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NEGOTIABLE INSTRUMENTS CASES (SET 1) 1.) G.R. No. 72593 April 30, 19 7 CONSOLI!ATE! "L#$OO! IN!USTRIES, INC.

, %ENR# $EE, &'( RO!OL)O T. *ERGARA, petitioners, vs. I)C LEASING AN! ACCE"TANCE COR"ORATION, respondent 2.) G.R. No. 75502 No+,-.,r 12, 19 7 /ALILI! $OO! IN!USTRIES COR"ORATION, AL)RE!O SALONGA &'( 0OA1UIN MIGUEL !E 0ESUS, petitioners, vs. %ONORABLE INTERME!IATE A""ELLATE COURT &'( "%ILI""INE BAN/ING COR"ORATION 3.) G.R. No. L2 57 5 April 23, 19 9 BENITO S# 4 ONG, petitioner, vs. "EO"LE O) T%E "%ILI""INES "%ILI""INES &'( COURT O) A""EALS, respondents. 3.) G.R. No. L2391 0&'5&r4 30, 1990 "%ILI""INE AIRLINES, INC., petitioner, vs. %ON. COURT O) A""EALS, %ON. 0U!GE RICAR!O !. GALANO, Co5r6 o7 )ir86 I'86&'9, o7 M&'il&, Br&'9: ;III, 0AIME /. !EL ROSARIO, !,p564 S:,ri77, Co5r6 o7 )ir86 I'86&'9,, M&'il&, &'( AMELIA TAN, respondents 5.) G.R. No. 10 555 !,9,-.,r 20, 1993 RAMON TAN, petitioner, vs. T%E %ONORABLE COURT O) A""EALS &'( RI<AL COMMERCIAL BAN/ING COR"ORATION, respondents. =.) G.R. No. 100290 05', 3, 1993 NORBERTO TIBA0IA, 0R. &'( CARMEN TIBA0IA, petitioners, vs. T%E %ONORABLE COURT O) A""EALS &'( E!EN TAN, respondents. 7.) G.R. No. 93397 M&r9: 3, 1997 TRA!ERS RO#AL BAN/, petitioner, vs. COURT O) A""EALS, )ILRITERS GUARANT# ASSURANCE COR"ORATION &'( CENTRAL BAN/ o7 6:, "%ILI""INES, respondents. .) G.R. No. 9252 M&4 23, 1993 RAUL SESBRE>O, petitioner, vs. %ON. COURT O) A""EALS, !ELTA MOTORS COR"ORATION AN! "ILI"INAS BAN/, respondents. 9.) G.R. No. L230 23 ),.r5&r4 23, 19 9 GO*ERNMENT SER*ICE INSURANCE S#STEM, petitioner, vs. COURT O) A""EALS &'( MR. ? MRS. ISABELO R. RAC%O, respondents. 10.) G.R. No. 97753 A5@586 10, 1992 CALTE; ("%ILI""INES), INC., petitioner, vs. COURT O) A""EALS &'( SECURIT# BAN/ AN! TRUST COM"AN#, respondents.

G.R. No. 72593 April 30, 19 7 CONSOLI!ATE! "L#$OO! IN!USTRIES, INC., %ENR# $EE, &'( RO!OL)O T. *ERGARA, p,6i6io',r8, +8. I)C LEASING AN! ACCE"TANCE COR"ORATION, r,8po'(,'6. GUTIERREZ, JR., J.: This is a petition for certiorari under Rule 45 of the Rules of Court hich assails on !uestions of la a decision of the Inter"ediate #ppellate Court in #C$G.R. C% &o. '(')* dated Jul+ ,-, ,*(5, as ell as its resolution dated .cto/er ,-, ,*(5, den+in0 the "otion for reconsideration. The antecedent facts culled fro" the petition are as follo s: The petitioner is a corporation en0a0ed in the lo00in0 /usiness. It had for its pro0ra" of lo00in0 activities for the +ear ,*-( the openin0 of additional roads, and si"ultaneous lo00in0 operations alon0 the route of said roads, in its lo00in0 concession area at 1a0an0a, 2ana+, and Cara0a, 3avao .riental. 4or this purpose, it needed t o 567 additional units of tractors. Co0ni8ant of petitioner$corporation9s need and purpose, #tlantic Gulf : ;acific Co"pan+ of 2anila, throu0h its sister co"pan+ and "ar<etin0 ar", Industrial ;roducts 2ar<etin0 5the =seller$assi0nor=7, a corporation dealin0 in tractors and other heav+ e!uip"ent /usiness, offered to sell to petitioner$corporation t o 567 =Used= #llis Cra ler Tractors, one 5,7 an >33$6,$1 and the other an >33$,'$ 1. In order to ascertain the e?tent of or< to hich the tractors ere to /e e?posed, 5t.s.n., 2a+ 6(, ,*(), p. 447 and to deter"ine the capa/ilit+ of the =Used= tractors /ein0 offered, petitioner$corporation re!uested the seller$assi0nor to inspect the @o/ site. #fter conductin0 said inspection, the seller$assi0nor assured petitioner$corporation that the =Used= #llis Cra ler Tractors hich ere /ein0 offered ere fit for the @o/, and 0ave the correspondin0 arrant+ of ninet+ 5*)7 da+s perfor"ance of the "achines and availa/ilit+ of parts. 5t.s.n., 2a+ 6(, ,*(), pp. 5*$''7. Aith said assurance and arrant+, and rel+in0 on the seller$assi0nor9s s<ill and @ud0"ent, petitioner$corporation throu0h petitioners Aee and %er0ara, president and vice$ president, respectivel+, a0reed to purchase on install"ent said t o 567 units of =Used= #llis Cra ler Tractors. It also paid the do n pa+"ent of T o >undred Ten Thousand ;esos 5;6,),))).))7. .n #pril 5, ,*-(, the seller$assi0nor issued the sales invoice for the t o 67 units of tractors 5E?h. =B$#=7. #t the sa"e ti"e, the deed of sale ith chattel "ort0a0e ith pro"issor+ note as e?ecuted 5E?h. =6=7. Ci"ultaneousl+ ith the e?ecution of the deed of sale ith chattel "ort0a0e ith pro"issor+ note, the seller$assi0nor, /+ "eans of a deed of assi0n"ent 5E e?h. = , =7, assi0ned its ri0hts and interest in the chattel "ort0a0e in favor of the respondent. I""ediatel+ thereafter, the seller$assi0nor delivered said t o 567 units of =Used= tractors to the petitioner$corporation9s @o/ site and as a0reed, the seller$assi0nor stationed its o n "echanics to supervise the operations of the "achines. 1arel+ fourteen 5,47 da+s had elapsed after their deliver+ hen one of the tractors /ro<e do n and after another nine 5*7 da+s, the other tractor li<e ise /ro<e do n 5t.s.n., 2a+ 6(, ,*(), pp. '($'*7. .n #pril 65, ,*-(, petitioner Rodolfo T. %er0ara for"all+ advised the seller$assi0nor of the fact that the tractors /ro<e do n and re!uested for the seller$assi0nor9s usual pro"pt attention under the arrant+ 5E e?h. = 5 =7. In response to the for"al advice /+ petitioner Rodolfo T. %er0ara, E?hi/it =5,= the seller$assi0nor sent to the @o/ site its "echanics to conduct the necessar+ repairs 5E?hs. =',= ='$#,= ='$1,= ,' C,= =,'$C$,,= ='$3,= and ='$E=7, /ut the tractors did not co"e out to /e hat the+ should /e after the repairs ere underta<en /ecause the units ere no lon0er servicea/le 5t. s. n., 2a+ 6(, ,*(), p. -(7. 1ecause of the /rea<in0 do n of the tractors, the road /uildin0 and si"ultaneous lo00in0 operations of petitioner$corporation ere dela+ed and petitioner %er0ara advised the seller$assi0nor that the pa+"ents of the install"ents as listed in the pro"issor+ note ould li<e ise /e dela+ed until the seller$assi0nor co"pletel+ fulfills its o/li0ation under its arrant+ 5t.s.n, 2a+ 6(, ,*(), p. -*7. Cince the tractors ere no lon0er servicea/le, on #pril -, ,*-*, petitioner Aee as<ed the seller$assi0nor to pull out the units and have the" reconditioned, and thereafter to offer the" for sale. The proceeds ere to /e 0iven to the respondent and the e?cess, if an+, to /e divided /et een the seller$assi0nor and petitioner$corporation hich offered to /ear one$half 5,D67 of the reconditionin0 cost 5E e?h. = =7. &o response to this letter, E?hi/it =-,= as received /+ the petitioner$corporation and despite several follo $up calls, the seller$assi0nor did nothin0 ith re0ard to the re!uest, until the co"plaint in this case as filed /+ the respondent a0ainst the petitioners, the corporation, Aee, and %er0ara. The co"plaint as filed /+ the respondent a0ainst the petitioners for the recover+ of the principal su" of .ne 2illion &inet+ Three Thousand Ceven >undred Ei0ht+ &ine ;esos : -,D,)) 5;,,)*B,-(*.-,7, accrued interest of .ne >undred 4ift+ .ne Thousand Ci? >undred Ei0hteen ;esos : ('D,)) 5;,5,,',(.('7 as of #u0ust ,5, ,*-*, accruin0 interest thereafter at the rate of t elve 5,6E7 percent per annu", attorne+9s fees of T o >undred 4ort+ &ine Thousand Ei0ht+ .ne ;esos : -,D,)) 5;64*,)(,.- ,7 and costs of suit. The petitioners filed their a"ended ans er pra+in0 for the dis"issal of the co"plaint and as<in0 the trial court to order the respondent to pa+ the petitioners da"a0es in an a"ount at the sound discretion of the court, T ent+ Thousand ;esos 5;6),))).))7 as and for attorne+9s fees, and 4ive Thousand ;esos 5;5,))).))7 for e?penses of liti0ation. The petitioners li<e ise pra+ed for such other and further relief as ould /e @ust under the pre"ises. In a decision dated #pril 6), ,*(,, the trial court rendered the follo in0 @ud0"ent:

A>ERE4.RE, @ud0"ent is here/+ rendered: ,. orderin0 defendants to pa+ @ointl+ and severall+ in their official and personal capacities the principal su" of .&E 2IFFI.& &I&ETG T>REE T>.UC#&3 CE%E& >U&3RE3 &I&ETG EIG>T ;EC.C : -,D,)) 5;,,)*B,-*(.-,7 ith accrued interest of .&E >U&3RE3 4I4TG .&E T>.UC#&3 CIH >U&3RE3 EIG>TEE& ;EC.C : ('D,)) 5;,5,,',(.,('7 as of #u0ust ,5, ,*-* and accruin0 interest thereafter at the rate of ,6E per annu"I 6. orderin0 defendants to pa+ @ointl+ and severall+ attorne+9s fees e!uivalent to ten percent 5,)E7 of the principal and to pa+ the costs of the suit. 3efendants9 counterclai" is disallo ed. 5pp. 45$4', Rollo7 .n June (, ,*(,, the trial court issued an order den+in0 the "otion for reconsideration filed /+ the petitioners. Thus, the petitioners appealed to the Inter"ediate #ppellate Court and assi0ned therein the follo in0 errors: I T>#T T>E F.AER C.URT ERRE3 I& 4I&3I&G T>#T T>E CEFFER #TF#&TIC GUF4 #&3 ;#CI4IC C.2;#&G .4 2#&IF# 3I3 &.T #;;R.%E 3E4E&3#&TC$#;;EFF#&TC CF#I2 .4 A#RR#&TG. II T>#T T>E F.AER C.URT ERRE3 I& 4I&3I&G T>#T ;F#I&TI44$ #;;EFFEE IC # >.F3ER I& 3UE C.URCE .4 T>E ;R.2ICC.RG &.TE #&3 CUE3 U&3ER C#I3 &.TE #C >.F3ER T>ERE.4 I& 3UE C.URCE. .n Jul+ ,-, ,*(5, the Inter"ediate #ppellate Court issued the challen0ed decision affir"in0 in toto the decision of the trial court. The pertinent portions of the decision are as follo s: ??? ??? ??? 4ro" the evidence presented /+ the parties on the issue of arrant+, Ae are of the considered opinion that aside fro" the fact that no provision of arrant+ appears or is provided in the 3eed of Cale of the tractors and even ad"ittin0 that in a contract of sale unless a contrar+ intention appears, there is an i"plied arrant+, the defense of /reach of arrant+, if there is an+, as in this case, does not lie in favor of the appellants and a0ainst the plaintiff$appellee ho is the assi0nee of the pro"issor+ note and a holder of the sa"e in due course. Aarrant+ lies in this case onl+ /et een Industrial ;roducts 2ar<etin0 and Consolidated ;l+ ood Industries, Inc. The plaintiff$ appellant herein upon application /+ appellant corporation 0ranted financin0 for the purchase of the !uestioned units of 4iat$#llis Cra ler,Tractors. ??? ??? ??? >oldin0 that /reach of arrant+ if an+, is not a defense availa/le to appellants either to ithdra fro" the contract andDor de"and a proportionate reduction of the price ith da"a0es in either case 5#rt. ,5'-, &e Civil Code7. Ae no co"e to the issue as to hether the plaintiff$appellee is a holder in due course of the pro"issor+ note. To /e0in ith, it is /e+ond ar0u"ents that the plaintiff$appellee is a financin0 corporation en0a0ed in financin0 and receiva/le discountin0 e?tendin0 credit facilities to consu"ers and industrial, co""ercial or a0ricultural enterprises /+ discountin0 or factorin0 co""ercial papers or accounts receiva/le dul+ authori8ed pursuant to R.#. 5*() other ise <no n as the 4inancin0 #ct. # stud+ of the !uestioned pro"issor+ note reveals that it is a ne0otia/le instru"ent hich as discounted or sold to the I4C Feasin0 and #cceptance Corporation for ;()),))).)) 5E?h. =#=7 considerin0 the follo in0. it is in ritin0 and si0ned /+ the "a<erI it contains an unconditional pro"ise to pa+ a certain su" of "one+ pa+a/le at a fi?ed or deter"ina/le future ti"eI it is pa+a/le to order 5Cec. ,, &IF7I the pro"issor+ note as ne0otiated hen it as transferred and delivered /+ I;2 to the appellee and dul+ endorsed to the latter 5Cec. B), &IF7I it as ta<en in the conditions that the note as co"plete and re0ular upon its face /efore the sa"e as overdue and ithout notice, that it had /een previousl+ dishonored and that the note is in 0ood faith and for value ithout notice of an+ infir"it+ or defect in the title of I;2 5Cec. 56, &IF7I that I4C Feasin0 and #cceptance Corporation held the instru"ent free fro" an+ defect of title of prior parties and free fro" defenses availa/le to prior parties a"on0 the"selves and "a+ enforce pa+"ent of the instru"ent for the full a"ount thereof a0ainst all parties lia/le thereon 5Cec. 5-, &IF7I the appellants en0a0ed that the+ ould pa+ the note accordin0 to its tenor, and ad"it the e?istence of the pa+ee I;2 and its capacit+ to endorse 5Cec. '), &IF7. In vie of the essential ele"ents found in the !uestioned pro"issor+ note, Ae opine that the sa"e is le0all+ and conclusivel+ enforcea/le a0ainst the defendants$appellants. A>ERE4.RE, findin0 the decision appealed fro" accordin0 to la and evidence, Ae find the appeal decision in toto. Aith costs a0ainst the appellants. 5pp. 5)$55, Rollo7 ithout "erit and thus affir" the

The petitioners9 "otion for reconsideration of the decision of Jul+ ,-, ,*(5 as denied /+ the Inter"ediate #ppellate Court in its resolution dated .cto/er ,-, ,*(5, a cop+ of hich as received /+ the petitioners on .cto/er 6,, ,*(5. >ence, this petition as filed on the follo in0 0rounds: I. .& ITC 4#CE, T>E ;R.2ICC.RG &.TE IC CFE#RFG &.T # &EG.TI#1FE I&CTRU2E&T #C 3E4I&E3 U&3ER T>E F#A CI&CE IT IC &EIT>ER ;#G#1FE T. .R3ER &.R T. 1E#RER.

II T>E REC;.&3E&T IC &.T # >.F3ER I& 3UE C.URCE: #T 1ECT, IT IC # 2ERE #CCIG&EE .4 T>E CU1JECT ;R.2ICC.RG &.TE. III. CI&CE T>E I&CT#&T C#CE I&%.F%EC # &.&$&EG.TI#1FE I&CTRU2E&T #&3 T>E TR#&C4ER .4 RIG>TC A#C T>R.UG> # 2ERE #CCIG&2E&T, T>E ;ETITI.&ERC 2#G R#ICE #G#I&CT T>E REC;.&3E&T #FF 3E4E&CEC T>#T #RE #%#IF#1FE T. IT #C #G#I&CT T>E CEFFER$ #CCIG&.R, I&3UCTRI#F ;R.3UCTC 2#RJETI&G. I%. T>E ;ETITI.&ERC #RE &.T FI#1FE 4.R T>E ;#G2E&T .4 T>E ;R.2ICC.RG &.TE 1EC#UCE: #7 T>E CEFFER$#CCIG&.R IC GUIFTG .4 1RE#C> .4 A#RR#&TG U&3ER T>E F#AI 17 I4 #T #FF, T>E REC;.&3E&T 2#G REC.%ER .&FG 4R.2 T>E CEFFER$#CCIG&.R .4 T>E ;R.2ICC.RG &.TE. %. T>E #CCIG&2E&T .4 T>E C>#TTEF 2.RTG#GE 1G T>E CEFFER$ #CCIG&.R I& 4#%.R .4 T>E REC;.&3E&T 3.EC &.T C>#&GE T>E &#TURE .4 T>E TR#&C#CTI.& 4R.2 1EI&G # C#FE .& I&CT#FF2E&TC T. # ;URE F.#&. %I. T>E ;R.2ICC.RG &.TE C#&&.T 1E #32ITTE3 .R UCE3 I& E%I3E&CE I& #&G C.URT 1EC#UCE T>E REKUICITE 3.CU2E&T#RG CT#2;C >#%E &.T 1EE& #44IHE3 T>ERE.& .R C#&CEFFE3. The petitioners pra+ed that @ud0"ent /e rendered settin0 aside the decision dated Jul+ ,-, ,*(5, as ell as the resolution dated .cto/er ,-, ,*(5 and dis"issin0 the co"plaint /ut 0rantin0 petitioners9 counterclai"s /efore the court of ori0in. .n the other hand, the respondent corporation in its co""ent to the petition filed on 4e/ruar+ 6), ,*(', contended that the petition as filed out of ti"eI that the pro"issor+ note is a ne0otia/le instru"ent and respondent a holder in due courseI that respondent is not lia/le for an+ /reach of arrant+I and finall+, that the pro"issor+ note is ad"issi/le in evidence. The core issue herein is hether or not the pro"issor+ note in !uestion is a ne0otia/le instru"ent so as to /ar co"pletel+ all the availa/le defenses of the petitioner a0ainst the respondent$assi0nee. ;reli"inaril+, it "ust /e esta/lished at the outset that e consider the instant petition to have /een filed on ti"e /ecause the petitioners9 "otion for reconsideration actuall+ raised ne issues. It cannot, therefore, /e considered pro$ for"al. The petition is i"pressed ith "erit. 4irst, there is no !uestion that the seller$assi0nor /reached its e?press *)$da+ arrant+ /ecause the findin0s of the trial court, adopted /+ the respondent appellate court, that =,4 da+s after deliver+, the first tractor /ro<e do n and * da+s, thereafter, the second tractor /eca"e inopera/le= are sustained /+ the records. The petitioner as clearl+ a victi" of a arrant+ not honored /+ the "a<er. The Civil Code provides that: #RT. ,5',. The vendor shall /e responsi/le for arrant+ a0ainst the hidden defects hich the thin0 sold "a+ have, should the+ render it unfit for the use for hich it is intended, or should the+ di"inish its fitness for such use to such an e?tent that, had the vendee /een a are thereof, he ould not have ac!uired it or ould have 0iven a lo er price for itI /ut said vendor shall not /e ans era/le for patent defects or those hich "a+ /e visi/le, or for those hich are not visi/le if the vendee is an e?pert ho, /+ reason of his trade or profession, should have <no n the". #RT. ,5'6. In a sale of 0oods, there is an i"plied arrant+ or condition as to the !ualit+ or fitness of the 0oods, as follo s: 5,7 Ahere the /u+er, e?pressl+ or /+ i"plication "a<es <no n to the seller the particular purpose for hich the 0oods are ac!uired, and it appears that the /u+er relies on the sellers s<ill or @ud0e @ud0"ent 5 hether he /e the 0ro er or "anufacturer or not7, there is an i"plied arrant+ that the 0oods shall /e reasona/l+ fit for such purposeI ??? ??? ??? #RT. ,5'4. #n i"plied arrant+ or condition as to the !ualit+ or fitness for a particular purpose "a+ /e anne?ed /+ the usa0e of trade. ??? ??? ??? #RT. ,5''. The vendor is responsi/le to the vendee for an+ hidden faults or defects in the thin0 sold even thou0h he thereof. This provision shall not appl+ if the contrar+ has /een stipulated, and the vendor thin0 sold. 5E"phasis supplied7. as not a are

as not a are of the hidden faults or defects in the

It is patent then, that the seller$assi0nor is lia/le for its /reach of arrant+ a0ainst the petitioner. This lia/ilit+ as a 0eneral rule, e?tends to the corporation to ho" it assi0ned its ri0hts and interests unless the assi0nee is a holder in due course of the pro"issor+ note in !uestion, assu"in0 the note is ne0otia/le, in hich case the latter9s ri0hts are /ased on the ne0otia/le instru"ent and assu"in0 further that the petitioner9s defenses "a+ not prevail a0ainst it. Cecondl+, it li<e ise cannot /e denied that as soon as the tractors /ro<e do n, the petitioner$corporation notified the seller$assi0nor9s sister co"pan+, #G : ;, a/out the /rea<do n /ased on the seller$assi0nor9s e?press *)$da+ arrant+, ith hich the latter co"plied /+ sendin0 its "echanics. >o ever, due to the seller$assi0nor9s dela+ and its failure to co"pl+ ith its arrant+, the tractors /eca"e totall+ unservicea/le and useless for the purpose for hich the+ ere purchased. Thirdl+, the petitioner$corporation, thereafter, unilaterall+ rescinded its contract ith the seller$assi0nor. #rticles ,,*, and ,5'- of the Civil Code provide that: #RT. ,,*,. The po er to rescind o/li0ations is i"plied in reciprocal ones, in case one of the o/li0ors should not co"pl+ incu"/ent upon hi". ith hat is

The in@ured part+ "a+ choose /et een the fulfill"ent and the rescission of the o/li0ation ith the pa+"ent of da"a0es in either case. >e "a+ also see< rescission, even after he has chosen fulfill"ent, if the latter should /eco"e i"possi/le. ??? ??? ??? #RT. ,5'-. In the cases of articles ,5',, ,5'6, ,5'4, ,5'5 and ,5'', the vendee "a+ elect /et een and de"andin0 a proportionate reduction of the price, ith da"a0es in either case. 5E"phasis supplied7 ithdra in0 fro" the contract

