotiable Instruments Law) there is room to believe that Montinola did not have so much investments in that check as to adopted an "what do I care?" attitude. obviously he overlooked a letter he wrote to the provincial treasurer of Cagayan. What is worse is that Montinola's excuse as to how it was lost. At the time of the filing of the complaint the check was allegedly lost. the triangle on the right upper part and the torn piece on the left part. and which according to him involves his life savings. It is now so unclean and discolored. Phil. and upon seeing the condition thereof Ramos did not bother to get the check back. registered said check with the General Auditing Office and he knew that Ramos. pp.) At the beginning of this decision. Laya was ex officio agent of the Philippine National Bank branch in that province. Brief of Appellee. In a straightforward manner and without vacillation Laya positively testified that the check Exhibit A was issued by him in his capacity as Provincial Treasurer of Misamis Oriental and that the words "Agent. badly mutilated. V. National Bank" now appearing under his signature did not appear on the check when he issued the same. Ubaldo D.000 of the face value thereof in consideration of the sum of P90. National Bank" were added after Laya had issued the check. Phil. and that the words in parenthesis "Agent. Oriental Misamis. burned the torn edges and bottled out the registration at the back. Exhibit 3 the record. Montinola did not mention the cash that he paid for the check. and with portions thereof burned-all done by plaintiff. Ramos sold to him P30. dated May 1. and P400.000 (in Japanese money) was actually paid by said plaintiff to Ramos. we stated that as Provincial Treasurer of Misamis Oriental.. that the same night he tore the check into three parts. of which only one-half or P45. because as drawee alone. He also said that he placed the blots in indelible ink to prevent Ramos — if he would be forced to surrender the middle part of the check — from seeing that it was registered in the General Auditing Office. is found in the following: That Ramos came to his house. discolored and pasted with cellophane.000 worth of sulphatiazole in January 1945 to complete the alleged consideration of P850. stated that he issued the check only as Provincial Treasurer. purportedly showing that he issued the check as agent of the Philippine National Bank. was hot after the possession of that check. bottled with ink on both sides torn three parts. Laya. he could have very well sought police protection or transferred to some place where Ramos could not bother him. that it was mixed up with household effects is not plausible. The only reason advanced by plaintiff as to why tore check. Phil. National Bank" which now appear on the check Exhibit A were not typewritten below his signature when he signed the said check and delivered the same to Ramos. But a comparison between the photostatic copy and the original check reveals discrepancies between the two. and Montinola evidently is trying to hold the Philippine National Bank liable in that capacity of drawer. We again quote with approval the pertinent portion of the trial court's decision: The question is reduced to whether or not the words. during liberation. For. approximate intentional cancellation. it may yet avoid payment. Laya assured the court that there could not be any mistake as to this. Ramos who equally assured the court that when he received the check and then delivered it to Montinola. during the trial the original check Exhibit A was produced in court. And there is the circumstance of the alleged loss of the check. 1945. In that letter Exhibit 3. In court he testified that he paid P450. National Bank" under the signature of Laya. Yet.

is that the check was issued by Laya only as Provincial Treasurer and as an official of the Government which was under obligation to provide the USAFFE with advance funds. The check. and not by the Philippine National Bank which has no such obligation.Laya. and this is borne by the fact that the signature of Laya was countersigned by the provincial auditor. his testimony was corroborated by the payee M. Laya already knew that Cebu and Manila were already occupied. he expected to have it cashed at said Cebu bank branch against his deposit of P500. Exhibit A is not what we may term in business parlance. which was not done in this case. Ramos. that Ramos had made the insertion of the words "Agent. the addition of the words "Agent. From all the foregoing. but by the bank cashier. V. The plaintiff because of the alleged loss of the check. said treasurer would have placed below his signature the words "Agent of the Philippine National Bank".000 in emergency notes and the P100. Unless the plaintiff in making this copy or transcription in the complaint committed a serious omission which is decisive as far as the bank is concerned.000 was issued to complete the payment of the other check for P500. we may safely conclude as we do that the words "Agent. National Bank" now appearing on the face of the check (Exh. The balance of P400. He also testified that the said check was issued by him in his capacity as provincial treasurer of Misamis Oriental and that is why the same was countersigned by Provincial Auditor Flores. 