;etitioner, havin0 unilaterall+ and e?tra@udiciall+ rescinded its contract ith the seller$assi0nor, necessaril+ can no lon0er sue the seller$ assi0nor e?cept /+ a+ of counterclai" if the seller$assi0nor sues it /ecause of the rescission. In the case of the Universit+ of the ;hilippines v. 3e los #n0eles 5B5 CCR# ,)67 e held: In other ords, the part+ ho dee"s the contract violated "a+ consider it resolved or rescinded, and act accordin0l+, ithout previous court action, /ut it proceeds at its o n ris<. 4or it is onl+ the final @ud0"ent of the correspondin0 court that ill conclusivel+ and finall+ settle hether the action ta<en as or as not correct in la . 1ut the la definitel+ does not re!uire that the contractin0 part+ ho /elieves itself in@ured "ust first file suit and ait for ad@ud0e"ent /efore ta<in0 e?tra@udicial steps to protect its interest. .ther ise, the part+ in@ured /+ the other9s /reach ill have to passivel+ sit and atch its da"a0es accu"ulate durin0 the pendenc+ of the suit until the final @ud0"ent of rescission is rendered hen the la itself re!uires that he should e?ercise due dili0ence to "ini"i8e its o n da"a0es 5Civil Code, #rticle 66)B7. 5E"phasis supplied7 Goin0 /ac< to the core issue, e rule that the pro"issor+ note in !uestion is not a ne0otia/le instru"ent. The pertinent portion of the note is as follo s: 4.R %#FUE RECEI%E3, ID e @ointl+ and severall+ pro"ise to pa+ to the I&3UCTRI#F ;R.3UCTC 2#RJETI&G, the su" of .&E 2IFFI.& &I&ETG T>REE T>.UC#&3 CE%E& >U&3RE3 EIG>TG &I&E ;EC.C : -,D,)) onl+ 5; ,,)*B,-(*.-,7, ;hilippine Currenc+, the said principal su", to /e pa+a/le in 64 "onthl+ install"ents startin0 Jul+ ,5, ,*-( and ever+ ,5th of the "onth thereafter until full+ paid. ... Considerin0 that para0raph 5d7, Cection , of the &e0otia/le Instru"ents Fa re!uires that a pro"issor+ note ="ust /e pa+a/le to order or /earer, = it cannot /e denied that the pro"issor+ note in !uestion is not a ne0otia/le instru"ent. The instru"ent in order to /e considered ne0otia/lilit+$i.e. "ust contain the so$called 9 ords of ne0otia/le, "ust /e pa+a/le to 9order9 or 9/earer9. These ords serve as an e?pression of consent that the instru"ent "a+ /e transferred. This consent is indispensa/le since a "a<er assu"es 0reater ris< under a ne0otia/le instru"ent than under a non$ne0otia/le one. ... ??? ??? ??? Ahen instru"ent is pa+a/le to order. CEC. (. A>E& ;#G#1FE T. .R3ER. L The instru"ent is pa+a/le to order person or to hi" or his order. . . . ??? ??? ??? These are the onl+ t o a+s /+ hich an instru"ent "a+ /e "ade pa+a/le to order. There "ust al a+s /e a specified person na"ed in the instru"ent. It "eans that the /ill or note is to /e paid to the person desi0nated in the instru"ent or to an+ person to ho" he has indorsed and delivered the sa"e. Aithout the ords =or order= or=to the order of, =the instru"ent is pa+a/le onl+ to the person desi0nated therein and is therefore non$ne0otia/le. #n+ su/se!uent purchaser thereof ill not en@o+ the advanta0es of /ein0 a holder of a ne0otia/le instru"ent /ut ill "erel+ =step into the shoes= of the person desi0nated in the instru"ent and ill thus /e open to all defenses availa/le a0ainst the latter.= 5Ca"pos and Ca"pos, &otes and Celected Cases on &e0otia/le Instru"ents Fa , Third Edition, pa0e B(7. 5E"phasis supplied7 Therefore, considerin0 that the su/@ect pro"issor+ note is not a ne0otia/le instru"ent, it follo s that the respondent can never /e a holder in due course /ut re"ains a "ere assi0nee of the note in !uestion. Thus, the petitioner "a+ raise a0ainst the respondent all defenses availa/le to it as a0ainst the seller$assi0nor Industrial ;roducts 2ar<etin0. here it is dra n pa+a/le to the order of a specified

This /ein0 so, there as no need for the petitioner to i"plied the seller$assi0nor hen it as sued /+ the respondent$assi0nee /ecause the petitioner9s defenses appl+ to /oth or either of either of the". #ctuall+, the records sho that even the respondent itself ad"itted to /ein0 a "ere assi0nee of the pro"issor+ note in !uestion, to it: #TTG. ;#F#C#: 3id e 0et it ri0ht fro" the counsel that hat is /ein0 assi0ned is the 3eed of Cale ith Chattel 2ort0a0e ith the pro"issor+ note hich is as testified to /+ the itness as indorsedM 5Counsel for ;laintiff noddin0 his head.7 Then e have no further !uestions on cross, C.URT: Gou confir" his "anifestationM Gou are noddin0 +our headM 3o +ou confir" thatM #TTG. IF#G#&: The 3eed of Cale cannot /e assi0ned. # deed of sale is a transaction /et een t o personsI the "ort0a0ee ere assi0ned to the I4C Feasin0 : #cceptance Corporation. C.URT: >e puts it in a si"ple a+ as one$deed of sale and chattel "ort0a0e ere assi0nedI . . . +ou ant to "a<e a distinction, one is an assi0n"ent of "ort0a0e ri0ht and the other one is indorse"ent of the pro"issor+ note. Ahat counsel for defendants ants is that +ou stipulate that it is contained in one sin0le transactionM #TTG. IF#G#&: Ae stipulate it is one sin0le transaction. 5pp. 6-$6*, TC&., 4e/ruar+ ,B, ,*()7. Cecondl+, even concedin0 for purposes of discussion that the pro"issor+ note in !uestion is a ne0otia/le instru"ent, the respondent cannot /e a holder in due course for a "ore si0nificant reason. The evidence presented in the instant case sho s that prior to the sale on install"ent of the tractors, there as an arran0e"ent /et een the seller$assi0nor, Industrial ;roducts 2ar<etin0, and the respondent here/+ the latter ould pa+ the seller$assi0nor the entire purchase price and the seller$assi0nor, in turn, ould assi0n its ri0hts to the respondent hich ac!uired the ri0ht to collect the price fro" the /u+er, herein petitioner Consolidated ;l+ ood Industries, Inc. # "ere perusal of the 3eed of Cale ith Chattel 2ort0a0e ith ;ro"issor+ &ote, the 3eed of #ssi0n"ent and the 3isclosure of FoanDCredit Transaction sho s that said docu"ents evidencin0 the sale on install"ent of the tractors ere all e?ecuted on the sa"e da+ /+ and a"on0 the /u+er, hich is herein petitioner Consolidated ;l+ ood Industries, Inc.I the seller$assi0nor hich is the Industrial ;roducts 2ar<etin0I and the assi0nee$financin0 co"pan+, hich is the respondent. Therefore, the respondent had actual <no led0e of the fact that the seller$assi0nor9s ri0ht to collect the purchase price as not unconditional, and that it as su/@ect to the condition that the tractors $sold ere not defective. The respondent <ne that hen the tractors turned out to /e defective, it ould /e su/@ect to the defense of failure of consideration and cannot recover the purchase price fro" the petitioners. Even assu"in0 for the sa<e of ar0u"ent that the pro"issor+ note is ne0otia/le, the respondent, hich too< the sa"e ith actual <no led0e of the fore0oin0 facts so that its action in ta<in0 the instru"ent a"ounted to /ad faith, is not a holder in due course. #s such, the respondent is su/@ect to all defenses hich the petitioners "a+ raise a0ainst the seller$assi0nor. #n+ other interpretation ould /e "ost ine!uitous to the unfortunate /u+er ho is not onl+ saddled ith t o useless tractors /ut "ust also face a la suit fro" the assi0nee for the entire purchase price and all its incidents ithout /ein0 a/le to raise valid defenses availa/le as a0ainst the assi0nor. Fastl+, the respondent failed to present an+ evidence to prove that it had no <no led0e of an+ fact, the pro"issor+ note as not a"ountin0 to /ad faith. Cections 56 and 5' of the &e0otia/le Instru"ents Fa provide that: ne0otiatin0 it. ??? ??? ??? CEC. 56. A>#T C.&CTITUTEC # >.F3ER I& 3UE C.URCE. L # holder in due course is a holder under the follo in0 conditions: ??? ??? ??? ??? ??? ??? 5c7 That he too< it in 0ood faith and for value 5d7 That the ti"e it ne0otiatin0 it ??? ??? ??? CEC. 5'. A>#T C.&CTITUTEC &.TICE .4 3E44ECT. L To constitute notice of an infir"it+ in the instru"ent or defect in the title of the person ne0otiatin0 the sa"e, the person to ho" it is ne0otiated "ust have had actual <no led0e of the infir"it+ or defect, or <no led0e of such facts that his action in ta<in0 the instru"ent a"ounts to /ad faith. 5E"phasis supplied7 as ne0otiated /+ hi" he had no notice of an+ infir"it+ in the instru"ent of deffect in the title of the person ho has ta<en the instru"ent hich ould @ustif+ its act of ta<in0 hat is assi0ned are ri0hts, the ri0hts of

Ae su/scri/e to the vie of Ca"pos and Ca"pos that a financin0 co"pan+ is not a holder in 0ood faith as to the /u+er, to it: In install"ent sales, the /u+er usuall+ issues a note pa+a/le to the seller to cover the purchase price. 2an+ ti"es, in pursuance of a previous arran0e"ent ith the seller, a finance co"pan+ pa+s the full price and the note is indorsed to it, su/ro0atin0 it to the ri0ht to collect the price fro" the /u+er, ith interest. Aith the increasin0 fre!uenc+ of install"ent /u+in0 in this countr+, it is "ost pro/a/le that the tendenc+ of the courts in the United Ctates to protect the /u+er a0ainst the finance co"pan+ ill , the finance co"pan+ ill /e su/@ect to the defense of failure of consideration and cannot recover the purchase price fro" the /u+er. #s a0ainst the ar0u"ent that such a rule ould seriousl+ affect =a certain "ode of transactin0 /usiness adopted throu0hout the Ctate,= a court in one case stated: It "a+ /e that our holdin0 here ill re!uire so"e chan0es in /usiness "ethods and ill i"pose a 0reater /urden on the finance co"panies. Ae thin< the /u+er$2r. : 2rs. General ;u/lic$should have so"e protection so"e here alon0 the line. Ae /elieve the finance co"pan+ is /etter a/le to /ear the ris< of the dealer9s insolvenc+ than the /u+er and in a far /etter position to protect his interests a0ainst unscrupulous and insolvent dealers. . . . If this opinion i"poses 0reat /urdens on finance co"panies it is a potent ar0u"ent in favor of a rule hich in afford pu/lic protection to the 0eneral /u+in0 pu/lic a0ainst unscrupulous dealers in personal propert+. . . . 52utual 4inance Co. v. 2artin, 'B Co. 6d '4*, 44 #FR 6d , N,*5BO7 5Ca"pos and Ca"pos, &otes and Celected Cases on &e0otia/le Instru"ents Fa , Third Edition, p. ,6(7. In the case of Co""ercial Credit Corporation v. .ran0e Countr+ 2achine Aor<s 5B4 Cal. 6d -''7 involvin0 si"ilar facts, it as held that in a ver+ real sense, the finance co"pan+ as a "ovin0 force in the transaction fro" its ver+ inception and acted as a part+ to it. Ahen a finance co"pan+ activel+ participates in a transaction of this t+pe fro" its inception, it cannot /e re0arded as a holder in due course of the note 0iven in the transaction. In li<e "anner, therefore, even assu"in0 that the su/@ect pro"issor+ note is ne0otia/le, the respondent, a financin0 co"pan+ hich activel+ participated in the sale on install"ent of the su/@ect t o #llis Cra ler tractors, cannot /e re0arded as a holder in due course of said note. It follo s that the respondent9s ri0hts under the pro"issor+ note involved in this case are su/@ect to all defenses that the petitioners have a0ainst the seller$assi0nor, Industrial ;roducts 2ar<etin0. 4or Cection 5( of the &e0otia/le Instru"ents Fa provides that =in the hands of an+ holder other than a holder in due course, a ne0otia/le instru"ent is su/@ect to the sa"e defenses as if it ere non$ne0otia/le. ... = ;rescindin0 fro" the fore0oin0 and settin0 aside other peripheral issues, e find that /oth the trial and respondent appellate court erred in holdin0 the pro"issor+ note in !uestion to /e ne0otia/le. Cuch a rulin0 does not onl+ violate the la and applica/le @urisprudence, /ut ould result in un@ust enrich"ent on the part of /oth the assi0ner$ assi0nor and respondent assi0nee at the e?pense of the petitioner$corporation hich ri0htfull+ rescinded an ine!uita/le contract. Ae note, ho ever, that since the seller$assi0nor has not /een i"pleaded herein, there is no o/stacle for the respondent to file a civil Cuit and liti0ate its clai"s a0ainst the seller$ assi0nor in the rather unli<el+ possi/ilit+ that it so desires, A>ERE4.RE, in vie of the fore0oin0, the decision of the respondent appellate court dated Jul+ ,-, ,*(5, as ell as its resolution dated .cto/er ,-, ,*(', are here/+ #&&UFFE3 and CET #CI3E. The co"plaint a0ainst the petitioner /efore the trial court is 3IC2ICCE3.C. .R3ERE3. 4ernan, ;aras, ;adilla, 1idin and Cortes, JJ., conc

G.R. No. 75502 No+,-.,r 12, 19 7 /ALILI! $OO! IN!USTRIES COR"ORATION, AL)RE!O SALONGA &'( 0OA1UIN MIGUEL !E 0ESUS,p,6i6io',r8, +8. %ONORABLE INTERME!IATE A""ELLATE COURT &'( "%ILI""INE BAN/ING COR"ORATION. 4EFICI#&., J.: .n ,- &ove"/er ,*-', Joa!uin 2i0uel de Jesus and #lfredo T. Calon0a, ;resident$General 2ana0er and Co"ptroller, respectivel+, of ;.1. 3e Jesus and Co"pan+, Inc., e?ecuted a pro"issor+ note 5;1C &o. ,6)6$-'7 in favor of respondent ;hilippine 1an<in0 Corporation in the a"ount of ;')),))).)), the o/li0ation "aturin0 on 6* 3ece"/er ,*-'. Ci"ilarl+, on 6 3ece"/er ,*-', a second

pro"issor+ note 5;1C &o. ,655$-'7 as e?ecuted this ti"e in the a"ount of ;B)),))).)), pa+a/le on or /efore B Januar+ ,*--. These t o instru"ents ere e?ecuted to docu"ent or reflect loans secured fro" respondent 1an< and ere si0ned /+ 2essrs. de Jesus and Calon0a in the follo in0 "anner: #. ;ro"issor+ &ote ;1C &o. ,6)6$-'$for ;')),))).)): 3ue 3ece"/er 6*,,*-' &o. ,6)6$-' 4or value received, ID e @ointl+ and severall+ pro"ise to pa+ to the ;hilippine 1an<in0 Corporation at its office at #+ala #venue, 2a<ati, 2etro 2anila the su" of CIH >U&3RE3 T>.UC#&3 .&FG ... pesos 5;')),))).))7 ith interest at the rate of 4.URTEE& percent ,4E per annu", fro" T.3#G until paid. In case this note is not paid at "aturit+ the interest rate shall auto"aticall+ /e increased to per annu". ??? ??? ??? E?ecuted at 2a<ati, ;hilippines on &ove"/er ,-,,*-'. ;.1. 3E JECUC : C.., I&C. 5C0d.7 #lfredo Calon0a 5C0d.7 2i0uel de Jesus I& .UR ;ERC.&#F C#;#CITG 5C0d.7 #lfredo Calon0a 5C0d.7 2i0uel de Jesus 1. ;ro"issor+ &ote ;1C &o. ,655$-'$for ;B)),))).)): 3ue Januar+ B, ,*-- &o. ,655$-' 4or valued received, ID e @ointl+ and severall+ pro"ise to pa+ to the ;hilippine 1an<in0 Corporation at its office at #+ala #venue, 2a<ati, 2etro 2anila the su" of T>REE >U&3RE3 T>.UC#&3 .&FG ... pesos 5;B)),))).))7, ith interest at the rate of 4.URTEE& per cent 5,4E7 per annu", fro" T.3#G until paid. In case this note is not paid at "aturit+ the interest rate shall auto"aticall+ /e increased to PPPPPPP 5PPPPPPE7 per annu". ??? ??? ??? E?ecuted at 2a<ati, ;hilippines on 3ece"/er 6,,*-'. ;.1. 3E JECUC : C.., I&C. 5C0d.7 #lfredo Calon0a 5C0d.7 2i0uel de Jesus I& .UR ;ERC.&#F C#;#CITIEC 5C0d,7 #lfredo Calon0a 5C0d.7 2i0uel de Jesus .n 5 2arch ,*-(, ;.3. 3e Jesus and Co"pan+, Inc., /+ vote of its stoc<holders, chan0ed its corporate na"e to Jalilid Aood Industries Corporation 5hereafter =Jalilid=7, an act su/se!uentl+ validated /+ the Cecurities and E?chan0e Co""ission. Thereafter, respondent 1an< served several letters of de"and upon petitioner Jalilid for pa+"ent /+ the latter of the o/li0ations contracted under pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-' hich had apparentl+ re"ained unsettled. ;etitioner Jalilid, ho ever, diso ned its alle0ed inde/tedness under /oth pro"issor+ notes. .n ,5 2a+ ,*(,, respondent 1an< filed a Co"plaint for collection 5doc<eted as Civil Case &o. 4,6'(7 a0ainst petitioner Jalilid and 2essrs. de Jesus and Calon0a ith 1ranch 6B of the then Court of 4irst Instance of Ri8al 5Ceventh Judicial 3istrict7. , In its co"plaint, respondent 1an< alle0ed that petitioner Jalilid, as principal, should /e held solidaril+ lia/le under pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655-' to0ether ith 2essrs. de Jesus and Calon0a, /oth of ho" had si0ned said pro"issor+ notes for and in /ehalf of the petitioners co"pan+, as ell as in their o n personal capacities. Respondent 1an< further alle0ed that, as of B) #pril ,*(,, the total a"ount of the inde/tedness of the o/li0ors under the t o pro"issor+ notes had risen to ;l,-(),65B.)(Li.e., ;I ,('4*'*' ith respect to pro"issor+ note ;1C &o. ,6)6-', and ;5*B,-5'.,6 ith respect to pro"issor+ note ;1C &o. ,65,-' The 1an< su/"itted in su/stantiation of these clai"ed a"ounts t o separate Ctate"ents of #ccount 5one for each pro"issor+ note7, hich had /een prepared /+ respondent 1an< and attached to the co"plaint as #nne?es =C= and =3= thereof. 6 ;ro"issor+ notes ;1C &o. ,6)6$-' and I1C &o. ,655$-' ere li<e ise attached to the co"plaint as its #nne?es =#= and =1=, respectivel+. B In its #ns er dated ,) Jul+ ,*(l, 4 petitioner Jalilid alle0ed that it =haNdO no <no led0e or infor"ation sufficient to for" a /elief as to the truth of Nthe "aterial alle0ations in the co"plaintO. 5 #s its affir"ative defense, petitioner Jalilid asserted that the authorit+ to /orro "one+ or contract loans on its /ehalf had not /een 0ranted to 2essrs. de Jesus and Calon0a ho, it as further asserted, should /e held solel+ lia/le under the t o pro"issor+ notes. The ans er of petitioner Jalilid, ho ever, as not verified. The co"plaint as dis"issed, thou0h then /e ascertained. ithout pre@udice, ith respect to 2essrs. de Jesus and Calon0a hose herea/outs could not

The parties ere una/le to arrive at an a"ica/le settle"ent /et een the"selves at the pre$trial sta0e of the liti0ation. Cu/se!uentl+, a "otion for su""ar+ @ud0"ent as filed /+ respondent 1an< to hich petitioner Jalilid raised neither o/@ection nor opposition.

In a three$pa0e 3ecision dated ,6 .cto/er ,*(B, the trial court found petitioner Jalilid lia/le to respondent 1an< for the o/li0ations contracted under pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-' . the dispositive portion of the decision reads: A>ERE4.RE, @ud0"ent is here/+ rendered in favor of plaintiff ;hilippine 1an<in0 Corporation and a0ainst defendant Jalilid Aood Industries Corporation ho is ordered to pa+ plaintiff: ,. The a"ount of ;,,-(),65B.)( plus le0al interest fro" #pril *, ,*(, until the a"ount is full+ paidI 6. the a"ount e!uivalent to ,)E of the total a"ount due as attorne+9s feesI and B. the costs of suit. C. .R3ERE3. The trial Jud0e /ased his decision pri"aril+ on t o factors: 5,7 the failure of petitioner Jalilid to verif+ its ans er, hich failure the trial Jud0e considered as a"ountin0 to an ad"ission /+ petitioner Jalilid of the 0enuineness and due e?ecution of pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-', hich ere anne?ed to respondent 1an<9s co"plaintI and 567 the fact that the t o disputed pro"issor+ notes ere si0ned /+ 2essrs. de Jesus and Calon0a /oth for and in /ehalf of the for"er ;.1. de Jesus and Co"pan+, Inc. 5no petitioner Jalilid7 and in their o n personal capacities. The @ud0"ent of the lo er court as affir"ed in toto on appeal. In its disputed 3ecision dated ( &ove"/er ,*(5, the then Inter"ediate #ppellate Court 5Third Civil Cases 3ivision7 held: 3efendant$appellant faults the lo er court in holdin0 it lia/le to pa+ the a"ount of ;l,-(),65B.)( inas"uch as the pro"issor+ notes covered onl+ ;*)),))).)) clai"in0 that plaintiff$appellee failed to adduce evidence as to ho said a"ounts increased to the a"ount of ;l,-(),65B.)(. 3efendant$appellant ar0u"ent is reall+ fli"s+, /ecause it overloo<ed the fact that the pro"issor+ notes in !uestion hich ere due and de"anda/le since 3ece"/er 6*, ,*-' and Januar+ B, ,*-- /ear interest at the rate of ,4E and further stipulates for the pa+"ent of attorne+9s fees of ,)E of the a"ount due includin0 interest in case of collection of the pro"issor+ notes is done throu0h a la +er. 2oreover, the state"ents of account #nne?es # and 1 are also attached to the sa"e co"plaint as inte0ral part thereof. #nne? # pertains to the pro"issor+ note &o. ,6)6$-' ith the principal of ;')),))).)) hile #nne? 1 pertains to the pro"issor+ note &o. ,655-' ith the principal of ;B)),))).)). E?plained in said state"ents of account are the char0es for past due interest and penalt+ char0es and the total of said o/li0ation as of #pril B), ,*(, sho ed a total of principal, interest and penalt+ char0es of ;,,-(),65B.)(. The 0enuineness and due e?ecution of said pro"issor+ notes and state"ents of account are dee"ed ad"itted /+ the failure to den+ under oath said docu"ents. ... ' ;etitioner Jalilid9s 2otion for Reconsideration as denied /+ the Third Civil Cases 3ivision on 6* Jul+ ,*('. In the present ;etition for Revie , petitioner Jalilid no lon0er denies its lia/ilities and o/li0ations under the t o pro"issor+ notes e?ecuted in favor of respondent 1an<. It ould, ho ever, contest the correctness of the a00re0ate a"ount of its inde/tedness, as clai"ed /+ respondent 1an<. In this respect, petitioner Jalilid contends that althou0h it "a+ have i"pliedl+ ad"itted the 0enuineness and due e?ecution of pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655-'L#nne?es =#= and =1= of the Co"plaintLas a result of its failure to den+ specificall+ and under oath the "aterial alle0ations in respondent 1an<9s co"plaint, such ad"ission cannot /e "ade to e?tend and appl+ to the t o afore"entioned Ctate"ents of #ccountL#nne?es =C= and =3= of the Co"plaint$since none of petitioner Jalilid9s dul+ authori8ed representatives had participated in the preparation thereof. 4urther"ore, in the co"putations appearin0 therein, a"ounts correspondin0 to service char0es, penalt+ char0es, and interest char0es on past due interest ere included hich, petitioner Jalilid clai"s, are not part of its underta<in0s under either pro"issor+ note. Ae a0ree ith the rulin0 of the trial Jud0e and the respondent appellate court that petitioner Jalilid, due to its failure to verif+ its ans er, is dee"ed to have ad"itted /+ i"plication the authenticit+ and due e?ecution of pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-', hich ere /oth anne?ed to and "ade the /asis for respondent 1an<9s co"plaint. - Conse!uentl+, defenses relatin0 to the 0enuineness and due e?ecution of the notes, such as that the instru"ents are spurious counterfeit, or of different i"port on their faces fro" the ones e?ecuted /+ the partiesI or that the si0natures appearin0 therein are for0eriesI or that said si0natures ere unauthori8ed as in the case of an a0ent si0nin0 for his principal or one si0nin0 in /ehalf of a partnership or corporationI or that the corporation as not authori8ed under its charter to si0n the instru"entsI or that the part+ char0ed si0ned the instru"ents in so"e capacit+ other than that set out in the instru"entsI or that the instru"ents ere never delivered, are effectivel+ cut off, ( placin0 petitioner Jalilid in estoppel fro" disclai"in0 lia/ilit+ under those pro"issor+ notes. &o 0enuine issue havin0 /een raised in the trial court /+ petitioner Jalilid re0ardin0 thee?istence and validit+ of its lia/ilities under pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-', su""ar+ @ud0"ent as properl+ and appropriatel+ rendered in the case at /ar. * In respect, ho ever, of the a"ount of petitioner Jalilid9s total inde/tedness to respondent 1an< under the t o pro"issor+ notes, it as error for the appellate court 5as for the trial Jud0e7 to have e?panded the scope of petitioner Jalilid9s i"plied ad"ission of 0enuineness and due e?ecution so as to include the t o Ctate"ents of #ccount anne?ed to the co"plaint. .n this point, Rule (, Cection ( of the Revised Rules of Court is !uite specific. Cection (. >o to contest 0enuineness of such docu"ents.LAhen an action or defense is founded upon a ritten instru"ent, copied in or attached to the correspondin0 pleadin0 as provided in the precedin0 section, the 0enuineness and due e?ecution of the instru"ent shall /e dee"ed ad"itted unless the adverse part+, under oath, specificall+ denies the", and sets forth hat he clai"s to /e the factsI /ut this provision does not appl+ hen the adverse part+ does not appear to /e a part+ to the instru"ent or hen co"pliance ith an order for an inspection of the ori0inal instru"ent is refused. 5E"phasis supplied.7 #n e?a"ination of the t o disputed Ctate"ents of #ccount reveals that /oth docu"ents 5,7 ere printed under the official letterhead of respondent 1an<, 567 ere prepared /+ the Foans and 3iscountin0 3epart"ent of respondent 1an<, and 5B7 /ore the si0nature of approval of respondent 1an<9s authori8ed officer. &o other si0nature appears on the face of either docu"ent. In other ords, /oth Ctate"ents of #ccount ere prepared e?clusivel+ /+ respondent 1an<. It follo s that petitioner Jalilid, not havin0 /een priv+ thereto, did not ad"it the 0enuineness and due e?ecution of the Ctate"ents in spite of its failure to verif+ its ans er to the co"plaint, and that petitioner is not conclusivel+ /ound /+ the char0es nor /+ the co"putations of a"ounts set out therein. ,)

The a00re0ate a"ount of petitioner Jalilid9s "onetar+ o/li0ations to respondent 1an< is deter"ina/le fro" the co""on stipulations and conditions contained in pro"issor+ notes ;1C &o. ,6)6$-' and ;1C &o. ,655$-', under hich petitioner Jalilid /ound itself to pa+ respondent 1an<, aside fro" the principal loan totallin0 ;*)),))).)): 5,7 interest at the rate of fourteen percent 5,4E7 per annu", pa+a/le "onthl+ and co"pounded "onthl+ if unpaid,,, and 567 attorne+9s fees e!uivalent to ten percent 5,)E7 of the entire a"ount due, includin0 interest. ,6 it does not, ho ever, appear fro" the face of either pro"issor+ note that petitioner Jalilid a0reed to pa+ service char0es and penalt+ char0es in case of late pa+"ent of its o/li0ations to respondent 1an<. Cince an underta<in0 to pa+ service char0es and penalt+ char0es on top of interest and interest on past due interest cannot /e presu"ed, it is necessar+ that evidence /e adduced /+ /oth parties to prove or disprove their respective clai"s re0ardin0 the /asis and propriet+ of includin0 such char0es and in such a"ounts as part of petitioner Jalilid9s lia/ilities under the t o pro"issor+ notes. Evidence relatin0 to the co"putation of interest on past due interest, that is due and pa+a/le "a+ also /e su/"itted. A>ERE4.RE, the decision of 1ranch 6B of the then Court of 4irst Instance of Ri8al 5Ceventh Judicial 3istrict7 in Civil Case &o. 4,6'( and the decision of the then Inter"ediate #ppellate Court dated ( &ove"/er ,*(5 are #44IR2E3 to the e?tent that the+ refer to the principal a"ounts and stipulated interest due under ;ro"issor+ &otes ;1C &o. ,6)6$-' and ;1C &o. ,655$-' and to attorne+9s fees e!uivalent to ten percent 5,)E7 of the entire a"ount due. This case is RE2#&3E3 to the trial court for deter"ination of hether or not service char0es and penalt+ char0es in case of late pa+"ent are due fro" petitioner Jalilid to respondent 1an<, and if so, the a"ount thereof, as ell as for deter"ination of the a"ount of interest on past due interest, due and pa+a/le /+ petitioner Jalilid to respondent 1an<. &o pronounce"ent as to costs. C. .R3ERE3. 4ernan 5Chair"an7, Gutierre8, Jr., 1idin and Cortes, JJ., concur.

G.R. No. L2 57 5 April 23, 19 9 BENITO S# 4 ONG, p,6i6io',r, +8. "EO"LE O) T%E "%ILI""INES "%ILI""INES &'( COURT O) A""EALS, r,8po'(,'68. 2EFE&CI.$>ERRER#, J.: Convicted of Estafa under #rticle B,5, ;ara0raph ,5/7 of the Revised ;enal Code /+ three 5B7 Courts, na"el+, the 2etropolitan Trial Court, Caloocan Cit+, 1ranch 56I , the Re0ional Trial Court of the sa"e Cit+, 1ranch ,6* I 6and respondent Court of #ppeals, petitioner no see<s to /rea< the chain of convictions. The indict"ent a0ainst petitioner$accused, filed on ,( #u0ust ,*(', reads:

10

That on or a/out and durin0 the "onth of Januar+ ,*(' in Caloocan Cit+, 2etro 2anila and ithin the @urisdiction of this >onora/le Court, the a/ove$ na"ed accused received fro" the ;ana"a Ca "ill Inc., represented in this case /+ TE ;E&G 2E&, ;1C Chec< &o. 6*,',' dated Januar+ ,5, ,*(' for ;',))).)) hich chec< as su/se!uentl+ encashed /+ said accused for the purpose of and under the e?press o/li0ation on his part to use the said a"ount in securin0 a 2arine Insurance covera0e for ;B,))),))).)) on a ship"ent of lo0s o ned /+ ;ana"a Ca "ill, Inc. /ut said accused ith a/use of trust and confidence reposed upon hi" far fro" co"pl+in0 ith his o/li0ation and ith intent to deceive and defraud said corporation, did then and there illfull+, unla full+ and feloniousl+ receive a 2arine Insurance covera0e for onl+ ;l,))),))).)) to cover said ship"ent of lo0s, pa+in0 therefor onl+ the a"ount of ;6,-,6.5) as insurance pre"iu" ithout the <no led0e and consent of said ;ana"a Ca "ill, Inc., and thereafter, said accused "isappropriated and converted to his o n personal use and /enefit the /alance of ;B,6(-.5), and despite repeated de"ands upon hi", said accused refused and failed to account for said su" of ;B,6(-.5) to the da"a0e and pre@udice of said ;ana"a Ca "ill Inc., in the aforestated a"ount of ;B,6(-.5). 5p. B, .ri0inal Record7 #fter trial on the "erits, the 2etropolitan Trial Court of Caloocan Cit+ convicted petitioner in a 3ecision, dated ,- 3ece"/er ,*(', the dispositive portion of hich reads: A>ERE4.RE, /+ proof /e+ond reasona/le dou/t, the accused 1E&IT. CG is found GUIFTG of violatin0 #rt. B,5, ;ar. B of the Revised ;enal Code, he is sentenced to a strai0ht penalt+ of 4.UR 547 2.&T>C i"prison"ent, to rei"/urse or 0ive restitution in the a"ount of T>REE T>.UC#&3 TA. >U&3RE3 EIG>TG CE%E& 5B,6(-.5)7 ;EC.C #&3 5)D,)) CE&T#%.C and to pa+ costs. 5p. B-, .ri0inal Record.7 .n appeal /efore it, the Re0ional Trial Court of Caloocan Cit+, affir"ed the @ud0"ent of conviction on B June ,*(-, /ut increased the penalt+, as follo s: I& %IEA .4 T>E 4.REG.I&G, this Court finds the accused 1enito C+ + .n0 0uilt+ /e+ond reasona/le dou/t of the cri"e of estafa, thru "isappropriation, as defined under par. ,5/7 and penali8ed under the Brd par. of #rt B,5 of the Revised ;enal Code and there /ein0 no attendant "iti0atin0 nor a00ravatin0 circu"stance, he is here/+ sentenced to suffer an indeter"inate penalt+ of T>REE 5B7 2.&T>C .4 #RRECT. 2#G.R T. .&E 5,7 GE#R #&3 .&E 5,7 3#G .4 ;RICI.& C.RRECCI.&#FI to suffer the accessor+ penalties provided for /+ la I and to pa+ co"plainant ;ana"a Ca "ill Co., /+ a+ of reparation, the a"ount of ;B,6(-.5). Costs a0ainst appellant. 5p. B)4, .ri0inal Record7 .n B) June ,*(( respondent Court of #ppeals affir"ed the Re0ional Trial Court 3ecision B not ithstandin0 t o 567 2anifestations in lieu of Co""ent su/"itted /+ the .ffice of the Colicitor General, dated B 2arch ,*(( and B .cto/er ,*((, respectivel+, reco""endin0 ac!uittal of petitioner$accused. 1efore us no , petitioner re$asserts his innocence. The Colicitor General has also reiterated his reco""endation for ac!uittal. #ccordin0 to Te ;en0 2en 2ana0er of ;ana"a Ca "ill, Inc. 5henceforth, si"pl+ =;ana"a=7 and sole develop"ents in this case unfolded as follo s: itness of the prosecution, the

,. Co"eti"e in Januar+ ,*(' =;ana"a= en0a0ed petitioner, an insurance a0ent, to o/tain "arine insurance in the a"ount of ;B2 to cover its lo0 ship"ent fro" ;ala an to 2anila. 6. #s instructed,on l4 Januar+ l*(' petitioner secured 2arine Insurance ;olic+ &o. .#C$2$('D))6 fro" .riental #ssurance Corporation 5=.riental=, for short7, ith a face value of ;B2 5E?hi/it =#=7. .nl+ the duplicate ori0inal of the ;olic+ as left ith =;ana"a=. B. .n ,5 Januar+ ,*(', =;ana"a= 0ave petitioner ;hilippine 1an< of Co""unication Chec< &o. 6*,',' in the a"ount of ;',))).)) pa+a/le to =.riental= for the polic+ covera0e of ;B2. 4. .n 6( Januar+ ,*(' so"e of the lo0s valued at ;,.62 in the vicinit+ of 3u"aran Island, ;ala an. ere lost hen the /ar0e transportin0 the ship"ent encountered rou0h seas

5. =;ana"a= filed a clai" for loss a0ainst =.riental= onl+ to /e infor"ed /+ the latter that its "arine insurance covera0e ;,2 and that petitioner had paid a pre"iu" of onl+ ;6,-,6.5) 5E?hi/it =3=7

as onl+ for

'. Contendin0 that petitioner had "isappropriated the difference of ;B,6(-.5) for his personal use and /enefit to its pre@udice, =;ana"a= char0ed petitioner ith Estafa. 4or his part, petitioner "aintains that the follo in0 details constitute the truth: a7 ;etitioner had never, at an+ one ti"e, dealt had an+ contact ith =;ana"a=. ith prosecution itness, Te ;en0 2en. It as onl+ throu0h one Tau Tian that petitioner

/7 =.riental= had issued a 2arine Insurance ;olic+ in the a"ount of ;B2 in favor of =;ana"a= throu0h petitioner9s efforts. c7 >o ever, Tau Tian re!uested petitioner to return the ;olic+ since the rate as !uite hi0h and =;ana"a= anted to pa+ onl+ ;',))).)). Thereafter, Tau Tian returned the ori0inal of the ;olic+ to petitioner /ut retained the duplicate cop+. Tau Tian instructed petitioner to o/tain a reduction of the pre"iu" fro" ;(,,B-.5) to ;',))).)). d7 Cince petitioner as not a/le to secure a reduction in the pre"iu", he o/tained instead a ;,2 polic+ fro" =.riental= pa+in0 for that purpose a pre"iu" of ;6,-,6.5). In addition, he o/tained a ;62 polic+ fro" the 4irst Inte0rated Insurance Co., Inc. pa+in0 a pre"iu" therefor of ;B,655.)). The t o policies totalled ;B2 and the pre"iu"s paid reached ;5,*'-.5), or al"ost ;',))).)). e7 The real reason h+ =;ana"a= as not a/le to recover on the afore"entioned policies as /ecause the polic+ of =.riental= as for total loss onl+ and not for partial loss. In fact, even the Tan Gatue #d@ust"ent Co"pan+ sustained the re@ection of =;ana"a9s= clai" for that reason.

11

3efense itness, Jent Cotoco, the Under ritin0 2ana0er of =.riental= corro/orated petitioner9s testi"on+ that the ;B2 ;olic+ first issued /+ =.riental= 5E?hi/it =,=7 as cancelled and replaced /+ a ;,2 ;olic+ 5E?hi/it =B=7. >e e?plained that /efore the ;B2 ;olic+ as cancelled, petitioner had surrendered the ori0inal to =.riental=I that the ori0inal and the replace"ent ;olicies /ear the sa"e serial nu"/er ('D))6 /ecause it is co"pan+ polic+ for the replace"ent ;olic+ to carr+ the sa"e nu"/er as the ori0inal ;olic+I and that he as a are that the 4irst Inte0rated Insurance Co., Inc., had issued a ;62 ;olic+ for =;ana"a= 5t.s.n., &ove"/er 6,, ,*(', pp. -($()7 /ecause the latter co"pan+ char0es a lo er pre"iu" rate than =.riental= 5i/id., pp. ()$(67. Is the accused 0uilt+ of Estafa co""itted throu0h "isappropriation under para0raph l5/7, #rticle B65 of the Revised ;enal CodeM Caid provision reads: #RT. B,5. C indlin0 5estafa7. #n+ person /+: ????????? 5/7 1+ appropriatin0 or convertin0, to the pre@udice of another, "one+, 0oods, or an+ other personal propert+ received /+ the offender in trust or on co""ission, or for ad"inistration, or under an+ other o/li0ation involvin0 the dut+ to "a<e deliver+ of or to return the sa"e, even thou0h such o/li0ation /e totall+ or partiall+ 0uaranteed /+ a /ond or /+ den+in0 havin0 received such "one+, 0oods, or other propert+. 4or the cri"e of Estafa throu0h "isappropriation to e?ist the follo in0 ele"ents "ust /e present: ,. That "one+, 0oods or other personal propert+ is received /+ the offender in trust, or on co""ission, or for ad"inistration, or under an+ other o/li0ation involvin0 the dut+ to "a<e deliver+ of, or to return, the sa"eI 6. That there /e "isappropriation or conversion of such "one+ or propert+ /+ the offender, or denial on his part of such receiptI B. That such "isappropriation or conversion or denial is to the pre@udice of anotherI and 4. That there is a de"and "ade /+ the offended part+ to the offender. 5II Cri"inal Fa , Fuis 1. Re+es, ,6th Edition, p. -,-7 >ave the fore0oin0 ele"ents /een "et in respect of petitioner$accusedM ;etitioner, supported /+ the Colicitor General, avers that the+ have not /ecause no conversion or "isappropriation has /een co""itted and that there as no de"and for the return of the ;',))).)) 0iven to petitioner. In other ords, ele"ents 6, B, and 4 of the cri"e are lac<in0. The totalit+ of the evidence +ields the follo in0 incontroverti/le data in chronolo0ical order: Jan. ,4, ,*(' $ Issuance of .riental 2arine Insurance ;olic+ &o. .#C$2$('D))6 for ; B2, total loss onl+.= 5car/on cop+, E?hi/it =#=, ori0inal, E?hi/it =,=7. ith a total pre"iu" of ;(,,B-.5). =a0ainst ho shall defraud another /+ an+ of the "eans "entioned herein$/elo shall /e punished

Jan. ,5, ,*(' $ ;1C Chec< &o. 6*,',' pa+a/le to .riental #ssurance Corporation for ;',))).)) 5E?hi/it =C=7, endorsed at the /ac< /+ petitioner 5E?hi/it =C$,=7 and sta"ped =cleared9 on the sa"e da+, Januar+ ,5, ,*('. Jan. ,5, ,*(' $ Issuance of 4irst Inte0rated 2arine Insurance ;olic+ &o. ))6'' for ;62 ith a pre"iu" of ;B,))).)) plus ;665.)) docu"entar+ sta"ps ith a covera0e =Total Foss /+ Total Foss of the %essel .nl+= 5E?hi/it =6=7. Jan. 6), ,*(' $ Issuance of =.riental= 2arine Insurance .#C$2$(',))6 for ;,2, onl+.= 5E?hi/it =B=7. ith a total pre"iu" of ;6,-,6.5) =a0ainst total loss

Jan. 6,, ,*(' $ .fficial receiptof =.riental=for ;6,-,6.5) representin0 pre"iu" for ;olic+ &o. 2$(',))6 in the a"ount of ;,2 5E?hi/its =3= and 4=7. Jan. 6(, ,*(' $ ;artial loss of the lo0 ship"ent. 4e/. 6(, ,*(' $ Report of the Tan$Gatue #d@ust"ent Co., Inc., that the loss as not co"pensa/le under the ter"s and conditions =Total Foss .nl+= stipulated in the =.riental= ;olic+ 5E?hi/it ='=7. 2a+ 6, ,*(' $ Endorse"ent &o. 2$))), of 4irst Inte0rated declarin0 that its 2arine Car0o ;olic+ &o. ))6'', issued on Januar+ ,5, ,*(', is =C#&CEFFE3 effective as of its inception date, for non$pa+"ent of pre"iu"= 5E?hi/it =E=I =E$,=7. 2a+ , ,*(' $ Investi0ation of case /+ Cit+ 4iscal of Caloocan cit+. June ,), ,*(' $ 4irst Inte0rated .fficial Receipt for ;B,655.)) in pa+"ent of pre"iu" for 2arine Car0o ;olic+ &o. ))6'' issued 5E?hi/it =5=7 June ,), ,*(' $ Endorse"ent &o. &;#D2$)))6D(' 4irst Inte0rated, reinstatin0 2arine Car0o ;olic+ &o. ))6'' provided no loss =has occurred prior to the date of issuance of this endorse"ent= 5E?hi/it =-=7. #u0. ,(, ,*(' $ Infor"ation for Estafa filed /efore the 2etropolitan Trial Court, Caloocan Cit+. Upon the esta/lished facts, there can /e no dispute that petitioner received a chec< in the a"ount of ;',))).)) fro" =;ana"a= for the particular purpose of securin0 a "arine insurance covera0e of ;B2. That "ar<ed the creation of a fiduciar+ relation /et een the", the e?istence of hich, either in the for" of a trust or under an+ other o/li0ation involvin0 the dut+ to "a<e deliver+ of the sa"e, is an