1947. too there is the circumstance that this check was issued by the provincial treasurer of Lanao to Ramos who requisitioned the said funds in his capacity as disbursing officer of the USAFFE. Now.000. not the bank cashier. A) were added or placed in the instrument after it was issued by Provincial Treasurer Laya to M. allegedly . Ramos add or place those words below the signature of Laya before transferring the check to Montinola? Let us bear in mind that Ramos before his induction into the USAFFE had been working as assistant of Treasurer Laya as exofficio agent of the Misamis Oriental branch of the Philippine National Bank. Phil. National Bank" now appearing on the face of the check under the signature of the Provincial Treasurer." Besides. V. There is no reason known to us why Provincial Treasurer Laya should issue the check (Exh. Phil. is missing. Referring to the mimeographed record on appeal filed by the plaintiffappellant.000 issued by the Provincial Treasurer of Lanao to Ramos. In the first place. contended that if the check in question had been issued by the provincial treasurer in his capacity as agent of the Philippine National Bank. Upon the foregoing circumstances the court concludes that the words "Agent. Phil. made part of plaintiff's complaint. the inference is. Said check for P100. the court finds that the preponderance of the evidence supports Laya's testimony. National Bank" after he received the check. In the normal course of events the check could not have been issued by the bank. the check is countersigned not by the Provincial Auditor who has nothing to do with the bank. so much so that upon the delivery of the P400. The very Annex C. we find that in transcribing and copying the check. according to Provincial Treasurer Laya. A). that at the time the complaint was filed. not of the bank but of the Provincial Treasury. National Bank" below the signature of Laya and the printed words "Provincial Treasurer". National Bank' below the signature of Ubaldo D. and since the check bears the countersignature not of the Bank cashier of the Provincial Auditor. He could not have therefore issued the check-as a bank employee-payable at the central office of the Philippine National Bank. obviously. when he issued check in his capacity as agent of the Misamis Oriental agency of the Philippine National Bank the said check must be countersigned by the cashier of the said agency — not by the provincial auditor. The Provincial Auditor at that time had no connection in any capacity with the Misamis Oriental agency of the Philippine National Bank. A) as agent of the Philippine National Bank. because he should have realized that following the practice already described. not as agent of the Bank. It is therefore more logical to believe and to find that the addition of those words was made after the check had been transferred by Ramos to Montinola. As already stated. Ramos. the check having been issued by Laya as Provincial Treasurer.000 check to Ramos. But what renders more probable the testimony of Laya and Ramos is the fact that the money for which the check was issued was expressly for the use of the USAFFE of which Ramos was then disbursing officer. "certified check" or "cashier's check. as part of the advance funds for the USAFFE in Cagayan de Misamis. Phil. and later introduced in evidence for him as Exhibit E states that Laya issued the check "in his capacity as Provincial Treasurer of Misamis Oriental". did M. That probably was the reason why the bank in its motion to dismiss dated September 2. Phil. therefore. The logical conclusion. he deposited P500. Laya credited his depository accounts as provincial treasurer with the corresponding credit entry. It is not likely.000 of said currency in the Philippine National Bank branch in Cebu.000 in cash was paid to Ramos by Laya from the funds. And then. Naturally. Phil. it is countersigned by the Provincial Auditor as was done on the check (Exhibit A). upon receiving a relatively considerable amount of these emergency notes for his office. that when a check is issued by the Provincial Treasurer as such. Said USAFFE were being financed not by the Bank but by the Government and. Laya and the printed words "Provincial Treasurer" were added in the check after the same was issued by the Provincial Treasurer of Misamis Oriental. Plaintiff Montinola on the other hand testified that when he received the check Exhibit A it already bore the words "Agent. therefore. After considering the testimony of the one and the other. there are other facts and circumstances involved in the case which support this view. V. Moreover. Ramos must have known the procedure followed there as to the issuance of checks. said phrase did not appear on the face of the check. the words "Agent. but that if the Provincial Treasurer issues a check as agent of the Philippine National Bank. National Bank" could not change the status and responsibility of the bank. at the time the check was issued. one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose. particularly the face of it (Exhibit A) in the complaint. and that in issuing the check (Exh. namely. presumably. and not as agent of the bank.