12

essential ele"ent of the cri"e of Estafa /+ "isappropriation or conversion. The first ele"ent of the cri"e of Estafa, therefore, is satisfied. #s to the second ele"ent of ="isappropriation or conversion= of the "one+ or propert+ received, petitioner contends that the sa"e is in attendant /ecause petitioner had, in fact, procured the ;B2 insurance covera0e fro" t o co"panies, spendin0 therefor all of the entrusted a"ount of ;',))).)) for pre"iu"s. Ae find ourselves in disa0ree"ent. To =convert= 5=distraer=7 connotes the act of usin0 or disposin0 of another9s propert+ as if it ere one9s o n. #nd to ="isappropriate= 5=appropiar=7 "eans to o n, to ta<e so"ethin0 for one9s o n /enefit 5II Cri"inal Fa , Fuis 1. Re+es, ,6th Edition, p. -6*7. That there as conversion or "isappropriation /+ petitioner is i""ediatel+ sho n /+ the fact that, as ad"itted /+ hi" on cross$e?a"ination, he had deposited the =;ana"a= chec< of ;',))).)) pa+a/le to =.riental= in his o n personal account 5t.s.n., &ove"/er 6,, ,*(', p. B)7 even thou0h he as not authori8ed to do so /+ =.riental= /ein0 "erel+ an ordinar+, not a special a0ent, as testified to /+ the under ritin0 a0ent of =.riental= 5i/id., pp. -)$-47. ;etitioner assu"ed the ri0ht to dispose of it as if it ere his, thus co""ittin0 conversion ith unfaithfulness and a clear /reach of trust. # chec< hile not re0arded as le0al tender is nor"all+, under co""ercial usa0e, a su/stitute for cash. The credit represented /+ it in stated "onetar+ value is properl+ capa/le of appropriation 5Galve8 vs. Court of #ppeals, F$ 66-'), &ove"/er 6*, ,*-,, 46 CCR# 6-(7. 2ore, petitioner onl+ 0ave a duplicate ori0inal cop+ of the =.riental= polic+ to =;ana"a=, hich accepted it as the ri0ht polic+. If, as petitioner alle0es, =;ana"a= had as<ed hi" to secure a reduction in pre"iu", it ould have /een a si"ple "atter for hi" to have infor"ed =;ana"a= of the second ;olic+ for ;,2 he had secured fro" =.riental= as ell as the ;62 ;olic+ fro" 4irst Inte0rated. 1ut, no. #ll these ere fraudulentl+ concealed fro" =;ana"a= and ere /rou0ht out onl+ durin0 the preli"inar+ investi0ation of the case /efore the Cit+ 4iscal9s .ffice. ;etitioner9s o/tain"ent of the 4irst Inte0rated ;olic+, ith a covera0e of ;62, as onl+ on paper. >e had failed to pa+ the pre"iu" therefor of ;B,655.)) at the ti"e of issuance so that the ;olic+ never /eca"e valid and /indin0 5Cec. --, Insurance Code of ,*-(7. Elo!uent proof of that is the Endorse"ent of 6 2a+ ,*(' of 4irst Inte0rated cancellin0 its said ;olic+ for non$pa+"ent of pre"iu" =effective as of its inception date,= or on ,5 Januar+ ,*('. ;etitioner9s e?planation that he paid for the pre"iu" t ice $ the first ti"e on 6, Januar+ ,*(' e?cept that he as not issued a receipt /ecause he paid for it in cash 5t.s.n., &ove"/er 6,, ,*(', pp. B'$B-7, and the second ti"e on ,) June ,*(' =/ecause the first ti"e "+ su/$a0ent did not pa+ it directl+ to the co"pan+ on the first ti"e so I paid it a0ain,= 5i/id., p. B(7 $ is prevarication, pure and si"ple. ;etitioner paid the pre"iu" for the 4irst Inte0rated ;olic+ onl+ on ,) June ,*(' or five 557 "onths after its issuance and five 557 "onths after the partial loss of the ship"ent, and hile the case as alread+ pendin0 investi0ation at the Cit+ 4iscal9s .ffice. The co"pan+ reinstated the ;olic+, also on ,) June ,*(', /ut on the condition that =no loss had occurred prior to the date of issuance of this endorse"ent.= It as a useless reinstate"ent, therefore, and the star< fact re"ains that at the ti"e of loss there as no covera0e fro" 4irst Inte0rated /ecause of non$pa+"ent of pre"iu". Evidentl+ petitioner paid the pre"iu" at that late date in a futile atte"pt to revive the ;olic+ and as a last$ditch effort to sho that the entire ;',))).)) a"ount received fro" =;ana"a= as used /+ petitioner for the purpose intended $ na"el+, the pa+"ent of pre"iu" for "arine insurance covera0e of ;B2. Indications are that no pa+"ent of pre"iu" to 4irst Inte0rated ould have /een "ade either, /ut for this cri"inal char0e. The evidence is clear that he had utili8ed the /alance of the ;',))).)) 5after deductin0 the pre"iu" of ;6,-,6.5) paid to =.riental=7 for his o n /enefit, and ith a/use of confidence, hich is the ver+ essence of "isappropriation. #nd he ould have 0otten a a+ scot$free if no loss of the ship"ent had occurred. The third ele"ent of Estafa is li<e ise present. The "isappropriation or conversion resulted in pre@udice to =;ana"a= hich had /elieved all alon0 that its ship"ent as insured for ;B2. There as distur/ance in its propert+ ri0hts, and, althou0h te"porar+, is sufficient to constitute in@ur+ ithin the "eanin0 of #rticle B,55,$/7 of the Revised ;enal Code 5Fu >a+co vs. Court of #ppeals, F$4*')-$ ,B : 55--5$(', #u0ust 6', ,*(5, ,B( CCR# 66-7. #s to the fourth essential ele"ent, that of de"and "ade /+ the offended part+ to the offender, hich petitioner clai"s is antin0 in this case, suffice it to state that de"and is not necessar+ hen there is evidence of "isappropriation as in this case. It so happens onl+ that failure to account, upon de"and, for funds or propert+ held in trust, is circu"stantial evidence of "isappropriation. The sa"e "a+, ho ever, /e esta/lished /+ other proof, such as that introduced in the case at /ar. 5Tu// vs. ;eople, et al., ,), ;hil. ,,4 N,*5-O7 #ll the essential ele"ents of Estafa throu0h "isappropriation or conversion /ein0 present, e do not see our a+ clear to /rea<in0 the chain of convictions /+ the other Courts /efore us. The 0uilt of petitioner$accused has /een proven /e+ond reasona/le dou/t. A>ERE4.RE, the @ud0"ent under revie is here/+ #44IR2E3. Aith costs a0ainst petitioner$accused, 1enito C+ + .n0. C. .R3ERE3. ;aras, ;adilla, Car"iento and Re0alado, JJ., concur. G.R. No. L2391 0&'5&r4 30, 1990

"%ILI""INE AIRLINES, INC., p,6i6io',r, +8. %ON. COURT O) A""EALS, %ON. 0U!GE RICAR!O !. GALANO, Co5r6 o7 )ir86 I'86&'9, o7 M&'il&, Br&'9: ;III, 0AIME /. !EL ROSARIO, !,p564 S:,ri77, Co5r6 o7 )ir86 I'86&'9,, M&'il&, &'( AMELIA TAN,r,8po'(,'68. GUTIERREZ, JR., J.: 1ehind the si"ple issue of validit+ of an alias rit of e?ecution in this case is a "ore funda"ental !uestion. Chould the Court allo a too literal interpretation of the Rules ith an open invitation to <naver+ to prevail over a "ore discernin0 and @ust approachM Chould e not appl+ the ancient rule of statutor+ construction that la s are to /e interpreted /+ the spirit hich vivifies and not /+ the letter hich <illethM

13

This is a petition to revie on certiorari the decision of the Court of #ppeals in C#$G.R. &o. )-'*5 entitled =;hilippine #irlines, Inc. v. >on. Jud0e Ricardo 3. Galano, et al.=, dis"issin0 the petition for certiorari a0ainst the order of the Court of 4irst Instance of 2anila hich issued an alias rit of e?ecution a0ainst the petitioner. The petition involvin0 the alias rit of e?ecution had its /e0innin0s on &ove"/er (, ,*'-, hen respondent #"elia Tan, under the na"e and st+le of #/le ;rintin0 ;ress co""enced a co"plaint for da"a0es /efore the Court of 4irst Instance of 2anila. The case as doc<eted as Civil Case &o. -,B)-, entitled #"elia Tan, et al. v. ;hilippine #irlines, Inc. #fter trial, the Court of 4irst Instance of 2anila, 1ranch ,B, then presided over /+ the late Jud0e Jesus ;. 2orfe rendered @ud0"ent on June 6*, ,*-6, in favor of private respondent #"elia Tan and a0ainst petitioner ;hilippine #irlines, Inc. 5;#F7 as follo s: A>ERE4.RE, @ud0"ent is here/+ rendered, orderin0 the defendant ;hilippine #ir Fines: ,. .n the first cause of action, to pa+ to the plaintiff the a"ount of ;-5,))).)) as actual da"a0es, plaintiffs e?tra$@udicial de"and "ade /+ the letter of Jul+ 6), ,*'-I ith le0al interest thereon fro"

6. .n the third cause of action, to pa+ to the plaintiff the a"ount of ;,(,6)).)), representin0 the unreali8ed profit of ,)E included in the contract price of ;6)),))).)) plus le0al interest thereon fro" Jul+ 6),,*'-I B. .n the fourth cause of action, to pa+ to the plaintiff the a"ount of ;6),))).)) as and for "oral da"a0es, fro" Jul+ 6), , *'-I ith le0al interest thereon

4. .n the si?th cause of action, to pa+ to the plaintiff the a"ount of ;5,))).)) da"a0es as and for attorne+9s fee. ;laintiffs second and fifth causes of action, and defendant9s counterclai", are dis"issed. Aith costs a0ainst the defendant. 5C# Rollo, p. ,(7 .n Jul+ 6(, ,*-6, the petitioner filed its appeal ith the Court of #ppeals. The case as doc<eted as C#$G.R. &o. 5,)-*$R. .n 4e/ruar+ B, ,*--, the appellate court rendered its decision, the dispositive portion of hich reads: I& %IEA A>ERE.4, ith the "odification that ;#F is conde"ned to pa+ plaintiff the su" of ;65,))).)) as da"a0es and ;5,))).)) as attorne+9s fee, @ud0"ent is affir"ed, ith costs. 5C# Rollo, p. 6*7 &otice of @ud0"ent as sent /+ the Court of #ppeals to the trial court and on dates su/se!uent thereto, a "otion for reconsideration as filed /+ respondent #"elia Tan, dul+ opposed /+ petitioner ;#F. .n 2a+ 6B,,*--, the Court of #ppeals rendered its resolution den+in0 the respondent9s "otion for reconsideration for lac< of "erit. &o further appeal havin0 /een ta<en /+ the parties, the @ud0"ent /eca"e final and e?ecutor+ and on 2a+ B,, ,*--, @ud0"ent correspondin0l+ entered in the case. as

The case as re"anded to the trial court for e?ecution and on Cepte"/er 6,,*--, respondent #"elia Tan filed a "otion pra+in0 for the issuance of a rit of e?ecution of the @ud0"ent rendered /+ the Court of #ppeals. .n .cto/er ,,, ,*--, the trial court, presided over /+ Jud0e Galano, issued its order of e?ecution ith the correspondin0 rit in favor of the respondent. The rit as dul+ referred to 3eput+ Cheriff E"ilio Z. Re+es of 1ranch ,B of the Court of 4irst Instance of 2anila for enforce"ent. 4our "onths later, on 4e/ruar+ ,,, ,*-(, respondent #"elia Tan "oved for the issuance of an alias rit of e?ecution statin0 that the @ud0"ent rendered /+ the lo er court, and affir"ed ith "odification /+ the Court of #ppeals, re"ained unsatisfied. .n 2arch ,, ,*-(, the petitioner filed an opposition to the "otion for the issuance of an alias rit of e?ecution statin0 that it had alread+ full+ paid its o/li0ation to plaintiff throu0h the deput+ sheriff of the respondent court, E"ilio Z. Re+es, as evidenced /+ cash vouchers properl+ si0ned and receipted /+ said E"ilio Z. Re+es. .n 2arch B,,*-(, the Court of #ppeals denied the issuance of the alias rit for /ein0 pre"ature, orderin0 the e?ecutin0 sheriff E"ilio Z. Re+es to appear ith his return and e?plain the reason for his failure to surrender the a"ounts paid to hi" /+ petitioner ;#F. >o ever, the order could not /e served upon 3eput+ Cheriff Re+es ho had a/sconded or disappeared. .n 2arch 6(, ,*-(, "otion for the issuance of a partial alias rit of e?ecution as filed /+ respondent #"elia Tan. .n #pril ,*, ,*-(, respondent #"elia Tan filed a "otion to ithdra =2otion for ;artial #lias Arit of E?ecution= for #lias Arit of E?ecution. .n 2a+ ,, ,*-(, the respondent Jud0e issued an order hich reads: ith Cu/stitute 2otion

#s pra+ed for /+ counsel for the plaintiff, the 2otion to Aithdra 92otion for ;artial #lias Arit of E?ecution ith Cu/stitute 2otion for #lias Arit of E?ecution is here/+ 0ranted, and the "otion for partial alias rit of e?ecution is considered ithdra n. Fet an #lias Arit of E?ecution issue a0ainst the defendant for the fall satisfaction of the @ud0"ent rendered. 3eput+ Cheriff Jai"e J. del Rosario is here/+ appointed Cpecial Cheriff for the enforce"ent thereof. 5C# Rollo, p. B47 .n 2a+ ,(, ,*-(, the petitioner received a cop+ of the first alias rit of e?ecution issued on the sa"e da+ directin0 Cpecial Cheriff Jai"e J. del Rosario to lev+ on e?ecution in the su" of ;65,))).)) ith le0al interest thereon fro" Jul+ 6),,*'- hen respondent #"elia Tan "ade an e?tra$@udicial de"and throu0h a letter. Fev+ as also ordered for the further su" of ;5,))).)) a arded as attorne+9s fees.

14

.n 2a+ 6B, ,*-(, the petitioner filed an ur0ent "otion to !uash the alias rit of e?ecution statin0 that no return of the rit had as +et /een "ade /+ 3eput+ Cheriff E"ilio Z. Re+es and that the @ud0"ent de/t had alread+ /een full+ satisfied /+ the petitioner as evidenced /+ the cash vouchers si0ned and receipted /+ the server of the rit of e?ecution, 3eput+ Cheriff E"ilio Z. Re+es. .n 2a+ 6',,*-(, the respondent Jai"e J. del Rosario served a notice of 0arnish"ent on the depositor+ /an< of petitioner, 4ar East 1an< and Trust Co"pan+, Rosario 1ranch, 1inondo, 2anila, throu0h its "ana0er and 0arnished the petitioner9s deposit in the said /an< in the total a"ount of ;'4,4)(.)) as of 2a+ ,', ,*-(. >ence, this petition for certiorari filed /+ the ;hilippine #irlines, Inc., on the 0rounds that: I #& #FI#C ARIT .4 EHECUTI.& C#&&.T 1E ICCUE3 AIT>.UT ;RI.R RETUR& .4 T>E .RIGI&#F ARIT 1G T>E I2;FE2E&TI&G .44ICER. II ;#G2E&T .4 JU3G2E&T T. T>E I2;FE2E&TI&G .44ICER #C 3IRECTE3 I& T>E ARIT .4 EHECUTI.& C.&CTITUTEC C#TIC4#CTI.& .4 JU3G2E&T. III I&TERECT IC &.T ;#G#1FE A>E& T>E 3ECICI.& IC CIFE&T #C T. T>E ;#G2E&T T>ERE.4. I% CECTI.& 5, RUFE B*, ;#RTICUF#RFG RE4ERC T. FE%G .4 ;R.;ERTG .4 JU3G2E&T 3E1T.R #&3 3IC;.C#F .R C#FE T>ERE.4 T. C#TIC4G JU3G2E&T. Can an alias rit of e?ecution /e issued ithout a prior return of the ori0inal rit /+ the i"ple"entin0 officerM Ae rule in the affir"ative and e !uote the respondent court9s decision ith approval: The issuance of the !uestioned alias rit of e?ecution under the circu"stances here o/tainin0 is @ustified /ecause even ith the a/sence of a Cheriffs return on the ori0inal rit, the unaltera/le fact re"ains that such a return is incapa/le of /ein0 o/tained 5sic7 /ecause the officer ho is to "a<e the said return has a/sconded and cannot /e /rou0ht to the Court despite the earlier order of the court for hi" to appear for this purpose. 5.rder of 4e/. 6,, ,*-(, #nne? C, ;etition7. ./viousl+, ta<in0 co0ni8ance of this circu"stance, the order of 2a+ ,,, ,*-( directin0 the issuance of an alias rit as therefore issued. 5#nne? 3. ;etition7. The need for such a return as a condition precedent for the issuance of an alias rit as @ustifia/l+ dispensed ith /+ the court /elo and its action in this re0ard "eets ith our concurrence. # contrar+ vie ill produce an a/horent situation here/+ the "ischief of an errin0 officer of the court could /e utili8ed to i"pede indefinitel+ the undisputed and a arded ri0hts hich a prevailin0 part+ ri0htfull+ deserves to o/tain and ith dispatch. The final @ud0"ent in this case should not indeed /e per"itted to /eco"e illusor+ or incapa/le of e?ecution for an indefinite and over e?tended period, as had alread+ transpired. 5Rollo, pp. B5$B'7 Judiciu" non de/et esse illusoriu"I suu" effectu" ha/ere de/et 5# @ud0"ent ou0ht not to /e illusor+ it ou0ht to have its proper effect7. Indeed, technicalit+ cannot /e countenanced to defeat the e?ecution of a @ud0"ent for e?ecution is the fruit and end of the suit and is ver+ aptl+ called the life of the la 5Ipe<d@ian 2erchandisin0 Co. v. Court of Ta? #ppeals, ( CCR# 5* N,*'BOI Co""issioner of Internal Revenue v. %isa+an Electric Co., ,* CCR# '*-, '*( N,*'-O7. # @ud0"ent cannot /e rendered nu0ator+ /+ the unreasona/le application of a strict rule of procedure. %ested ri0hts ere never intended to rest on the re!uire"ent of a return, the office of hich is "erel+ to infor" the court and the parties, of an+ and all actions ta<en under the rit of e?ecution. Ahere such infor"ation can /e esta/lished in so"e other "anner, the a/sence of an e?ecutin0 officer9s return ill not preclude a @ud0"ent fro" /ein0 treated as dischar0ed or /ein0 e?ecuted throu0h an alias rit of e?ecution as the case "a+ /e. 2ore so, as in the case at /ar. Ahere the return cannot /e e?pected to /e forthco"in0, to re!uire the sa"e ould /e to co"pel the enforce"ent of ri0hts under a @ud0"ent to rest on an i"possi/ilit+, there/+ allo in0 the total avoidance of @ud0"ent de/ts. Co lon0 as a @ud0"ent is not satisfied, a plaintiff is entitled to other rits of e?ecution 5Govern"ent of the ;hilippines v. Echaus and Gon8ales, -, ;hil. B,(7. It is a ell <no n le0al "a?i" that he ho cannot prosecute his @ud0"ent ith effect, sues his case vainl+. 2ore i"portant in the deter"ination of the propriet+ of the trial court9s issuance of an alias rit of e?ecution is the issue of satisfaction of @ud0"ent. Under the peculiar circu"stances surroundin0 this case, did the pa+"ent "ade to the a/scondin0 sheriff /+ chec< in his na"e operate to satisf+ the @ud0"ent de/tM The Court rules that the plaintiff ho has on her case should not /e ad@ud0ed as havin0 sued in vain. To decide other ise ould not onl+ 0ive her an e"pt+ /ut a p+rrhic victor+. It should /e e"phasi8ed that under the initial @ud0"ent, #"elia Tan as found to have /een ron0ed /+ ;#F. Che filed her co"plaint in ,*'-. #fter ten 5,)7 +ears of protracted liti0ation in the Court of 4irst Instance and the Court of #ppeals, 2s. Tan on her case. It is no ,**). #l"ost t ent+$t o 5667 +ears later, 2s. Tan has not seen a centavo of hat the courts have sole"nl+ declared as ri0htfull+ hers. Throu0h a/solutel+ no fault of her o n, 2s. Tan has /een deprived of hat, technicall+, she should have /een paid fro" the start,

15

/efore ,*'-, ithout need of her 0oin0 to court to enforce her ri0hts. #nd all /ecause ;#F did not issue the chec<s intended for her, in her na"e. Under the peculiar circu"stances of this case, the pa+"ent to the a/scondin0 sheriff /+ chec< in his na"e did not operate as a satisfaction of the @ud0"ent de/t. In 0eneral, a pa+"ent, in order to /e effective to dischar0e an o/li0ation, "ust /e "ade to the proper person. #rticle ,64) of the Civil Code provides: ;a+"ent shall /e "ade to the person in hose favor the o/li0ation has /een constituted, or his successor in interest, or an+ person authori8ed to receive it. 5E"phasis supplied7 Thus, pa+"ent "ust /e "ade to the o/li0ee hi"self or to an a0ent havin0 authorit+, e?press or i"plied, to receive the particular pa+"ent 5Ulen v. Jnecttle 5) A+o *4, 5( N6dO 44', ,,, #FR '57. ;a+"ent "ade to one havin0 apparent authorit+ to receive the "one+ ill, as a rule, /e treated as thou0h actual authorit+ had /een 0iven for its receipt. Fi<e ise, if pa+"ent is "ade to one ho /+ la is authori8ed to act for the creditor, it ill or< a dischar0e 5>endr+ v. 1enlisa B- 4la. ')*, 6) C. ()),B4 FR# 6(B7. The receipt of "one+ due on a@ud0"ent /+ an officer authori8ed /+ la to accept it ill, therefore, satisf+ the de/t 5Cee 4) #" J" -6*, 65I >endr+ v. 1enlisa supraI Ceattle v. Ctirrat 55 Aash. ,)4 p. (B4,64 FR# N&CO ,6-57. The theor+ is here pa+"ent is "ade to a person authori8ed and reco0ni8ed /+ the creditor, the pa+"ent to such a person so authori8ed is dee"ed pa+"ent to the creditor. Under ordinar+ circu"stances, pa+"ent /+ the @ud0"ent de/tor in the case at /ar, to the sheriff should /e valid pa+"ent to e?tin0uish the @ud0"ent de/t. There are circu"stances in this case, ho ever, hich co"pel a different conclusion. The pa+"ent "ade /+ the petitioner to the a/scondin0 sheriff as not in cash or le0al tender /ut in chec<s. The chec<s pa+a/le to #"elia Tan or #/le ;rintin0 ;ress /ut to the a/scondin0 sheriff. 3id such pa+"ents e?tin0uish the @ud0"ent de/tM #rticle ,64* of the Civil Code provides: The pa+"ent of de/ts in "one+ shall /e "ade in the currenc+ stipulated, and if it is not possi/le to deliver such currenc+, then in the currenc+ hich is le0al tender in the ;hilippines. The deliver+ of pro"issor+ notes pa+a/le to order, or /ills of e?chan0e or other "ercantile docu"ents shall produce the effect of pa+"ent onl+ hen the+ have /een cashed, or hen throu0h the fault of the creditor the+ have /een i"paired. In the "eanti"e, the action derived fro" the ori0inal o/li0ation shall /e held in a/e+ance. In the a/sence of an a0ree"ent, either e?press or i"plied, pa+"ent "eans the dischar0e of a de/t or o/li0ation in "one+ 5UC v. Ro/ertson, 5 ;et. NUCO '4,, ( F. ed. 65-7 and unless the parties so a0ree, a de/tor has no ri0hts, e?cept at his o n peril, to su/stitute so"ethin0 in lieu of cash as "ediu" of pa+"ent of his de/t 5#nderson v. Gill, -* 2d.. B,6, 6* # 56-, 65 FR# 6)),4- #". Ct. Rep. 4)67. Conse!uentl+, unless authori8ed to do so /+ la or /+ consent of the o/li0ee a pu/lic officer has no authorit+ to accept an+thin0 other than "one+ in pa+"ent of an o/li0ation under a @ud0"ent /ein0 e?ecuted. Ctrictl+ spea<in0, the acceptance /+ the sheriff of the petitioner9s chec<s, in the case at /ar, does not, per se, operate as a dischar0e of the @ud0"ent de/t. Cince a ne0otia/le instru"ent is onl+ a su/stitute for "one+ and not "one+, the deliver+ of such an instru"ent does not, /+ itself, operate as pa+"ent 5Cee. ,(*, #ct 6)B, on &e0s. Insts.I #rt. ,64*, Civil CodeI 1r+an Fandon Co. v. #"erican 1an<, - ;hil. 655I Tan Cunco v. Cantos, * ;hil. 44I 6, R.C.F. '), ',7. # chec<, hether a "ana0er9s chec< or ordinar+ chee<, is not le0al tender, and an offer of a chec< in pa+"ent of a de/t is not a valid tender of pa+"ent and "a+ /e refused receipt /+ the o/li0ee or creditor. 2ere deliver+ of chec<s does not dischar0e the o/li0ation under a @ud0"ent. The o/li0ation is not e?tin0uished and re"ains suspended until the pa+"ent /+ co""ercial docu"ent is actuall+ reali8ed 5#rt. ,64*, Civil Code, par. B7. If /ouncin0 chec<s had /een issued in the na"e of #"elia Tan and not the Cheriff9s, there ould have /een no pa+"ent. #fter dishonor of the chec<s, 2s. Tan could have run after other properties of ;#F. The theor+ is that she has received no value for hat had /een a arded her. 1ecause the chec<s ere dra n in the na"e of E"ilio Z. Re+es, neither has she received an+thin0. The sa"e rule should appl+. It is ar0ued that if ;#F had paid in cash to Cheriff Re+es, there ould have /een pa+"ent in full le0al conte"plation. The reasonin0 is lo0ical /ut is it valid and properM Fo0ic has its li"its in decision "a<in0. Ae should not follo rulin0s to their lo0ical e?tre"es if in doin0 so e arrive at un@ust or a/surd results. In the first place, ;#F did not pa+ in cash. It paid in chee<s. #nd second, pa+"ent in cash al a+s carries ith it certain cautions. &o/od+ hands over /i0 a"ounts of cash in a careless and inane "anner. 2ature thou0ht is 0iven to the possi/ilit+ of the cash /ein0 lost, of the /earer /ein0 a+laid or runnin0 off ith hat he is carr+in0 for another. ;a+"ent in chec<s is precisel+ intended to avoid the possi/ilit+ of the "one+ 0oin0 to the ron0 part+. The situation is entirel+ different here a Cheriff sei8es a car, a tractor, or a piece of land. Fo0ic often has to 0ive a+ to e?perience and to realit+. >avin0 paid ith chec<s, ;#F should have done so properl+. ;a+"ent in "one+ or cash to the i"ple"entin0 officer "a+ /e dee"ed a/solute pa+"ent of the @ud0"ent de/t /ut the Court has never, in the least /it, su00ested that @ud0"ent de/tors should settle their o/li0ations /+ turnin0 over hu0e a"ounts of cash or le0al tender to sheriffs and other e?ecutin0 officers. ;a+"ent in cash ould result in da"a0e or inter"ina/le liti0ations each ti"e a sheriff ith hu0e a"ounts of cash in his hands decides to a/scond. ere not