National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check (Exhibit A). Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions. Exhibit A. A). When Montinola received the check. it was long overdue. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability. On the basis of the facts above related there are several reasons why the complaint of Montinola cannot prosper." Montinola may therefore not be regarded as an indorsee. Of course. 1382 particularly the face thereof (Exhibit A). The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A. The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and "Treasurer". National Bank" does not appear under the signature of the provincial treasurer. At most he may be regarded as a mere assignee of the P30. Of course. he (Montinola) consulted President Carmona of the Philippine National Bank who assured him that the check was good and negotiable. 1944 when Ramos supposedly approached him for the purpose of negotiating the check. For instance. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. . At the time of the transfer of this check (Exh. And. There is one other circumstance. It is therefore evident that the Annex A now available is not the same original Annex A attached to the complaint in 1947. Phil. with the original Annex A. was payable on demand. but the same letter "N" is directly under the letter "I" of the word "Provincial" in Exhibit B. especially with the aid of a handlens. around August or September. (as in this case) does not operate as a negotiation of the instrument. National Bank". show notable differences and discrepancies. The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and appears to be double instead of one single line. on Exhibit B is on the very border line itself or even before said border line. The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Phil. this same ")" on Exhibit B appears in a single line and is relatively nearer to the border line.attached to the complaint a photostatic copy of said check and marked it as Annex A. Montinola for P90. a stable check. as regards the relative position of the phrase "Agent. Exhibit B. M. but said original Annex A appears to be missing from the record. We tried to verify this discrepancy by going over the original records of the Court of First Instance so as to compare the copy of Annex A in the complaint. after liberation. A-1). one of which is that he became the holder before it was overdue. Montinola is not even a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. now we have in the list of exhibit a photostatic copy marked Annex A and Exhibit B. 1945. even then. this same letter "k" however. If Annex A also marked Exhibit B is the photostatic copy of the original check No. There are other notable discrepancies between the check Annex A and the photostatic copy. as such assignee. of which he was President. Phil. 1948. the photostatic copy. or the first days of January. constitutes a material alteration of the instrument without the consent of the parties liable thereon. Montinola claims that about June. 1948. Phil. Ramos also told the court that it is not true that he ever went with Montinola to see President Carmona about the check in 1944. of which only P45. The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the lower right hand corner of the edge of the check (Exh. An indorsement which purports to transfer to the indorsee a part only of the amount payable. particularly of the phrase "Agent. and that when shown the check he told Montinola that it was stale. But a minute examination of and comparison between Annex A. this same letter "A" however in Exhibit B is directly under said tail. V. We then have the following facts. the photostatic copy also marked Exhibit B and the face of the check. A) to Montinola about the last days of December. 1945. . but according to the manifestation of counsel for the plaintiff dated October 15. giving ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit A). 1944. But in transcribing and copying said Annex A in his complaint. . This writing was obliterated and in its place we now have the supposed indorsement appearing on the back of the check (Exh. It may therefore be considered. the check which. with the title Provincial Treasurer. The insertion of the words "Agent.000 Japanese military notes. reopened. and so discharges the instrument. in compliance with the verbal order of the trial court. Ramos sold P30. said photostatic copy now marked Annex A and Exhibit B was submitted on October 15. on Exhibit A. How it disappeared is not explained. but the same letter "a" in Exhibit "B" is just below the space between the words "Provincial" and "Treasurer".000 of the check to Enrique P.000 was paid by Montinola. was long overdue by about 2 ½ years. the phrase "Agent. Laya.000 to Montinola and to deposit the balance to his (Ramos) credit. he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. important and worth nothing. the letter A of the word "Agent" is toward the right of the tail of the beginning letter of the signature of Ubaldo D. in which case. then said photostatic copy should be a faithful and accurate reproduction of the check. (Section 124 of the Negotiable Instruments Law). However. Exhibit A was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer on the Philippine National Bank as drawee. President Carmona on the witness stand flatly denied Montinola's claim and assured the court that the first time that he saw Montinola was after the Philippine National Bank. The writing made by Ramos at the back of the check was an instruction to the bank to pay P30.000 sold to him by Ramos. . being a negotiable instrument.