16

#s a protective "easure, therefore, the courts encoura0e the practice of pa+"ents /+ chee< provided ade!uate controls are instituted to prevent ron0ful pa+"ent and ille0al ithdra al or dis/urse"ent of funds. If particularl+ /i0 a"ounts are involved, escro arran0e"ents ith a /an< and carefull+ supervised /+ the court ould /e the safer procedure. #ctual transfer of funds ta<es place ithin the safet+ of /an< pre"ises. These practices are perfectl+ le0al. The o/@ect is al a+s the safe and incorrupt e?ecution of the @ud0"ent. It is, indeed, out of the ordinar+ that chec<s intended for a particular pa+ee are "ade out in the na"e of another. 2a<in0 the chec<s pa+a/le to the @ud0"ent creditor ould have prevented the encash"ent or the ta<in0 of undue advanta0e /+ the sheriff, or an+ person into hose hands the chec<s "a+ have fallen, hether ron0full+ or in /ehalf of the creditor. The issuance of the chec<s in the na"e of the sheriff clearl+ "ade possi/le the "isappropriation of the funds that ere ithdra n. #s e?plained and held /+ the respondent court: ... NJOno in0 as it does that the intended pa+"ent as for the private part+ respondent #"elia Tan, the petitioner corporation, utili8in0 the services of its personnel ho are or should /e <no led0ea/le a/out the accepted procedures and resultin0 conse!uences of the chec<s dra n, nevertheless, in this instance, ithout prudence, departed fro" hat is 0enerall+ o/served and done, and placed as pa+ee in the chec<s the na"e of the errant Cheriff and not the na"e of the ri0htful pa+ee. ;etitioner there/+ created a situation hich per"itted the said Cheriff to personall+ encash said chec<s and "isappropriate the proceeds thereof to his e?clusive personal /enefit. 4or the pre@udice that resulted, the petitioner hi"self "ust /ear the fault. The @udicial 0uideline hich e ta<e note of states as follo s: #s /et een t o innocent persons, one of ho" "ust suffer the conse!uence of a /reach of trust, the one act of confidence "ust /ear the loss. 51londeau, et al. v. &ano, et al., F$4,B--, Jul+ 6', ,*B5, ', ;hil. '657 >avin0 failed to e"plo+ the proper safe0uards to protect itself, the @ud0"ent de/tor /la"e. ho "ade it possi/le /+ his

hose act "ade possi/le the loss had /ut itself to

The attention of this Court has /een called to the /ad practice of a nu"/er of e?ecutin0 officers, of re!uirin0 chec<s in satisfaction of @ud0"ent de/ts to /e "ade out in their o n na"es. If a sheriff directs a @ud0"ent de/tor to issue the chec<s in the sheriff9s na"e, clai"in0 he "ust 0et his co""ission or fees, the de/tor "ust report the sheriff i""ediatel+ to the court hich ordered the e?ecution or to the Cupre"e Court for appropriate disciplinar+ action. 4ees, co""issions, and salaries are paid throu0h re0ular channels. This i"proper procedure also allo s such officers, ho have si?t+ 5')7 da+s ithin hich to "a<e a return, to treat the "one+s as their personal finds and to deposit the sa"e in their private accounts to earn si?t+ 5')7 da+s interest, /efore said finds are turned over to the court or @ud0"ent creditor 5Cee 1al0os v. %elasco, ,)( CCR# 565 N,*(,O7. Kuite as easil+, such officers could put up the defense that said chec<s had /een issued to the" in their private or personal capacit+. Aithout a receipt evidencin0 pa+"ent of the @ud0"ent de/t, the "isappropriation of finds /+ such officers /eco"es clean and co"plete. The practice is in0enious /ut evil as it un@ustl+ enriches court personnel at the e?pense of liti0ants and the proper ad"inistration of @ustice. The te"ptation could /e far 0reater, as proved to /e in this case of the a/scondin0 sheriff. The correct and prudent thin0 for the petitioner as to have issued the chec<s in the intended pa+ee9s na"e. The pernicious effects of issuin0 chec<s in the na"e of a person other than the intended pa+ee, ithout the latter9s a0ree"ent or consent, are as "an+ as the a+s that an artful "ind could concoct to 0et around the safe0uards provided /+ the la on ne0otia/le instru"ents. #n an0r+ liti0ant ho loses a case, as a rule, ould not ant the innin0 part+ to 0et hat he on in the @ud0"ent. >e ould thin< of a+s to dela+ the innin0 part+9s 0ettin0 hat has /een ad@ud0ed in his favor. Ae cannot condone that practice especiall+ in cases here the courts and their officers are involved. Ae rule a0ainst the petitioner. #nent the applica/ilit+ of Cection ,5, Rule B*, as follo s: Cection ,5. E?ecution of "one+ @ud0"ents. L The officer "ust enforce an e?ecution of a "one+ @ud0"ent /+ lev+in0 on all the propert+, real and personal of ever+ na"e and nature hatsoever, and hich "a+ /e disposed of for value, of the @ud0"ent de/tor not e?e"pt fro" e?ecution, or on a sufficient a"ount of such propert+, if the+ /e sufficient, and sellin0 the sa"e, and pa+in0 to the @ud0"ent creditor, or his attorne+, so "uch of the proceeds as ill satisf+ the @ud0"ent. ... the respondent court held: Ae are o/li0ed to rule that the @ud0"ent de/t cannot /e considered satisfied and therefore the orders of the respondent @ud0e 0rantin0 the alias rit of e?ecution "a+ not /e pronounced as a nullit+. ??? ??? ??? It is clear and "anifest that after lev+ or 0arnish"ent, for a @ud0"ent to /e e?ecuted there is the re!uisite of pa+"ent /+ the officer to the @ud0"ent creditor, or his attorne+, so "uch of the proceeds as ill satisf+ the @ud0"ent and none such pa+"ent had /een concededl+ "ade +et /+ the a/scondin0 Cheriff to the private respondent #"elia Tan. The ulti"ate and essential step to co"plete the e?ecution of the @ud0"ent not havin0 /een perfor"ed /+ the Cit+ Cheriff, the @ud0"ent de/t le0all+ and factuall+ re"ains unsatisfied. Ctrictl+ spea<in0 e?ecution cannot /e e!uated petition, the distinction co"es out clearl+. ith satisfaction of a @ud0"ent. Under unusual circu"stances as those o/tainin0 in this

E?ecution is the process hich carries into effect a decree or @ud0"ent 5;ainter v. 1er0lund, B, Cal. #pp. 6d. 'B, (- ; 6d B'), B'BI 2iller v. Fondon, 6*4 2ass B)), , &E 6d ,*(, 6))I 1lac<9s Fa 3ictionar+7, hereas the satisfaction of a @ud0"ent is the pa+"ent of the a"ount of the rit, or a la ful tender thereof, or the conversion /+ sale of the de/tor9s propert+ into an a"ount e!ual to that due, and, it "a+ /e done other ise than upon an e?ecution 5Cection 4-, Rule B*7. Fev+ and deliver+ /+ an e?ecution officer are not prere!uisites to the satisfaction of a @ud0"ent hen the sa"e has alread+ /een reali8ed in fact 5Cection 4-, Rule B*7. E?ecution is for the sheriff to acco"plish hile satisfaction of the @ud0"ent is for the creditor to achieve. Cection ,5, Rule B* "erel+ provides the sheriff ith his duties as e?ecutin0 officer includin0 deliver+ of the proceeds of his lev+ on the de/tor9s propert+ to satisf+ the @ud0"ent de/t. It is /ut to stress that the i"ple"entin0 officer9s dut+ should not stop at his receipt of pa+"ents /ut "ust continue until pa+"ent is delivered to the o/li0or or creditor.

17

4inall+, e find no error in the respondent court9s pronounce"ent on the inclusion of interests to /e recovered under the alias rit of e?ecution. This lo0icall+ follo s fro" our rulin0 that ;#F is lia/le for /oth the lost chec<s and interest. The respondent court9s decision in C#$G.R. &o. 5,)-*$R does not totall+ supersede the trial court9s @ud0"ent in Civil Case &o. -,B)-. It "erel+ "odified the sa"e as to the principal a"ount a arded as actual da"a0es. A>ERE4.RE, I& %IEA .4 T>E 4.REG.I&G, the petition is here/+ 3IC2ICCE3. The @ud0"ent of the respondent Court of #ppeals is #44IR2E3 and the trial court9s issuance of the alias rit of e?ecution a0ainst the petitioner is upheld ithout pre@udice to an+ action it should ta<e a0ainst the errant sheriff E"ilio Z. Re+es. The Court #d"inistrator is ordered to follo up the actions ta<en a0ainst E"ilio Z. Re+es. C. .R3ERE3. 4ernan, C.J., Cru8, ;aras, 1idin, GriQo$#!uino, 2edialdea and Re0alado, JJ., concur.

G.R. No. 10 555 !,9,-.,r 20, 1993 RAMON TAN, p,6i6io',r, +8. T%E %ONORABLE COURT O) A""EALS &'( RI<AL COMMERCIAL BAN/ING COR"ORATION, r,8po'(,'68. J#;U&#&, J.: This petition see<s to set aside the decision of the Court of #ppeals dated Januar+ ,6, ,**B in C#$G.R. C% &o. B,)(B, entitled Ra"on Tan, plaintiff$appellee, vs. Ri8al Co""ercial 1an<in0 Corporation, defendant$appellant, reversin0 the decision of the Re0ional Trial Court dated 3ece"/er 6(, ,**) orderin0 respondent /an< Ri8al Co""ercial 1an<in0 Corporation 5RC1C7, 1inondo 1ranch, to pa+ petitioner da"a0es and attorne+9s fees in the a"ount of .&E 2IFFI.& T>IRTG 4I%E T>.UC#&3 5;,,)B5,))).))7 ;EC.C. The follo in0 are the uncontroverted facts: ;etitioner Ra"on Tan, a trader$/usiness"an and co""unit+ leader in ;uerto ;rincesa, had "aintained since ,*-' Current #ccount &o. ,)*)5()'( ith respondent /an<9s 1inondo /ranch. .n 2arch ,,, ,*((, to avoid carr+in0 cash hile enroute to 2anila, he secured a Cashier9s Chec< &o. F 4)'))),6' fro" the ;hilippine Co""ercial Industrial 1an< 5;CI17, ;uerto ;rincesa /ranch, in the a"ount of Thirt+ Thousand 5;B),))).))7 ;esos, pa+a/le to his order. >e deposited the chec< in his account ith RC1C 1inondo on 2arch ,5. .n the sa"e da+, RC1C erroneousl+ sent the sa"e cashier9s chec< for clearin0 to the Central 1an< hich as returned for

18

havin0 /een ="issent= or ="isrouted.= , The ne?t da+, 2arch ,', RC1C de/ited the a"ount covered /+ the sa"e cashier9s chec< fro" the account of the petitioner. Respondent /an< at this ti"e had not infor"ed the petitioner of its action hich the latter clai"s he learned of onl+ 46 da+s after, specificall+ on 2arch ,', hen he received the /an<9s de/it "e"o. 6 Rel+in0 on the co""on <no led0e that a cashier9s chec< as as 0ood as cash, that the usual /an<in0 practice that local chec<s are cleared ithin three 5B7 or<in0 da+s and re0ional chec<s ithin seven 5-7 or<in0 da+s, and the fact that the cashier9s chec< as accepted, petitioner issued t o 567 personal chec<s /oth dated 2arch ,(. Chec< &o. )4)-,* in the na"e of Go Fac for 4ive Thousand 4ive >undred 5;5,5))).))7 ;esos as presented on #pril 65, B "ore than B) da+s fro" petitioner9s deposit date of the cashier9s chec<. Chec< &o. )4)-,( in the na"e of 2C 3evelop"ent Tradin0 Corporation for Ci? Thousand 4ift+$Three ;esos and Cevent+ Centavos 5;',)5B.-)7 as returned t ice on 2arch 64, nine 5*7 da+s fro" his deposit date and a0ain on #pril 6', t ent+$t o da+s after the da+ the cashier9s chec< as deposited for insufficienc+ of funds. 4 ;etitioner, alle0in0 to have suffered hu"iliation and loss of face in the /usiness sector due to the /ounced chec<s, filed a co"plaint a0ainst RC1C for da"a0es in the Re0ional Trial Court of ;ala an and ;uerto ;rincesa, 1ranch 4-, doc<eted as Civil Case &o. 6,),. 5 3urin0 the trial, petitioner sou0ht to prove: 4irst, that it as RC1C9s responsi/ilit+ to call his attention there and then that he had erroneousl+ filled the ron0 deposit slip at the ti"e he deposited the cashier9s chec< ith the respondent /an<9s teller and it as ne0li0ence on RC1C9s part not to have done soI ' Cecond, that RC1C had /een re"iss in the perfor"ance of its o/li0ation to the petitioner hen it ="issent= the cashier9s chec< to the Central 1an< <no in0, as it should, that the source of the chec<, ;CI1, ;uerto ;rincesa 1ranch, is not included in the areas re!uired to /e cleared /+ the Central 1an<, a fact <no n to the /an<in0 orld and surel+ to the respondent /an<I Third, that RC1C upon <no in0 of its error in ="issendin0= the cashier9s chec< to the Central 1an< did not atte"pt to rectif+ its ="isclearin0= error /+ clearin0 it seasona/l+ ith ;CI1, ;uerto ;rincesa, thru its o n RC1C ;uerto ;rincesa 1ranch ith ho" it had direct radio contactI ( 4ourth, that as an old client, ith t elve 5,67 +ears of 0ood standin0 then, RC1C should have 0iven hi" "ore consideration /+ e?ertin0 0reater dili0ence in clearin0 the chec< ith ;CI1, ;uerto ;rincesa, to protect its client9s interestI * 4ifth, that RC1C failed to infor" petitioner pro"ptl+ that the chec< had not /een cleared, despite its de/itin0 ithout dela+ the a"ount covered /+ the chec< fro" the account of the petitioner and hastil+ char0in0 the latter service fees i""ediatel+ after the return of the ="issent chec<s=I ,) and 4inall+, that the /ounced chec<s resultin0 fro" RC1C9s ="isclearin0= had put in dou/t his credi/ilit+ a"on0 his /usiness peers and sullied his reputation as a co""unit+ leader hich he had painsta<in0l+ cultivated for +ears. >is co""unit+ standin0 as a /usiness$ socio$civic leader as a source of pride for hi" in his old a0e of -). >e cited /ein0 Chair"an of ;ala an 1o+ Ccout Council, 6$ter" ;resident of the Rotar+ Clu/ of ;uerto ;rincesa, "e"/er of ;ala an Cha"/er of Co""erce and Industr+, "e"/er of the 2onitorin0 Tea" of the ;ala an Inte0rated #rea 3evelop"ent ;ro@ect, "e"/er of Fion9s Clu/, ;hilippine Rifle ;istol #ssociation and the Caturda+ >ealth Clu/ to @ustif+ his clai" for "oral da"a0es. ,, In its defense, RC1C diso nin0 an+ ne0li0ence, put the /la"e for the ="isroutin0= on the petitioner for usin0 the ron0 chec< deposit slip. It insisted that the "isuse of a local chec< deposit slip, instead of a re0ional chec< deposit slip, tri00ered the ="isroutin0= /+ RC1C of the cashier9s chec< to the Central 1an< and it as petitioner9s ne0li0ent ="isuse= of a local deposit slip hich as the pro?i"ate cause of the ="isroutin0,= thus he should /ear the conse!uence. ,6 RC1C alle0ed that it co"plied strictl+ ith accepted /an<in0 practice hen it de/ited the a"ount of ;B),))).)) a0ainst petitioner9s account since under Resolution &o. 66)6 dated 3ece"/er 6,, ,*-* of the 2onetar+ 1oard, it is a "atter of polic+ to prohi/it the dra in0 a0ainst uncollected deposits 53#U3C7 e?cept hen the dra in0s are "ade a0ainst uncollected deposits representin0 /an< "ana0er9sDcashier9sDtreasurer9s chec<s, treasur+ arrants, postal "one+ orders and dul+ funded =on us= chec<s hich "a+ /e per"itted at the discretion of each /an<. ,BAithout creditin0 the ;B),))).)) deposit, petitioner9s /alance /efore and after as T o Thousand Ceven >undred &inet+$T o ;esos and the 5;6,-*6.((7 Ei0ht+$Ei0ht Centavos. ,4 Thus, it dishonored the t o 567 chec<s a"ountin0 to ;,,,55B.-) since the+ ere dra n a0ainst insufficient funds. RC1C added that petitioner had no /ills purchase 51;7 line hich allo s a depositor to receive or dra fro" proceeds of a chec< ithout aitin0 it to /e cleared. 1esides, RC1C "aintained, had it for arded the Cashier9s Chec< to ;CI1 ;uerto ;rincesa, ;ala an, it ould ta<e at least t ent+ 56)7 or<in0 da+s for the cashier9s chec< to /e cleared and it ould ta<e the sa"e len0th of ti"e to clear the t o 567 personal chec<s of Tan. ,5 RC1C further asseverated it as "erel+ actin0 as petitioner9s collectin0 a0ent and it assu"ed no responsi/ilit+/e+ond care in selectin0 correspondents under the theor+ that here a chec< is deposited ith a collectin0 /an< the relationship created is that of a0enc+ and not creditor$de/tor, thus it cannot /e lia/le. ,' 4inall+, respondent clai"ed that serious atte"pts ere "ade to contact petitioner throu0h the telephone nu"/ers in the si0nature speci"en card of petitioner /ut to no avail. ,- The #ssistant 1ranch #ccountant of RC1C 1inondo 1ranch testified that the first telephone nu"/er in the card had /een deleted fro" the phone co"pan+9s list and that hen RC1C tried to contact petitioner9s dau0hter Evel+n Tan$1an8on thru a certain telephone nu"/er and hen the+ as<ed for Evel+n Tan, the+ ere told there as no such person. ,( The trial court rendered a decision on 3ece"/er 6(, ,**) in petitioner9s favor, the dispositive portion ,* of hich reads: A>ERE4.RE, pre"ises considered, plaintiff havin0 proven the alle0ations of his verified co"plaint /+ preponderance of evidence, the court here/+ renders @ud0"ent orderin0 defendant /an<, 1inondo 1ranch, 2anila, to pa+ hi" da"a0es and attorne+9s fees in the total a"ount of ;,,)B5,))).)) ;hilippine Currenc+, /ro<en do n as follo s: ;-)),))).)) as "oral da"a0es, ;6)),))).)) as e?e"plar+ da"a0esI ;,B5,))).)) hich is ,5E of the su" herein a arded to plaintiff, as attorne+9s fees and to pa+ costs of suit.

19

4or havin0 failed to prove /+ an+ receipt or ritin0 to underpin it, plaintiff9s clai" for actual da"a0e is denied for lac< of "erit. IT IC C. .R3ERE3. RC1C appealed to the Court of #ppeals contendin0 that the trial court erred in holdin0 RC1C lia/le to petitioner on account of its alle0ed ne0li0ence and in a ardin0 petitioner "oral and e?e"plar+ da"a0es and attorne+9s fees. The Court of #ppeals on Januar+ ,6, ,**B rendered a decision 6) ith the follo in0 decretal portion: A>ERE4.RE, and upon all the fore0oin0, the decision of the court /elo pronounce"ent as to cost. The Court of #ppeals9 decision is /ased on the follo in0 findin0s: 6, Ahat appeared to have caused the unfortunate incident as that the plaintiff filled up the ron0 deposit slip hich led to the sendin0 of the chec< to the Central 1an< hen the clearin0 should have /een "ade else here. 1ut the clai" of the plaintiff that he as not advised that the Cashier9s chec< as "issent does not see" to /e correct. The evidence indicated that the defendant /an< thru its personnel had called hi" up thru telephone in the nu"/er 5&o. ')$45$6B7 hich he 0ave in his speci"en si0nature card. 1ut it ca"e out, that said telephone nu"/er as no lon0er active or as alread+ deleted fro" the list of telephone nu"/ers. There as an instruction on the part of the plaintiff for the /an< to contact his dau0hter, 2rs. Evel+n Tan 1an8on and accordin0 to the plaintiff, she too, as not contacted as per his instruction. The evidence, ho ever, indicated that 2s. Evel+n Tan also could not /e contacted at the nu"/er supposed to pertain to her as appeared in the speci"en si0nature card. In other ords hile there as co"pliance ith the instructions 0iven /+ the plaintiff /ut said instructions ere fault+. The plaintiff as a custo"er of the /an< is under o/li0ation to infor" the defendant of an+ chan0es in the telephone nu"/ers to /e contacted in the event of an+ e?i0enc+. #ll in all, the facts indicate that the refusal of RC1C to credit the a"ount of ;B),))).)) to the plaintiff9s current account is consistent ith the accepted /an<in0 practice. #s the defendant /an< had clai"ed, under Resolution &o. 66)6 dated 3ece"/er 6,, ,*-* of the 2onetar+ 1oard, it had /een e"phaticall+ declared as a "atter of polic+ that no dra in0s should /e "ade a0ainst uncollected deposits e?cept hen the dra in0s are "ade a0ainst uncollected deposits representin0 /an< "ana0er9sDcashier9sDtreasurer9s chec<s, treasur+ arrants, postal "one+ orders, and dul+ funded =on$us= chec<s as "a+ /e per"itted at the discretion of each /an<. It is clear that i""ediate pa+"ent ithout a aitin0 clearance of a cashier9s chec< is discretionar+ ith the /an< to ho" the chec< is presented and such /ein0 the case, the refusal to allo it as in this case is not to /e e!uated ith ne0li0ence in the /asic perception that discretion is not de"anda/le as a ri0ht. In the instant case, prior to the deposit of ;B),))).)), the plaintiff9s account appeared to /e onl+ in the a"ount of ;6,-*6.*(. Co the t o 567 chec<s issued /+ the plaintiff a"ountin0 to ;,,,55B.-) had to /e dishonored since the+ ere dra n a0ainst insufficient funds. Ahat the plaintiff should have done, /efore issuin0 the t o 567 chec<s, as to a ait the clearance of the Cashier9s chec< and his failure to do so is a fault not ascri/a/le to the defendant ho appeared under the circu"stance "erel+ to have follo ed the usual /an<in0 practice. ;etitioner no see<s to reverse the decision of the Court of #ppeals and affir" that of the lo er court. >e raises the follo in0 errors: ,. T>E >.&.R#1FE C.URT .4 #;;E#FC C.22ITTE3 GR.CC #&3 2#&I4ECT ERR.R I& C.&CFU3I&G T>#T T>E &EGFIGE&CE A#C #CCRI1#1FE T. >EREI& ;ETITI.&ER. 6. T>E >.&.R#1FE C.URT .4 #;;E#FC GR#%EFG #1UCE3 ITC 3ICCRETI.& I& 4I&3I&G T>#T T>E REC;.&3E&T 1#&J >#3 &.T 1EE& RE2ICC I& T>E ;ER4.R2#&CE .4 ITC .1FIG#TI.&C T. >EREI& ;ETITI.&ER. B. T>E >.&.R#1FE C.URT .4 #;;E#FC C.22ITTE3 GR.CC #&3 2#&I4ECT ERR.R #&3 GR#%E #1UCE .4 3ICCRETI.& I& RE%ERCI&G T>E #A#R3 .4 2.R#F #&3 EHE2;F#RG 3#2#GEC T. T>E ;ETITI.&ER. 4. T>E >.&.R#1FE C.URT .4 #;;E#FC C.22ITTE3 GR.CC #&3 2#&I4ECT ERR.R #&3 GR#%E #1UCE .4 3ICCRETI.& I& &.T #A#R3I&G #TT.R&EG9C 4EEC T. ;ETITI.&ER. In a "ost recent case decided /+ this Court, Cit+ Trust Corporation v. The Inter"ediate #ppellate Court, 66involvin0 da"a0es a0ainst Cit+ Trust 1an<in0 Corporation, the depositor, instead of statin0 her correct account nu"/er 6*)))(6B inaccuratel+ rote 6*))(6B. 1ecause of this error, si? postdated chec<s a"ountin0 to ;6),6)*.)) she issued ere dishonored for insufficienc+ of funds. The Re0ional Trial Court dis"issed the co"plaint for lac< of "erit. The Court of #ppeals, ho ever, found the appeal "eritorious and ordered the /an< to pa+ no"inal da"a0es of ;6,))).)), te"perate and "oderate da"a0es of ;5,))).)) and attorne+9s fees of ;4,))).)). Upon revie , this Court !uoted ith favor the dis!uisition of the appellate court: Ae cannot uphold the position of defendant. 4or, even if it /e true that there as error on the part of the plaintiff in o"ittin0 a 8ero in her account nu"/er, +et, it is a fact that her na"e, E""a E. >errero, is clearl+ ritten on said deposit slip 5E?h. 17. This is controllin0 in deter"inin0 in hose account the deposit is "ade or should /e posted. This is so /ecause it is not li<el+ to co""it an error in one9s na"e that "erel+ rel+in0 on nu"/ers hich are difficult to re"e"/er, especiall+ a nu"/er ith ei0ht 5(7 di0its as the account nu"/ers of defendant9s depositors. Ae vie the use of nu"/ers as si"pl+ for the convenience of the /an< /ut as never intended to disre0ard the real na"e of its depositors. The /an< is en0a0ed in /usiness i"pressed ith pu/lic interests, and it is its dut+ to protect in return its "an+ clients and depositors ho transact /usiness ith it. It should not /e a "atter of the /an< alone receivin0 deposits, lendin0 out "one+ and collectin0 interests. It is also its o/li0ation to see to it that all funds invested ith it are properl+ accounted for and dul+ posted in its led0ers. is RE%ERCE3 and this co"plaint is 3IC2ICCE3 ithout

20

In the case /efore Us, e are not persuaded that defendant /an< as not free fro" /la"e for the fiasco. In the first place, the teller should not have accepted plaintiff9s deposit ithout correctin0 the account nu"/er on the deposit slip hich, o/viousl+, as erroneous /ecause, as pointed out /+ defendant, it contained onl+ seven 5-7 di0its instead of ei0ht 5(7. Cecond, the co"plete na"e of plaintiff depositor appears in /old letters on the deposit slip 5E?h. 17. There could /e no "ista<in0 in her na"e, and that the deposit as "ade in her na"e, E""a E. >errero. In fact, defendant9s teller should not have fed her deposit slip to the co"puter <no in0 that her account nu"/er ritten thereon as ron0 as it contained onl+ seven 5-7 di0its. #s it happened, accordin0 to defendant, plaintiff9s deposit had to /e consi0ned to the suspense accounts pendin0 verification. This, indeed, could have /een avoided at the first instance had the teller of defendant /an< perfor"ed her duties efficientl+ and ell. 4or then she could have readil+ detected that the account nu"/er in the na"e of E""a E. >errero as erroneous and ould /e re@ected /+ the co"puter. That is, or should /e, part of the trainin0 and standard operatin0 procedure of the /an<9s e"plo+ees. .n the other hand, the depositors are not concerned ith /an<in0 procedure. That is the responsi/ilit+ of the /an< and its e"plo+ees. 3epositors are onl+ concerned ith the facilit+ of depositin0 their "one+, earnin0 interest thereon, if an+, and ithdra in0 therefro", particularl+ /usiness"en, li<e plaintiff, ho are supposed to /e al a+s on$ the$0o. ;laintiff9s account is a current account hich should i""ediatel+ /e posted. #fter all, it does not earn interest. #t least, the for/earance should /e co""ensurated ith pro"pt, efficient and satisfactor+ service. 1an< clients are supposed to rel+ on the services e?tended /+ the /an<, includin0 the assurance that their deposits ill /e dul+ credited the" as soon as the+ are "ade. 4or, an+ dela+ in creditin0 their account can /e e"/arrassin0 to the" as in the case of plaintiff. The point is that as a /usiness affected ith pu/lic interest and /ecause of the nature of its functions, the /an< is under o/li0ation to treat the accounts of its depositors ith "eticulous care, al a+s havin0 in "ind the fiduciar+ nature of their relationship. 5E"phasis supplied7. In the li0ht of the a/ove$cited case, the respondent /an< cannot e?culpate itself fro" lia/ilit+ /+ clai"in0 that its depositor =i"pliedl+ instructed= the /an< to clear his chec< ith the Central 1an< /+ fillin0 a local chec< deposit slip. Cuch posture is disin0enuous, to sa+ the least. 4irst, h+ ould RC1C follo a patentl+ erroneous act /orn of i0norance or inattention or /oth. Cecond, /an< transactions pass throu0h a succession of /an< personnel hose dut+ is to chec< and counterchec< transactions for possi/le errors. In the instant case, the teller should not have accepted the local deposit slip ith the cashier9s chec< that on its face as clearl+ a re0ional chec< ithout callin0 the depositor9s attention to the "ista<e at the ver+ "o"ent this as presented to her. &either should ever+one else do n the line ho processed the sa"e chec< for clearin0 have allo ed the chec< to /e sent to Central 1an<. 3epositors do not pretend to /e past "aster of /an<in0 technicalities, "uch "ore of clearin0 procedures. #s soon as their deposits are accepted /+ the /an< teller, the+ holl+ repose trust in the /an< personnel9s "aster+ of /an<in0, their and the /an<9s s orn profession of dili0ence and "eticulousness in 0ivin0 irreproacha/le service. Ae do not su/scri/e to RC1C9s assertion that petitioner9s use of the ron0 deposit slip as the pro?i"ate cause of the clearin0 fiasco and so, petitioner "ust /ear the conse!uence. In ;ilipinas 1an<, v. C#, 6B this Court said: The /an< is not e?pected to /e infalli/le /ut, as correctl+ o/served /+ respondent #ppellate Court, in this instance, it "ust /ear the /la"e for not discoverin0 the "ista<e of its teller despite the esta/lished procedure re!uirin0 the papers and /an< /oo<s to pass throu0h a /atter+ of /an< personnel hose dut+ it is to chec< and counterchec< the" for possi/le errors. #pparentl+, the officials and e"plo+ees tas<ed to do that did not perfor" their duties ith due care, . . . Co it is in the instance case, here the conclusion is inevita/le that respondent RC1C had /een re"iss in the perfor"ance of its dut+ and o/li0ation to its client, as ell as to itself. Ae dra attention to the fact that the t o dishonored chec<s issued /+ petitioner, Chec< &o. )4)-,* and Chec< &o. )4)-,( ere presented for pa+"ent 64 "ore than 45 da+s fro" the da+ the cashier9s chec< as deposited. This 0ave RC1C "ore than a"ple ti"e to have cleared the cashier9s chec< had it corrected its ="issendin0= the sa"e upon return fro" Central 1an< usin0 the correct slip this ti"e so it can /e cleared properl+. Instead, RC1C pro"ptl+ de/ited the a"ount of ;B),))).)) a0ainst petitioner9s account and left it at that. Ae o/serve, li<e ise, that RC1C in!uired a/out an Evel+n Tan /ut no Evel+n Tan$1an8on as specificall+ instructed in the sa"e si0nature card. 5E"phasis supplied7 65 RC1C insists that i""ediate pa+"ent ithout a aitin0 clearance of a cashier9s chec< is discretionar+ ith the /an< to ho" the chec< is presented and such /ein0 the case, its refusal to i""ediatel+ pa+ the cashier9s chec< in this case is not to /e e!uated ith ne0li0ence on its part. Ae find this distur/in0 and unfortunate. #n ordinar+ chec< is not a "ere underta<in0 to pa+ an a"ount of "one+. There is an ele"ent of certaint+ or assurance that it ill /e paid upon presentation that is h+ it is perceived as a convenient su/stitute for currenc+ in co""ercial and financial transactions. The /asis of the perception /ein0 confidence. #n+ practice that destro+s that confidence ill i"pair the usefulness of the chec< as a currenc+ su/stitute and create havoc in trade circles and the /an<in0 co""unit+. 6' &o , hat as presented for deposit in the instant cases as not @ust an ordinar+ chec< /ut a cashier9s chec< pa+a/le to the account of the depositor hi"self. # cashier9s chec< is a pri"ar+ o/li0ation of the issuin0 /an< andaccepted in advance /+ its "ere issuance. 61+ its ver+ nature, a cashier9s chec< is the /an<9s order to pa+ dra n upon itself, co""ittin0 in effect its total resources, inte0rit+ and honor /ehind the chec<. # cashier9s chec< /+ its peculiar character and 0eneral use in the co""ercial orld is re0arded su/stantiall+ to /e as 0ood as the "one+ hich it represents. 6( In this case, therefore, ;CI1 /+ issuin0 the chec< created an unconditional credit in favor of an+ collectin0 /an<. #ll these considered, petitioner9s reliance on the la+"an9s perception that a cashier9s chec< is as 0ood as cash is not entirel+ "isplaced, as it is rooted in practice, tradition, and principle. Ae see no reason thus h+ this so$called discretion as not e?ercised in favor of petitioner, speciall+ since ;CI1 and RC1C are "e"/ers of the sa"e clearin0 house 0roup rel+in0 on each other9s solvenc+. RC1C could surel+ rel+ on the solvenc+ of ;CI1 hen the latter issued its cashier9s chec<. .n the third and fourth issue, RC1C contends that "oral da"a0es cannot /e recovered in an action for /reach of contract since under #rticle 66,* of the &e Civil Code, the instant case is not a"on0 those enu"erated. 4or an a ard of "oral da"a0es in a /reach of contract, it is i"perative that the part+ acted in /ad faith or fraudulentl+ as provided for in #rt. 666) of the Civil Code, to it:

21

#rt. 666). Aillful in@ur+ to propert+ "a+ /e a le0al 0round for a ardin0 "oral da"a0es if the court should find that, under the circu"stances, such da"a0es are @ustl+ due. The sa"e rule applies to /reaches of contract here the defendant acted fraudulentl+ or in /ad faith. In the a/sence of "oral da"a0es, RC1C ar0ues, e?e"plar+ da"a0es cannot /e a arded under #rt. 6665 of the sa"e Code states: E?e"plar+ da"a0es or corrective da"a0es are i"posed, /+ te"perate, li!uidated or co"pensator+ da"a0es. hich

a+ of e?a"ple or correction for the pu/lic 0ood, in addition to the "oral,

Ae hold that petitioner has the ri0ht to recover "oral da"a0es even if the /an<9s ne0li0ence "a+ not have /een attended and /ad faith. In #"erican E?press International, Inc. v. I#C, 6* e held:

ith "alice

Ahile petitioner as not in /ad faith, its ne0li0ence caused the private respondent to suffer "ental an0uish, serious an?iet+, e"/arrass"ent and hu"iliation, for hich he is entitled to recover, reasona/le "oral da"a0es 5#rt. 66,-, Civil Code7. In Zenith Insurance Corporation v. C#, B) e also said that "oral da"a0es are not "eant to enrich a co"plainant at the e?pense of defendant. It is onl+ intended to alleviate the "oral sufferin0 he has under0one. In the instant case, e find the a ard of ;-)),))).)) as "oral da"a0es e?cessive and, accordin0l+, reduce it to one hundred thousand 5;,)),))).))7 pesos. Ae find the a ard of e?e"plar+ da"a0es of ;6)),))).)) un@ustified in the a/sence of "alice, /ad faith or 0ross ne0li0ence. B, The a ard of reasona/le attorne+9s fees is proper for the petitioner as co"pelled to liti0ate to protect his interest. B6 I& %IEA A>ERE.4, e RE%ERCE the decision of respondent Court of #ppeals and here/+ order private respondent RC1C, 1inondo 1ranch, to pa+ petitioner the a"ount of one hundred thousand 5;,)),))).))7 pesos as "oral da"a0es and the su" of fift+ thousand 5;5),))).))7 pesos as attorne+9s fees, plus costs. C. .R3ERE3. ;adilla, 3avide, Jr., 1ellosillo and Kuiason, JJ., concur.

G.R. No. 100290 05', 3, 1993 NORBERTO TIBA0IA, 0R. &'( CARMEN TIBA0IA, p,6i6io',r8, +8. T%E %ONORABLE COURT O) A""EALS &'( E!EN TAN, r,8po'(,'68. ;#3IFF#, J. ;etitioners, spouses &or/erto Ti/a@ia, Jr. and Car"en Ti/a@ia, are /efore this Court assailin0 the decision R of respondent appellate court dated 64 #pril ,**, in C#$G.R. C; &o. 64,'4 den+in0 their petition for certiorariprohi/ition, and in@unction hich sou0ht to annul the order of Jud0e Eutropio 2i0riQo of the Re0ional Trial Court, 1ranch ,5,, ;asi0, 2etro 2anila in Civil Case &o. 54('B entitled =Eden Tan vs. Cps. &or/erto and Car"en Ti/a@ia.= Ctated /riefl+, the relevant facts are as follo s: Case &o. 54('B as a suit for collection of a su" of "one+ filed /+ Eden Tan a0ainst the Ti/a@ia spouses. # rit of attach"ent as issued /+ the trial court on ,- #u0ust ,*(- and on ,- Cepte"/er ,*(-, the 3eput+ Cheriff filed a return statin0 that a deposit "ade /+ the Ti/a@ia spouses in the Re0ional Trial Court of Jaloo<an Cit+ in the a"ount of 4our >undred 4ort+ T o Thousand Ceven >undred and 4ift+ ;esos 5;446,-5).))7 in another case, had /een 0arnished /+ hi". .n ,) 2arch ,*((, the Re0ional Trial Court, 1ranch ,5, of ;asi0, 2etro 2anila rendered its decision in Civil Case &o. 54('B in favor of the plaintiff Eden Tan, orderin0 the Ti/a@ia spouses to pa+ her an a"ount in e?cess of Three >undred Thousand ;esos 5;B)),))).))7. .n appeal, the Court of #ppeals "odified the decision /+ reducin0 the a ard of "oral and e?e"plar+ da"a0es. The decision havin0 /eco"e final, Eden Tan filed the correspondin0 "otion

22

for e?ecution and thereafter, the 0arnished funds 2etro 2anila, ere levied upon.

hich /+ then

ere on deposit

ith the cashier of the Re0ional Trial Court of ;asi0,

.n ,4 3ece"/er ,**), the Ti/a@ia spouses delivered to 3eput+ Cheriff Eduardo 1oli"a the total "one+ @ud0"ent in the follo in0 for": Cashier9s Chec< ;6'6,-5).)) Cash ,B5,-BB.-) LLLL Total ;B*(,4(B.-) ;rivate respondent, Eden Tan, refused to accept the pa+"ent "ade /+ the Ti/a@ia spouses and instead insisted that the 0arnished funds deposited ith the cashier of the Re0ional Trial Court of ;asi0, 2etro 2anila /e ithdra n to satisf+ the @ud0"ent o/li0ation. .n ,5 Januar+ ,**,, defendant spouses 5petitioners7 filed a "otion to lift the rit of e?ecution on the 0round that the @ud0"ent de/t had alread+ /een paid. .n 6* Januar+ ,**,, the "otion as denied /+ the trial court on the 0round that pa+"ent in cashier9s chec< is not pa+"ent in le0al tender and that pa+"ent as "ade /+ a third part+ other than the defendant. # "otion for reconsideration as denied on ( 4e/ruar+ ,**,. Thereafter, the spouses Ti/a@ia filed a petition for certiorari, prohi/ition and in@unction in the Court of #ppeals. The appellate court dis"issed the petition on 64 #pril ,**, holdin0 that pa+"ent /+ cashier9s chec< is not pa+"ent in le0al tender as re!uired /+ Repu/lic #ct &o. 56*. The "otion for reconsideration as denied on 6- 2a+ ,**,. In this petition for revie , the Ti/a@ia spouses raise the follo in0 issues: I A>ET>ER .R &.T T>E 1;I C#C>IER9C C>ECJ &.. ),4)6, I& T>E #2.U&T .4 ;6'6,-5).)) TE&3ERE3 1G ;ETITI.&ERC 4.R ;#G2E&T .4 T>E JU3G2E&T 3E1T, IC =FEG#F TE&3ER=. II A>ET>ER .R &.T T>E ;RI%#TE REC;.&3E&T 2#G %#FI3FG RE4UCE T>E TE&3ER .4 ;#G2E&T ;#RTFG I& C>ECJ #&3 ;#RTFG I& C#C> 2#3E 1G ;ETITI.&ERC, T>RU #UR.R# %IT. #&3 C.U&CEF, 4.R T>E C#TIC4#CTI.& .4 T>E 2.&ET#RG .1FIG#TI.& .4 ;ETITI.&ERC$C;.UCEC. , The onl+ issue to /e resolved in this case is hether or not pa+"ent /+ "eans of chec< 5even /+ cashier9s chec<7 is considered pa+"ent in le0al tender as re!uired /+ the Civil Code, Repu/lic #ct &o. 56*, and the Central 1an< #ct. It is contended /+ the petitioners that the chec<, hich as a cashier9s chec< of the 1an< of the ;hilippine Islands, undou/tedl+ a /an< of 0ood standin0 and reputation, and hich as a crossed chec< "ar<ed =4or ;a+ee9s #ccount .nl+= and pa+a/le to private respondent Eden Tan, is considered le0al tender, pa+"ent ith hich operates to dischar0e their "onetar+ o/li0ation. 6 ;etitioners, to support their contention, cite the case of &e ;acific Ti"/er and Cuppl+ Co., Inc. v. CeQeris B here this Court held throu0h 2r. Justice >er"o0enes Concepcion, Jr. that =It is a ell$<no n and accepted practice in the /usiness sector that a cashier9s chec< is dee"ed as cash=. The provisions of la applica/le to the case at /ar are the follo in0: a. #rticle ,64* of the Civil Code hich provides: #rt. ,64*. The pa+"ent of de/ts in "one+ shall /e "ade in the currenc+ stipulated, and if it is not possi/le to deliver such currenc+, then in the currenc+ hich is le0al tender in the ;hilippines. The deliver+ of pro"issor+ notes pa+a/le to order, or /ills of e?chan0e or other "ercantile docu"ents shall produce the effect of pa+"ent onl+ hen the+ have /een cashed, or hen throu0h the fault of the creditor the+ have /een i"paired. In the "eanti"e, the action derived fro" the ori0inal o/li0ation shall /e held in a/e+ance.I /. Cection , of Repu/lic #ct &o. 56*, as a"ended, hich provides: Cec. ,. Ever+ provision contained in, or "ade ith respect to, an+ o/li0ation hich purports to 0ive the o/li0ee the ri0ht to re!uire pa+"ent in 0old or in an+ particular <ind of coin or currenc+ other than ;hilippine currenc+ or in an a"ount of "one+ of the ;hilippines "easured there/+, shall /e as it is here/+ declared a0ainst pu/lic polic+ null and void, and of no effect, and no such provision shall /e contained in, or "ade ith respect to, an+ o/li0ation thereafter incurred. Ever+ o/li0ation heretofore and hereafter incurred, hether or not an+ such provision as to pa+"ent is contained therein or "ade ith respect thereto, shall /e dischar0ed upon pa+"ent in an+ coin or currenc+ hich at the ti"e of pa+"ent is le0al tender for pu/lic and private de/ts. c. Cection 'B of Repu/lic #ct &o. 6'5, as a"ended 5Central 1an< #ct7 hich provides: Cec. 'B. Fe0al character L Chec<s representin0 deposit "one+ do not have le0al tender po er and their acceptance in the pa+"ent of de/ts, /oth pu/lic and private, is at the option of the creditor: ;rovided, ho ever, that a chec< hich has /een cleared and credited to the account of the creditor shall /e e!uivalent to a deliver+ to the creditor of cash in an a"ount e!ual to the a"ount credited to his account. 4ro" the afore!uoted provisions of la , it is clear that this petition "ust fail. In the recent cases of ;hilippine #irlines, Inc. vs. Court of #ppeals 4 and Ro"an Catholic 1ishop of 2alolos, Inc. vs. Inter"ediate #ppellate Court, 5 this Court held that L

23

# chec<, hether a "ana0er9s chec< or ordinar+ chec<, is not le0al tender, and an offer of a chec< in pa+"ent of a de/t is not a valid tender of pa+"ent and "a+ /e refused receipt /+ the o/li0ee or creditor. The rulin0 in these t o 567 cases "erel+ applies the statutor+ provisions hich la+ do n the rule that a chec< is not le0al tender and that a creditor "a+ validl+ refuse pa+"ent /+ chec<, hether it /e a "ana0er9s, cashier9s or personal chec<. ;etitioners erroneousl+ rel+ on one of the dissentin0 opinions in the ;hilippine #irlines case ' to support their cause. The dissentin0 opinion ho ever does not in an+ a+ support the contention that a chec< is le0al tender /ut, on the contrar+, states that =If the ;#F chec<s in !uestion had not /een encashed /+ Cheriff Re+es, there ould /e no pa+"ent /+ ;#F and, conse!uentl+, no dischar0e or satisfaction of its @ud0"ent o/li0ation.= -2oreover, the circu"stances in the ;hilippine #irlines case are !uite different fro" those in the case at /ar for in that case the chec<s issued /+ the @ud0"ent de/tor ere "ade pa+a/le to the sheriff, E"ilio Z. Re+es, ho encashed the chec<s /ut failed to deliver the proceeds of said encash"ent to the @ud0"ent creditor. In the "ore recent case of 4ortunado vs. Court of #ppeals, ( this Court stressed that, =Ae are not, /+ this decision, sanctionin0 the use of a chec< for the pa+"ent of o/li0ations over the o/@ection of the creditor.= A>ERE4.RE, the petition is 3E&IE3. The appealed decision is here/+ #44IR2E3, ith costs a0ainst the petitioners. C. .R3ERE3. &arvasa, C.J., Re0alado and &ocon, JJ., concur.