In the second place. he asked this Court to allow him to withdraw the original check (Exh. the original in order to see the actual alterations supposedly made thereon. In view of said opposition this Court resolution of March 6. 1950. Acting upon the petition contained in the bank's brief already mentioned. In view of all the foregoing. as was stated by the trial court in its decision. As already stated. It was negotiated in breach of trust. finding no reversible error in the decision appealed from. in a petition signed by plaintiff-appellant Enrique P. 1949. the same is hereby affirmed with costs. Ramos not as a person but M. Subsequently.Neither is he an indorsee for as already stated. and that at the time that Ramos sold a part of the check to him. 1950. for any action he may deem proper in the premises. As already stated. as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. 1950 opposed the said petition on the ground that inasmuch as the appellant's cause of action in this case is based on the said check. he should have known that a check for such a large amount of P100. The bank on March 2. once the decision becomes final. he has not paid the full amount of P90. Neither could it be said that he took it in good faith. said check may no longer be available if the appellant is allowed to withdraw said document. let the Clerk of Court transmit to the city fiscal the check (Exh. Also. it is absolutely necessary for the court to examine . Montinola must have known that at the time the check was issued in May. at most he can be considered only as assignee. In the prayer for relief contained at the end of the brief for the Philippine National Bank dated September 27. Ramos was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family. And. Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer. Ramos as the disbursing officer of the USAFFE.000 of the value of the check. 1942. Therefore. denied said petition for withdrawal.000 could not have been issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE. A) together with all pertinent papers and documents in this case.000 for which Ramos sold him P30. to the City Fiscal's Office for appropriate criminal action against the plaintiff-appellant if the facts so warrant. he had no right to indorse it personally to plaintiff. we find this prayer: It is also respectfully prayed that this Honorable Court refer the check. hence he transferred nothing to the plaintiff. V. Exhibit A. A) for him to keep. the money circulating in Mindanao and the Visayas was only the emergency notes and that the check was intended to be payable in that currency. the check was issued to M. As observed by the trial court. expressing his willingness to submit it to the court whenever needed for examination and verification. Montinola speculated on the check and took a chance on its being paid after the war. V. and that should this Court grant the prayer contained in the bank's brief that the check be later referred to the city fiscal for appropriate action. Montinola dated February 27.

by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable. On April 15. so on October 30. LTD. SAMBOK MOTORS CO. defendant Dr. 1974 certified this case to this Court the issue issued therein being one purely of law. plaintiff-appellee can go after said appellant. General Manager The maker.R. vs. dishonor. a sister company of Ng Sambok Sons Motors Co. it does not warrant that if said note is dishonored by the maker on presentment. 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo. 1969.939.939. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr.. It is further provided that in case on non-payment of any of the installments. judgment is rendered: (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15. defendants-appellants. in the amount of P15. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note. NONILLO Asst.. (c) that all prior parties had capacity to contract.. Villaruel has been declared insolvent.. the trial court rendered its decision dated September 12. and Presentment are hereby waived. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. 1969 Dr.939. Villaruel defaulted in the payment of his installments when they became due.: The former Court of Appeals. the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount due. by its resolution dated October 16. Dr. 1969. Branch I. because by such indorsement. and under the same management as the former. 1972 the lower court. 1 On plaintiff's motion for summary judgment. appellant Sambok indorsed the note "with recourse" and even waived the notice of demand.G. Villaruel pursuant to Section 21.. with interest at the rate of one percent per month.. (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. 1983 METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. it agreed that if Dr. that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be.00 payable in twelve (12) equal monthly installments.00 plus the legal rate of interest from October 30. The appeal is without merit. appellant Sambok raising a lone assignment of error as follows: The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof. L-39641 February 28. However. and (c) To pay the cost of suit. beginning May 18. A person who indorses without qualification engages that on due presentment. negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. J. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co. Ltd. During the pendency of the case in the trial court. The effect of such indorsement is that the note was indorsed without qualification. Villaruel failed to pay the promissory note as demanded. 1969 plaintiff formally presented the promissory note for payment to the maker. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. Villaruel fails to pay the note. (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15.SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO.00 plus interest thereon until fully paid. Not satisfied with the decision. Notice of Demand. or . protest and presentment. (BACOLOD) By: RODOLFO G. the present appeal was instituted. the dispositive portion of which reads as follows: WHEREFORE. plaintiffappellee. (b) that he has a good title to it. On the same date. Protest. 1973. No. dismissed the case against Dr. it becomes a qualified indorser that being a qualified indorser. hence. it will pay the amount to the holder. DE CASTRO. Rule 3 of the Rules of Court. on motion. on October 24. Sambok failed to pay. Ltd. 3 Appellant. hence plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. so on November 26. Dishonor. Dr. Sambok Motors Company (hereinafter referred to as Sambok). Villaruel died. the note shall be accepted or paid.

Lastly. SO ORDERED. 6 Consequently. the person secondarily liable thereon ceases to be such and becomes a principal debtor.both as the case may be. 5 His liabiliy becomes the same as that of the original obligor. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand. No costs. the holder need not even proceed against the maker before suing the indorser. the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment. . dishonor. protest and presentment were an waived. but rather confirm his obligation as a general indorser. the decision of the lower court is hereby affirmed. WHEREFORE. The words added by said appellant do not limit his liability. and that if it be dishonored. he will pay the amount thereof to the holder.