G.R. No. 93397 M&r9: 3, 1997 TRA!ERS RO#AL BAN/, p,6i6io',r, +8. COURT O) A""EALS, )ILRITERS GUARANT# ASSURANCE COR"ORATION &'( CENTRAL BAN/ o7 6:, "%ILI""INES, r,8po'(,'68. T.RREC, JR., J.: #ssailed in this ;etition for Revie on Certiorari is the 3ecision of the respondent Court of #ppeals dated Januar+ 6*, ,**), , affir"in0 the nullit+ of the transfer of Central 1an< Certificate of Inde/tedness 5C1CI7 &o. 3(*,, 6 ith a face value of ;5)),))).)), fro" the ;hilippine Under riters 4inance Corporation 5;hilfinance7 to the petitioner Trader9s Ro+al 1an< 5TR17, under a Repurchase #0ree"ent B dated 4e/ruar+ 4, ,*(,, and a 3etached #ssi0n"ent 4 dated #pril 6-, ,*(,. 3oc<eted as Civil Case &o. (B$,-*'' in the Re0ional Trial Court of 2anila, 1ranch B6, the action as ori0inall+ filed as a ;etition for 2anda"us 5 under Rule '5 of the Rules of Court, to co"pel the Central 1an< of the ;hilippines to re0ister the transfer of the su/@ect C1CI to petitioner Traders Ro+al 1an< 5TR17. In the said petition, TR1 stated that: B. .n &ove"/er 6-, ,*-*, 4ilriters Guarant+ #ssurance Corporation 54ilriters7 e?ecuted a =3etached #ssi0n"ent= . . ., here/+ 4ilriters, as re0istered o ner, sold, transferred, assi0ned and delivered unto ;hilippine Under riters 4inance Corporation 5;hilfinance7

24

all its ri0hts and title to Central 1an< Certificates of Inde/tedness of ;EC.C: 4I%E >U&3RE3 T>.UC#&3 5;5)),)))7 and havin0 an a00re0ate value of ;EC.C: T>REE 2IFFI.& 4I%E >U&3RE3 T>.UC#&3 5;B,5)),))).))7I 4. The aforesaid 3etached #ssi0n"ent 5#nne? =#=7 contains an e?press authori8ation e?ecuted /+ the transferor intended to co"plete the assi0n"ent throu0h the re0istration of the transfer in the na"e of ;hil4inance, hich authori8ation is specificall+ phrased as follo s: 954ilriters7 here/+ irrevoca/l+ authori8ed the said issuer 5Central 1an<7 to transfer the said /ondDcertificates on the /oo<s of its fiscal a0entI 5. .n 4e/ruar+ 4, ,*(,, petitioner entered into a Repurchase #0ree"ent ith ;hil4inance . . ., here/+, for and in consideration of the su" of ;EC.C: 4I%E >U&3RE3 T>.UC#&3 5;5)),))).))7, ;hil4inance sold, transferred and delivered to petitioner C1CI 4$+ear, (th series, Cerial &o. 3(*, ith a face value of ;5)),))).)) . . ., hich C1CI as a"on0 those previousl+ ac!uired /+ ;hil4inance fro" 4ilriters as averred in para0raph B of the ;etitionI '. ;ursuant to the aforesaid Repurchase #0ree"ent 5#nne? =1=7, ;hilfinance a0reed to repurchase C1CI Cerial &o. 3(*, 5#nne? =C=7, at the stipulated price of ;EC.C: 4I%E >U&3RE3 &I&ETEE& T>.UC#&3 T>REE >U&3RE3 CIHTG$.&E : ,,D,)) 5;5,*,B',.,,7 on #pril 6-, ,*(,I -. ;hil4inance failed to repurchase the C1CI on the a0reed date of "aturit+, #pril 6-, ,*(,, petitioner ere dishonored for insufficient fundsI hen the chec<s it issued in favor of

(. . in0 to the default of ;hil4inance, it e?ecuted a 3etached #ssi0n"ent in favor of the ;etitioner to ena/le the latter to have its title co"pleted and re0istered in the /oo<s of the respondent. #nd /+ "eans of said 3etach"ent, ;hilfinance transferred and assi0ned all, its ri0hts and title in the said C1CI 5#nne? =C=7 to petitioner and, further"ore, it did there/+ =irrevoca/l+ authori8e the said issuer 5respondent herein7 to transfer the said /ondDcertificate on the /oo<s of its fiscal a0ent.= . . . *. ;etitioner presented the C1CI 5#nne? =C=7, to0ether ith the t o 567 afore"entioned 3etached #ssi0n"ents 5#nne?es =1= and =3=7, to the Cecurities Cervicin0 3epart"ent of the respondent, and re!uested the latter to effect the transfer of the C1CI on its /oo<s and to issue a ne certificate in the na"e of petitioner as a/solute o ner thereofI ,). Respondent failed and refused to re0ister the transfer as re!uested, and continues to do so not ithstandin0 petitioner9s valid and @ust title over the sa"e and despite repeated de"ands in ritin0, the latest of hich is hereto attached as #nne? =E= and "ade an inte0ral part hereofI ,,. The e?press provisions 0overnin0 the transfer of the C1CI to it: ere su/stantiall+ co"plied ith the petitioner9s re!uest for re0istration,

=&o transfer thereof shall /e valid unless "ade at said office 5 here the Certificate has /een re0istered7 /+ the re0istered o ner hereof, in person or /+ his attorne+ dul+ authori8ed in ritin0, and si"ilarl+ noted hereon, and upon pa+"ent of a no"inal transfer fee hich "a+ /e re!uired, a ne Certificate shall /e issued to the transferee of the re0istered holder thereof.= and, ithout a dou/t, the 3etached #ssi0n"ents presented to respondent ere sufficient authori8ations in re0istered o ner, 4ilriters, and its transferee, ;hil4inance, as re!uired /+ the a/ove$!uoted provisionI ritin0 e?ecuted /+ the

,6. Upon such co"pliance ith the aforesaid re!uire"ents, the "inisterial duties of re0isterin0 a transfer of o nership over the C1CI and issuin0 a ne certificate to the transferee devolves upon the respondentI Upon these assertions, TR1 pra+ed for the re0istration /+ the Central 1an< of the su/@ect C1CI in its na"e. .n 3ece"/er 4, ,*(4, the Re0ional Trial Court the case too< co0ni8ance of the defendant Central 1an< of the ;hilippines9 2otion for #d"ission of #"ended #ns er ith Counter Clai" for Interpleader ' there/+ callin0 to fore the respondent 4ilriters Guarant+ #ssurance Corporation 54ilriters7, the re0istered o ner of the su/@ect C1CI as respondent. 4or its part, 4ilriters inter@ected as Cpecial 3efenses the follo in0: ,,. Respondent is the re0istered o ner of C1CI &o. (*,I ,6. The C1CI constitutes part of the reserve invest"ent a0ainst lia/ilities re!uired of respondent as an insurance co"pan+ under the Insurance CodeI ,B. Aithout an+ consideration or /enefit hatsoever to 4ilriters, in violation of la and the trust fund doctrine and to the pre@udice of polic+holders and to all ho have present or future clai" a0ainst policies issued /+ 4ilriters, #lfredo 1anaria, then Cenior %ice$ ;resident$Treasur+ of 4ilriters, ithout an+ /oard resolution, <no led0e or consent of the /oard of directors of 4ilriters, and ithout an+ clearance or authori8ation fro" the Insurance Co""issioner, e?ecuted a detached assi0n"ent purportedl+ assi0nin0 C1CI &o. (*, to ;hilfinanceI ??? ??? ??? ,4. Cu/se!uentl+, #l/erto 4a/ella, Cenior %ice$;resident$Co"ptroller are ;ilar Jaco/e, %ice$;resident$Treasur+ of 4ilriters 5/oth of ho" ere holdin0 the sa"e positions in ;hilfinance7, ithout an+ consideration or /enefit redoundin0 to 4ilriters and to the 0rave pre@udice of 4ilriters, its polic+ holders and all ho have present or future clai"s a0ainst its policies, e?ecuted si"ilar detached assi0n"ent for"s transferrin0 the C1CI to plaintiffI ??? ??? ???

25

,5. The detached assi0n"ent is patentl+ void and inoperative /ecause the assi0n"ent is ithout the <no led0e and consent of directors of 4ilriters, and not dul+ authori8ed in ritin0 /+ the 1oard, as re!uirin0 /+ #rticle %, Cection B of C1 Circular &o. -'*I ,'. The assi0n"ent of the C1CI to ;hilfinance is a personal act of #lfredo 1anaria and not the corporate act of 4ilriters and such null and voidI a7 The assi0n"ent Civil Code7I as e?ecuted ithout consideration and for that reason, the assi0n"ent is void fro" the /e0innin0 5#rticle ,4)*,

/7 The assi0n"ent as e?ecuted ithout an+ <no led0e and consent of the /oard of directors of 4ilritersI c7 The C1CI constitutes reserve invest"ent of 4ilriters a0ainst lia/ilities, hich is a re!uire"ent under the Insurance Code for its e?istence as an insurance co"pan+ and the pursuit of its /usiness operations. The assi0n"ent of the C1CI is ille0al act in the sense of "alu" in se or "alu" prohi/itu", for an+one to "a<e, either as corporate or personal actI d7 The transfer of di"unition of reserve invest"ents of 4ilriters is e?pressl+ prohi/ited /+ la , is i""oral and a0ainst pu/lic polic+I e7 The assi0n"ent of the C1CI has resulted in the capital i"pair"ent and in the solvenc+ deficienc+ of 4ilriters 5and has in fact helped in placin0 4ilriters under conservatorship7, an inevita/le result <no n to the officer ho e?ecuted assi0n"ent. ,-. ;laintiff had acted in /ad faith and ith <no led0e of the ille0alit+ and invalidit+ of the assi0n"ent. a7 The C1CI &o. (*, is not a ne0otia/le instru"ent and as a certificate of inde/tedness is not pa+a/le to /earer /ut is a re0istered in the na"e of 4ilritersI /7 The provision on transfer of the C1CIs provides that the Central 1an< shall treat the re0istered o ner as the a/solute o ner and that the value of the re0istered certificates shall /e pa+a/le onl+ to the re0istered o nerI a sufficient notice to plaintiff that the assi0n"ents do not 0ive the" the re0istered o ner9s ri0ht as a/solute o ner of the C1CI9sI c7 C1 Circular -'*, Ceries of ,*() 5Rules and Re0ulations Governin0 C1CIs7 provides that the re0istered certificates are pa+a/le onl+ to the re0istered o ner 5#rticle II, Cection ,7. ,(. ;laintiff <ne full ell that the assi0n"ent /+ ;hilfinance of C1CI &o. (*, /+ 4ilriters is not a re0ular transaction "ade in the usual of ordinar+ course of /usinessI a7 The C1CI constitutes part of the reserve invest"ents of 4ilriters a0ainst lia/ilities re!uires /+ the Insurance Code and its assi0n"ent or transfer is e?pressl+ prohi/ited /+ la . There as no atte"pt to 0et an+ clearance or authori8ation fro" the Insurance Co""issionerI /7 The assi0n"ent /+ 4ilriters of the C1CI is clearl+ not a transaction in the usual or re0ular course of its /usinessI c7 The C1CI involved su/stantial a"ount and its assi0n"ent clearl+ constitutes disposition of =all or su/stantiall+ all= of the assets of 4ilriters, hich re!uires the affir"ative action of the stoc<holders 5Cection 4), Corporation NsicO Code. In its 3ecision ( dated #pril 6*, ,*((, the Re0ional Trial Court of 2anila, 1ranch HHHIII found the assi0n"ent of C1CI &o. 3(*, in favor of ;hilfinance, and the su/se!uent assi0n"ent of the sa"e C1CI /+ ;hilfinance in favor of Traders Ro+al 1an< null and void and of no force and effect. The dispositive portion of the decision reads: #CC.R3I&GFG, @ud0"ent is here/+ rendered in favor of the respondent 4ilriters Guarant+ #ssurance Corporation and a0ainst the plaintiff Traders Ro+al 1an<: 5a7 3eclarin0 the assi0n"ent of C1CI &o. (*, in favor of ;hil4inance, and the su/se!uent assi0n"ent of C1CI /+ ;hil4inance in favor of the plaintiff Traders Ro+al 1an< as null and void and of no force and effectI 5/7 .rderin0 the respondent Central 1an< of the ;hilippines to disre0ard the said assi0n"ent and to pa+ the value of the proceeds of the C1CI &o. 3(*, to the 4ilriters Guarant+ #ssurance CorporationI 5c7 .rderin0 the plaintiff Traders Ro+al 1an< to pa+ respondent 4ilriters Guarant+ #ssurance Corp. The su" of ;,),))) as attorne+9s feesI and 5d7 to pa+ the costs. C. .R3ERE3. * The petitioner assailed the decision of the trial court in the Court of #ppeals ,), /ut their appeals li<e ise failed. The findin0s of the fact of the said court are here/+ reproduced: The records reveal that defendant 4ilriters is the re0istered o ner of C1CI &o. 3(*,. Under a deed of assi0n"ent dated &ove"/er 6-, ,*-,, 4ilriters transferred C1CI &o. 3(*, to ;hilippine Under riters 4inance Corporation 5;hilfinance7. Cu/se!uentl+, ;hilfinance transferred C1CI &o. 3(*,, hich as still re0istered in the na"e of 4ilriters, to appellant Traders Ro+al 1an< 5TR17. The transfer as "ade under a repurchase a0ree"ent dated 4e/ruar+ 4, ,*(,, 0rantin0 ;hilfinance the ri0ht to repurchase the instru"ent on or /efore #pril 6-, ,*(,. Ahen ;hilfinance failed to /u+ /ac< the note on "aturit+ date, it e?ecuted a deed of assi0n"ent, dated #pril 6-, ,*(,, conve+in0 to appellant TR1 all its ri0ht and the title to C1CI &o. 3(*,.

26

#r"ed ith the deed of assi0n"ent, TR1 then sou0ht the transfer and re0istration of C1CI &o. 3(*, in its na"e /efore the Cecurit+ and Cervicin0 3epart"ent of the Central 1an< 5C17. Central 1an<, ho ever, refused to effect the transfer and re0istration in vie of an adverse clai" filed /+ defendant 4ilriters. Feft ith no other recourse, TR1 filed a special civil action for "anda"us a0ainst the Central 1an< in the Re0ional Trial Court of 2anila. The suit, ho ever, as su/se!uentl+ treated /+ the lo er court as a case of interpleader hen C1 pra+ed in its a"ended ans er that 4ilriters /e i"pleaded as a respondent and the court ad@ud0e hich of the" is entitled to the o nership of C1CI &o. 3(*,. 4ailin0 to 0et a favora/le @ud0"ent. TR1 no co"es to this Court on appeal. ,, In the appellate court, petitioner ar0ued that the su/@ect C1CI as a ne0otia/le instru"ent, and havin0 ac!uired the said certificate fro" ;hilfinance as a holder in due course, its possession of the sa"e is thus free fro an+ defect of title of prior parties and fro" an+ defense availa/le to prior parties a"on0 the"selves, and it "a+ thus, enforce pa+"ent of the instru"ent for the full a"ount thereof a0ainst all parties lia/le thereon. ,6 In i0norin0 said ar0u"ent, the appellate court that the C1CI is not a ne0otia/le instru"ent, since the instru"ent clearl+ stated that it as pa+a/le to 4ilriters, the re0istered o ner, hose na"e as inscri/ed thereon, and that the certificate lac<ed the ords of ne0otia/ilit+ hich serve as an e?pression of consent that the instru"ent "a+ /e transferred /+ ne0otiation. ./viousl+, the assi0n"ent of the certificate fro" 4ilriters to ;hilfinance as fictitious, havin0 "ade ithout consideration, and did not confor" to Central 1an< Circular &o. -'*, series of ,*(), /etter <no n as the =Rules and Re0ulations Governin0 Central 1an< Certificates of Inde/tedness=, hich provided that an+ =assi0n"ent of re0istered certificates shall not /e valid unless "ade . . . /+ the re0istered o ner thereof in person or /+ his representative dul+ authori8ed in ritin0.= ;etitioner9s clai"ed interest has no /asis, since it as derived fro" ;hilfinance hose interest as ine?istent, havin0 ac!uired the certificate throu0h si"ulation. Ahat happened as ;hilfinance "erel+ /orro ed C1CI &o. 3(*, fro" 4ilriters, a sister corporation, to 0uarantee its financin0 operations. Caid the Court: In the case at /ar, #lfredo .. 1anaria, ho si0ned the deed of assi0n"ent purportedl+ for and on /ehalf of 4ilriters, did not have the necessar+ ritten authori8ation fro" the 1oard of 3irectors of 4ilriters to act for the latter. 4or lac< of such authorit+, the assi0n"ent did not therefore /ind 4ilriters and violated as the sa"e ti"e Central 1an< Circular &o. -'* hich has the force and effect of a la , resultin0 in the nullit+ of the transfer 5;eople v. Kue ;o Fa+, *4 ;hil. '4)I B2 ;hilippines, Inc. vs. Co""issioner of Internal Revenue, ,'5 CCR# --(7. In su", ;hilfinance ac!uired no title or ri0hts under C1CI &o. 3(*, the latter can re0ister ith the Central 1an<. hich it could assi0n or transfer to Traders Ro+al 1an< and hich

A>ERE4.RE, the @ud0"ent appealed fro" is #44IR2E3, ith costs a0ainst plaintiff$appellant. C. .R3ERE3. ,B ;etitioner9s present position rests solel+ on the ar0u"ent that ;hilfinance o ns *)E of 4ilriters e!uit+ and the t o corporations have identical corporate officers, thus de"andin0 the application of the doctrine or piercin0 the veil of corporate fiction, as to 0ive validit+ to the transfer of the C1CI fro" re0istered o ner to petitioner TR1. ,4 This renders the pa+"ent /+ TR1 to ;hilfinance of C1CI, as actual pa+"ent to 4ilriters. Thus, there is no "erit to the lo er court9s rulin0 that the transfer of the C1CI fro" 4ilriters to ;hilfinance as null and void for lac< of consideration. #d"ittedl+, the su/@ect C1CI is not a ne0otia/le instru"ent in the a/sence of ords of ne0otia/ilit+ ithin the "eanin0 of the ne0otia/le instru"ents la 5#ct 6)B,7. The pertinent portions of the su/@ect C1CI read: ??? ??? ??? The Central 1an< of the ;hilippines 5the 1an<7 for value received, here/+ pro"ises to pa+ /earer, of if this Certificate of inde/tedness /e re0istered, to 4IFRITERC GU#R#&TG #CCUR#&CE C.R;.R#TI.&, the re0istered o ner hereof, the principal su" of 4I%E >U&3RE3 T>.UC#&3 ;EC.C. ??? ??? ??? ;roperl+ understood, a certificate of inde/tedness pertains to certificates for the creation and "aintenance of a per"anent i"prove"ent revolvin0 fund, is si"ilar to a =/ond,= 5(6 2inn. 6)67. 1ein0 e!uivalent to a /ond, it is properl+ understood as ac<no led0"ent of an o/li0ation to pa+ a fi?ed su" of "one+. It is usuall+ used for the purpose of lon0 ter" loans. The appellate court ruled that the su/@ect C1CI is not a ne0otia/le instru"ent, statin0 that: #s orded, the instru"ent provides a pro"ise =to pa+ 4ilriters Guarant+ #ssurance Corporation, the re0istered o ner hereof.= %er+ clearl+, the instru"ent is pa+a/le onl+ to 4ilriters, the re0istered o ner, hose na"e is inscri/ed thereon. It lac<s the ords of ne0otia/ilit+ hich should have served as an e?pression of consent that the instru"ent "a+ /e transferred /+ ne0otiation. ,5 # readin0 of the su/@ect C1CI indicates that the sa"e is pa+a/le to 4IFRITERC GU#R#&TG #CCUR#&CE C.R;.R#TI.&, and to no one else, thus, discountin0 the petitioner9s su/"ission that the sa"e is a ne0otia/le instru"ent, and that it is a holder in due course of the certificate.

27

The lan0ua0e of ne0otia/ilit+ hich characteri8e a ne0otia/le paper as a credit instru"ent is its freedo" to circulate as a su/stitute for "one+. >ence, freedo" of ne0otia/ilit+ is the touchtone relatin0 to the protection of holders in due course, and the freedo" of ne0otia/ilit+ is the foundation for the protection hich the la thro s around a holder in due course 5,, #". Jur. 6d, B67. This freedo" in ne0otia/ilit+ is totall+ a/sent in a certificate inde/tedness as it "erel+ to pa+ a su" of "one+ to a specified person or entit+ for a period of ti"e. #s held in Calte? 5;hilippines7, Inc. v. Court of #ppeals, ,': The accepted rule is that the ne0otia/ilit+ or non$ne0otia/ilit+ of an instru"ent is deter"ined fro" the ritin0, that is, fro" the face of the instru"ent itself. In the construction of a /ill or note, the intention of the parties is to control, if it can /e le0all+ ascertained. Ahile the ritin0 "a+ /e read in the li0ht of surroundin0 circu"stance in order to "ore perfectl+ understand the intent and "eanin0 of the parties, +et as the+ have constituted the ritin0 to /e the onl+ out ard and visi/le e?pression of their "eanin0, no other ords are to /e added to it or su/stituted in its stead. The dut+ of the court in such case is to ascertain, not hat the parties "a+ have secretl+ intended as contradistin0uished fro" hat their ords e?press, /ut hat is the "eanin0 of the ords the+ have used. Ahat the parties "eant "ust /e deter"ined /+ hat the+ said. Thus, the transfer of the instru"ent fro" ;hilfinance to TR1 as "erel+ an assi0n"ent, and is not 0overned /+ the ne0otia/le instru"ents la . The pertinent !uestion then is, as the transfer of the C1CI fro" 4ilriters to ;hilfinance and su/se!uentl+ fro" ;hilfinance to TR1, in accord ith e?istin0 la , so as to entitle TR1 to have the C1CI re0istered in its na"e ith the Central 1an<M The follo in0 are the appellate court9s pronounce"ents on the "atter: Clearl+ sho n in the record is the fact that ;hilfinance9s title over C1CI &o. 3(*, is defective since it ac!uired the instru"ent fro" 4ilriters fictitiousl+. #lthou0h the deed of assi0n"ent stated that the transfer as for =value received=, there as reall+ no consideration involved. Ahat happened as ;hilfinance "erel+ /orro ed C1CI &o. 3(*, fro" 4ilriters, a sister corporation. Thus, for lac< of an+ consideration, the assi0n"ent "ade is a co"plete nullit+. Ahat is "ore, Ae find that the transfer "ade /+ 4ilriters to ;hilfinance did not confor" to Central 1an< Circular &o. -'*, series of ,*(), other ise <no n as the =Rules and Re0ulations Governin0 Central 1an< Certificates of Inde/tedness=, under hich the note as issued. ;u/lished in the .fficial Ga8ette on &ove"/er ,*, ,*(), Cection B thereof provides that an+ assi0n"ent of re0istered certificates shall not /e valid unless "ade . . . /+ the re0istered o ner thereof in person or /+ his representative dul+ authori8ed in ritin0. In the case at /ar, #lfredo .. 1anaria, ho si0ned the deed of assi0n"ent purportedl+ for and on /ehalf of 4ilriters, did not have the necessar+ ritten authori8ation fro" the 1oard of 3irectors of 4ilriters to act for the latter. 4or lac< of such authorit+, the assi0n"ent did not therefore /ind 4ilriters and violated at the sa"e ti"e Central 1an< Circular &o. -'* hich has the force and effect of a la , resultin0 in the nullit+ of the transfer 5;eople vs. Kue ;o Fa+, *4 ;hil. '4)I B2 ;hilippines, Inc. vs. Co""issioner of Internal Revenue, ,'5 CCR# --(7. In su", ;hilfinance ac!uired no title or ri0hts under C1CI &o. 3(*, the latter can re0ister ith the Central 1an< hich it could assi0n or transfer to Traders Ro+al 1an< and hich

;etitioner no ar0ues that the transfer of the su/@ect C1CI to TR1 "ust upheld, as the respondent 4ilriters and ;hilfinance, thou0h separate corporate entities on paper, have used their corporate fiction to defraud TR1 into purchasin0 the su/@ect C1CI, hich purchase no is refused re0istration /+ the Central 1an<. Ca+s the petitionerI Cince ;hilfinance o n a/out *)E of 4ilriters and the t o co"panies have the sa"e corporate officers, if the principle of piercin0 the veil of corporate entit+ ere to /e applied in this case, then TR19s pa+"ent to ;hilfinance for the C1CI purchased /+ it could @ust as ell /e considered a pa+"ent to 4ilriters, the re0istered o ner of the C1CI as to /ar the latter fro" clai"in0, as it has, that it never received an+ pa+"ent for that C1CI sold and that said C1CI as sold ithout its authorit+. ??? ??? ??? Ae respectfull+ su/"it that, considerin0 that the Court of #ppeals has held that the C1CI as "erel+ /orro ed /+ ;hilfinance fro" 4ilriters, a sister corporation, to 0uarantee its 5;hilfinance9s7 financin0 operations, if it ere to /e consistent there ith, on the issued raised /+ TR1 that there as a piercin0 a veil of corporate entit+, the Court of #ppeals should have ruled that such veil of corporate entit+ as, in fact, pierced, and the pa+"ent /+ TR1 to ;hilfinance should /e construed as pa+"ent to 4ilriters. ,Ae disa0ree ith ;etitioner. ;etitioner cannot put up the e?cuse of piercin0 the veil of corporate entit+, as this "erel+ an e!uita/le re"ed+, and "a+ /e a arded onl+ in cases hen the corporate fiction is used to defeat pu/lic convenience, @ustif+ ron0, protect fraud or defend cri"e or here a corporation is a "ere alter e0o or /usiness conduit of a person. ,( ;eiercin0 the veil of corporate entit+ re!uires the court to see throu0h the protective shroud hich e?e"pts its stoc<holders fro" lia/ilities that ordinaril+, the+ could /e su/@ect to, or distin0uished one corporation fro" a see"in0l+ separate one, ere it not for the e?istin0 corporate fiction. 1ut to do this, the court "ust /e sure that the corporate fiction as "isused, to such an e?tent that in@ustice, fraud, or cri"e as co""itted upon another, disre0ardin0, thus, his, her, or its ri0hts. It is the protection of the interests of innocent third persons dealin0 ith the corporate entit+ hich the la ai"s to protect /+ this doctrine. The corporate separateness /et een 4ilriters and ;hilfinance re"ains, despite the petitioners insistence on the contrar+. 4or one, other than the alle0ation that 4ilriters is *)E o ned /+ ;hilfinance, and the identit+ of one shall /e "aintained as to the other, there is nothin0 else hich could lead the court under circu"stance to disre0ard their corporate personalities.

28

Thou0h it is true that hen valid reasons e?ist, the le0al fiction that a corporation is an entit+ ith a @uridical personalit+ separate fro" its stoc<holders and fro" other corporations "a+ /e disre0arded, ,* in the a/sence of such 0rounds, the 0eneral rule "ust upheld. The fact that 4ilfinance o ns "a@orit+ shares in 4ilriters is not /+ itself a 0round to disre0ard the independent corporate status of 4ilriters. In Fiddel : Co., Inc. vs. Collector of Internal Revenue, 6) the "ere o nership /+ a sin0le stoc<holder or /+ another corporation of all or nearl+ all of the capital stoc< of a corporation is not of itself a sufficient reason for disre0ardin0 the fiction of separate corporate personalities. In the case at /ar, there is sufficient sho in0 that the petitioner inde/tedness fro" ;hilfinance. as not defrauded at all hen it ac!uired the su/@ect certificate of

.n its face the su/@ect certificates states that it is re0istered in the na"e of 4ilriters. This should have put the petitioner on notice, and pro"pted it to in!uire fro" 4ilriters as to ;hilfinance9s title over the sa"e or its authorit+ to assi0n the certificate. #s it is, there is no sho in0 to the effect that petitioner had an+ dealin0s hatsoever ith 4ilriters, nor did it "a<e in!uiries as to the o nership of the certificate. The ter"s of the C1CI &o. 3(*, contain a provision on its TR#&C4ER. Thus: TR#&C4ER. This Certificate shall pass /+ deliver+ unless it is re0istered in the o ner9s na"e at an+ office of the 1an< or an+ a0enc+ dul+ authori8ed /+ the 1an<, and such re0istration is noted hereon. #fter such re0istration no transfer thereof shall /e valid unless "ade at said office 5 here the Certificates has /een re0istered7 /+ the re0istered o ner hereof, in person, or /+ his attorne+, dul+ authori8ed in ritin0 and si"ilarl+ noted hereon and upon pa+"ent of a no"inal transfer fee hich "a+ /e re!uired, a ne Certificate shall /e issued to the transferee of the re0istered o ner thereof. The /an< or an+ a0enc+ dul+ authori8ed /+ the 1an< "a+ dee" and treat the /earer of this Certificate, or if this Certificate is re0istered as herein authori8ed, the person in hose na"e the sa"e is re0istered as the a/solute o ner of this Certificate, for the purpose of receivin0 pa+"ent hereof, or on account hereof, and for all other purpose hether or not this Certificate shall /e overdue. This is notice to petitioner to secure fro" 4ilriters a authori8ation fro" 4ilriters. ritten authori8ation for the transfer or to re!uire ;hilfinance to su/"it such an

;etitioner <ne that ;hilfinance is not re0istered o ner of the C1CI &o. 3(*,. The fact that a non$o ner as disposin0 of the re0istered C1CI o ned /+ another entit+ as a 0ood reason for petitioner to verif+ of in!uire as to the title ;hilfinance to dispose to the C1CI. 2oreover, C1CI &o. 3(*, is 0overned /+ C1 Circular &o. -'*, series of ,**) 6,, <no n as the Rules and Re0ulations Governin0 Central 1an< Certificates of Inde/tedness, Cection B, #rticle % of hich provides that: Cec. B. #ssi0n"ent of Re0istered Certificates. L #ssi0n"ent of re0istered certificates shall not /e valid unless "ade at the office here the sa"e have /een issued and re0istered or at the Cecurities Cervicin0 3epart"ent, Central 1an< of the ;hilippines, and /+ the re0istered o ner thereof, in person or /+ his representative, dul+ authori8ed in ritin0. 4or this purpose, the transferee "a+ /e desi0nated as the representative of the re0istered o ner. ;etitioner, /ein0 a co""ercial /an<, cannot fei0n i0norance of Central 1an< Circular -'*, and its re!uire"ents. #n entit+ hich deals ith corporate a0ents ithin circu"stances sho in0 that the a0ents are actin0 in e?cess of corporate authorit+, "a+ not hold the corporation lia/le. 66 This is onl+ fair, as ever+one "ust, in the e?ercise of his ri0hts and in the perfor"ance of his duties, act ith @ustice, 0ive ever+one his due, and o/serve honest+ and 0ood faith. 6B The transfer "ade /+ 4ilriters to ;hilfinance did not confor" to the said. Central 1an< Circular, hich for all intents, is considered part of the la . #s found /+ the courts a !uo, #lfredo .. 1anaria, ho had si0ned the deed of assi0n"ent fro" 4ilriters to ;hilfinance, purportedl+ for and in favor of 4ilriters, did not have the necessar+ ritten authori8ation fro" the 1oard of 3irectors of 4ilriters to act for the latter. #s it is, the sale fro" 4ilriters to ;hilfinance as fictitious, and therefore void and ine?istent, as there as no consideration for the sa"e. This is fatal to the petitioner9s cause, for then, ;hilfinance had no title over the su/@ect certificate to conve+ the Traders Ro+al 1an<. &e"o potest nisi !uod de @ure potest L no "an can do an+thin0 e?cept hat he can do la full+. Concededl+, the su/@ect C1CI as ac!uired /+ 4ilriters to for" part of its le0al and capital reserves, hich are re!uired /+ la 64 to /e "aintained at a "andated level. This as pointed out /+ Elias Garcia, 2ana0er$in$Char0e of respondent 4ilriters, in his testi"on+ 0iven /efore the court on 2a+ B), ,*('. K 3o +ou <no caseM # Ges, sir. K Ah+ do +ou <no thisM # Aell, this as C1CI of the co"pan+ sou0ht to /e e?a"ined /+ the Insurance Co""ission so"eti"e in earl+ ,*(, and this C1CI &o. (*, as a"on0 the C1CI9s that ere found to /e "issin0. K Fet "e ta<e +ou /ac< further /efore ,*(,. 3id +ou have the <no led0e of this C1CI &o. (*, /efore ,*(,M # Ges, sir. This C1CI is an invest"ent of 4ilriters re!uired /+ the Insurance Co""ission as le0al reserve of the co"pan+. K Fe0al reserve for the purpose of hatM # Aell, +ou see, the Insurance co"panies are re!uired to put up le0al reserves under Cection 6,B of the Insurance Code e!uivalent to 4) percent of the pre"iu"s receipt and further, the Insurance Co""ission re!uires this reserve to /e invested prefera/l+ in 0overn"ent securities or 0overn"ent /inds. This is ho this C1CI ca"e to /e purchased /+ the co"pan+. this Central 1an< Certificate of Inde/tedness, in short, C1CI &o. 3(*, in the face value of ;5))),))).)) su/@ect of this

29

It cannot, therefore, /e ta<en out of the said funds, ithout violatin0 the re!uire"ents of the la . Thus, the anauthori8ed use or distri/ution of the sa"e /+ a corporate officer of 4ilriters cannot /ind the said corporation, not ithout the approval of its 1oard of 3irectors, and the "aintenance of the re!uired reserve fund. Conse!uentl+, the title of 4ilriters over the su/@ect certificate of inde/tedness "ust /e upheld over the clai"ed interest of Traders Ro+al 1an<. #CC.R3I&GFG, the petition is 3IC2ICCE3 and the decision appealed fro" dated Januar+ 6*, ,**) is here/+ #44IR2E3. C. .R3ERE3. Re0alado, Ro"ero and 2endo8a, JJ., concur. ;uno, J., too< no part.

G.R. No. 9252 M&4 23, 1993 RAUL SESBRE>O, p,6i6io',r, +8. %ON. COURT O) A""EALS, !ELTA MOTORS COR"ORATION AN! "ILI"INAS BAN/, r,8po'(,'68. 4EFICI#&., J.: .n * 4e/ruar+ ,*(,, petitioner Raul Ces/reQo "ade a "one+ "ar<et place"ent in the a"ount of ;B)),))).)) ith the ;hilippine Under riters 4inance Corporation 5=;hilfinance=7, Ce/u 1ranchI the place"ent, ith a ter" of thirt+$t o 5B67 da+s, ould "ature on ,B 2arch ,*(,, ;hilfinance, also on * 4e/ruar+ ,*(,, issued the follo in0 docu"ents to petitioner: 5a7 the Certificate of Confir"ation of Cale, = ithout recourse,= &o. 6)4*' of one 5,7 3elta 2otors Corporation ;ro"issor+ &ote 5=32C ;&=7 &o. 6-B, for a ter" of B6 da+s at ,-.)E per annu"I 5/7 the Certificate of securities 3eliver+ Receipt &o. ,'5(- indicatin0 the sale of 32C ;& &o. 6-B, to petitioner, ith the notation that the said securit+ as in custodianship of ;ilipinas 1an<, as per 3eno"inated Custodian Receipt 5=3CR=7 &o. ,)()5 dated * 4e/ruar+ ,*(,I and 5c7 post$dated chec<s pa+a/le on ,B 2arch ,*(, 5i.e., the "aturit+ date of petitioner9s invest"ent7, ith petitioner as pa+ee, ;hilfinance as dra er, and Insular 1an< of #sia and #"erica as dra ee, in the total a"ount of ;B)4,5BB.BB. .n ,B 2arch ,*(,, petitioner sou0ht to encash the postdated chec<s issued /+ ;hilfinance. >o ever, the chec<s havin0 /een dra n a0ainst insufficient funds. ere dishonored for

30

.n 6' 2arch ,*(,, ;hilfinance delivered to petitioner the 3CR &o. ,)()5 issued /+ private respondent ;ilipinas 1an< 5=;ilipinas=7. It reads as follo s: ;IFI;I&#C 1#&J 2a<ati Ctoc< E?chan0e 1ld0., #+ala #venue, 2a<ati, 2etro 2anila 4e/ruar+ *, ,*(, LLLLLLL %#FUE 3#TE T. Raul Ces/reQo #pril ', ,*(, LLLLLLLL 2#TURITG 3#TE &.. ,)()5)5

3E&.2I&#TE3 CUCT.3I#& RECEI;T This confir"s that as a dul+ Custodian 1an<, and upon instruction of ;>IFI;;I&E U&3ERARITEC 4I&#&CE C.R;.R#TI.&, have in our custod+ the follo in0 securities to +ou NsicO the e?tent herein indicated. CERI#F 2#T. 4#CE ICCUE3 REGICTERE3 #2.U&T &U21ER 3#TE %#FUE 1G >.F3ER ;#GEE 6-B, 4$'$(, 6,B)),(BB.B4 32C ;>IF. B)-,*BB.BB U&3ERARITERC 4I&#&CE C.R;. Ae further certif+ that these securities "a+ /e inspected /+ +ou or +our dul+ authori8ed representative at an+ ti"e durin0 re0ular /an<in0 hours. Upon +our ritten instructions e shall underta<e ph+sical deliver+ of the a/ove securities full+ assi0ned to +ou should this 3eno"inated Custodianship Receipt re"ain outstandin0 in +our favor thirt+ 5B)7 da+s after its "aturit+. ;IFI;I&#C 1#&J 51+ Eli8a/eth 3e %illa Ille0i/le Ci0nature7 , .n 6 #pril ,*(,, petitioner approached 2s. Eli8a/eth de %illa of private respondent ;ilipinas, 2a<ati 1ranch, and handed her a de"and letter infor"in0 the /an< that his place"ent ith ;hilfinance in the a"ount reflected in the 3CR &o. ,)()5 had re"ained unpaid and outstandin0, and that he in effect as as<in0 for the ph+sical deliver+ of the underl+in0 pro"issor+ note. ;etitioner then e?a"ined the ori0inal of the 32C ;& &o. 6-B, and found: that the securit+ had /een issued on ,) #pril ,*()I that it ould "ature on ' #pril ,*(,I that it had a face value of ;6,B)),(BB.BB, ith the ;hilfinance as =pa+ee= and private respondent 3elta 2otors Corporation 5=3elta=7 as ="a<erI= and that on face of the pro"issor+ note as sta"ped =&.& &EG.TI#1FE.= ;ilipinas did not deliver the &ote, nor an+ certificate of participation in respect thereof, to petitioner. ;etitioner later "ade si"ilar de"and letters, dated B Jul+ ,*(, and B #u0ust ,*(,, 6 a0ain as<in0 private respondent ;ilipinas for ph+sical deliver+ of the ori0inal of 32C ;& &o. 6-B,. ;ilipinas alle0edl+ referred all of petitioner9s de"and letters to ;hilfinance for ritten instructions, as has /een supposedl+ a0reed upon in =Cecurities Custodianship #0ree"ent= /et een ;ilipinas and ;hilfinance. ;hilfinance did not provide the appropriate instructionsI ;ilipinas never released 32C ;& &o. 6-B,, nor an+ other instru"ent in respect thereof, to petitioner. ;etitioner also "ade a ritten de"and on ,4 Jul+ ,*(, B upon private respondent 3elta for the partial satisfaction of 32C ;& &o. 6-B,, e?plainin0 that ;hilfinance, as pa+ee thereof, had assi0ned to hi" said &ote to the e?tent of ;B)-,*BB.BB. 3elta, ho ever, e

31

denied an+ lia/ilit+ to petitioner on the pro"issor+ note, and e?plained in turn that it had previousl+ a0reed ith ;hilfinance to offset its 32C ;& &o. 6-B, 5alon0 ith 32C ;& &o. 6-B)7 a0ainst ;hilfinance ;& &o. ,4B$# issued in favor of 3elta. In the "eanti"e, ;hilfinance, on ,( June ,*(,, as placed under the @oint "ana0e"ent of the Cecurities and e?chan0e co""ission 5=CEC=7 and the Central 1an<. ;ilipinas delivered to the CEC 32C ;& &o. 6-B,, hich to date apparentl+ re"ains in the custod+ of the CEC. 4 #s petitioner had failed to collect his invest"ent and interest thereon, he filed on 6( Cepte"/er ,*(6 an action for da"a0es ith the Re0ional Trial Court 5=RTC=7 of Ce/u Cit+, 1ranch 6,, a0ainst private respondents 3elta and ;ilipinas. 5 The trial court, in a decision dated 5 #u0ust ,*(-, dis"issed the co"plaint and counterclai"s for lac< of "erit and for lac< of cause of action, ith costs a0ainst petitioner. ;etitioner appealed to respondent Court of #ppeals in C.#.$G.R. C% &o. ,5,*5. In a 3ecision dated 6, 2arch ,*(*, the Court of #ppeals denied the appeal and held: ' 1e that as it "a+, fro" the evidence on record, if there is an+one that appears lia/le for the travails of plaintiff$appellant, it is ;hilfinance. #s correctl+ o/served /+ the trial court: This act of ;hilfinance in acceptin0 the invest"ent of plaintiff and char0in0 it a0ainst 32C ;& &o. 6-B, hen its entire face value as alread+ o/li0ated or ear"ar<ed for set$off or co"pensation is difficult to co"prehend and "a+ have /een "otivated ith /ad faith. ;hilfinance, therefore, is solel+ and le0all+ o/li0ated to return the invest"ent of plaintiff, to0ether ith its earnin0s, and to ans er all the da"a0es plaintiff has suffered incident thereto. Unfortunatel+ for plaintiff, ;hilfinance as not i"pleaded as one of the defendants in this case at /arI hence, this Court is ithout @urisdiction to pronounce @ud0e"ent a0ainst it. 5p. ,,, 3ecision7 A>ERE4.RE, findin0 no reversi/le error in the decision appealed fro", the sa"e is here/+ affir"ed in toto. Cost a0ainst plaintiff$ appellant. ;etitioner "oved for reconsideration of the a/ove 3ecision, ithout success. >ence, this ;etition for Revie on Certiorari. #fter consideration of the alle0ations contained and issues raised in the pleadin0s, the Court resolved to 0ive due course to the petition and re!uired the parties to file their respective "e"oranda. ;etitioner reiterates the assi0n"ent of errors he directed at the trial court decision, and contends that respondent court of #ppeals 0ravel+ erred: 5i7 in concludin0 that he cannot recover fro" private respondent 3elta his assi0ned portion of 32C ;& &o. 6-B,I 5ii7 in failin0 to hold private respondent ;ilipinas solidaril+ lia/le on the 32C ;& &o. 6-B, in vie of the provisions stipulated in 3CR &o. ,)()5 issued in favor r of petitioner, and 5iii7 in refusin0 to pierce the veil of corporate entit+ /et een ;hilfinance, and private respondents 3elta and ;ilipinas, considerin0 that the three 5B7 entities /elon0 to the =Cilverio Group of Co"panies= under the leadership of 2r. Ricardo Cilverio, Cr. ( There are at least t o 567 sets of relationships hich e need to address: firstl+, the relationship of petitioner vis$a$vis3eltaI secondl+, the relationship of petitioner in respect of ;ilipinas. #ctuall+, of course, there is a third relationship that is of critical i"portance: the relationship of petitioner and ;hilfinance. >o ever, since ;hilfinance has not /een i"pleaded in this case, neither the trial court nor the Court of #ppeals ac!uired @urisdiction over the person of ;hilfinance. It is, conse!uentl+, not necessar+ for present purposes to deal ith this third relationship, e?cept to the e?tent it necessaril+ i"pin0es upon or intersects the first and second relationships. I. Ae consider first the relationship /et een petitioner and 3elta. The Court of appeals in effect held that petitioner ac!uired no ri0hts vis$a$vis 3elta in respect of the 3elta pro"issor+ note 532C ;& &o. 6-B,7 hich ;hilfinance sold = ithout recourse= to petitioner, to the e?tent of ;B)4,5BB.BB. The Court of #ppeals said on this point: &or could plaintiff$appellant have ac!uired an+ ri0ht over 32C ;& &o. 6-B, as the sa"e is =non$ne0otia/le= as sta"ped on its face 5E?hi/it ='=7, ne0otiation /ein0 defined as the transfer of an instru"ent fro" one person to another so as to constitute the transferee the holder of the instru"ent 5Cec. B), &e0otia/le Instru"ents Fa 7. # person not a holder cannot sue on the instru"ent in his o n na"e and cannot de"and or receive pa+"ent 5Cection 5,, id.7 * ;etitioner ad"its that 32C ;& &o. 6-B, as non$ne0otia/le /ut contends that the &ote had /een validl+ transferred, in part to hi" /+ assi0n"ent and that as a result of such transfer, 3elta as de/tor$"a<er of the &ote, as o/li0ated to pa+ petitioner the portion of that &ote assi0ned to hi" /+ the pa+ee ;hilfinance. 3elta, ho ever, disputes petitioner9s contention and ar0ues: 5,7 that 32C ;& &o. 6-B, as not intended to /e ne0otiated or other ise transferred /+ ;hilfinance as "anifested /+ the ord =non$ ne0otia/le= sta"p across the face of the &ote ,) and /ecause "a<er 3elta and pa+ee ;hilfinance intended that this &ote ould /e offset a0ainst the outstandin0 o/li0ation of ;hilfinance represented /+ ;hilfinance ;& &o. ,4B$# issued to 3elta as pa+eeI 567 that the assi0n"ent of 32C ;& &o. 6-B, /+ ;hilfinance as ithout 3elta9s consent, if not a0ainst its instructionsI and 5B7 assu"in0 5ar0uendo onl+7 that the partial assi0n"ent in favor of petitioner as valid, petitioner too< the &ote su/@ect to the defenses availa/le to 3elta, in particular, the offsettin0 of 32C ;& &o. 6-B, a0ainst ;hilfinance ;& &o. ,4B$#. ,, Ae consider 3elta9s ar0u"ents seriati".

32

4irstl+, it is i"portant to /ear in "ind that the ne0otiation of a ne0otia/le instru"ent "ust /e distin0uished fro" theassi0n"ent or transfer of an instru"ent hether that /e ne0otia/le or non$ne0otia/le. .nl+ an instru"ent !ualif+in0 as a ne0otia/le instru"ent under the relevant statute "a+ /e ne0otiated either /+ indorse"ent thereof coupled ith deliver+, or /+ deliver+ alone here the ne0otia/le instru"ent is in /earer for". # ne0otia/le instru"ent "a+, ho ever, instead of /ein0 ne0otiated, also /e assi0ned or transferred. The le0al conse!uences of ne0otiation as distin0uished fro" assi0n"ent of a ne0otia/le instru"ent are, of course, different. # non$ ne0otia/le instru"ent "a+, o/viousl+, not /e ne0otiatedI /ut it "a+ /e assi0ned or transferred, a/sent an e?press prohi/ition a0ainst assi0n"ent or transfer ritten in the face of the instru"ent: The ords =not ne0otia/le,= sta"ped on the face of the /ill of ladin0, did not destro+ its assi0na/ilit+, /ut the sole effect as to e?e"pt the /ill fro" the statutor+ provisions relative thereto, and a /ill, thou0h not ne0otia/le, "a+ /e transferred /+ assi0n"entI the assi0nee ta<in0 su/@ect to the e!uities /et een the ori0inal parties. ,6 5E"phasis added7 32C ;& &o. 6-B,, hile "ar<ed =non$ne0otia/le,= as not at the sa"e ti"e sta"ped =non$transfera/le= or =non$assi0na/le.= It contained no stipulation hich prohi/ited ;hilfinance fro" assi0nin0 or transferrin0, in hole or in part, that &ote. 3elta adduced the =Fetter of #0ree"ent= hich it had entered into ith ;hilfinance and hich should /e !uoted in full: #pril ,), ,*() ;hilippine Under riters 4inance Corp. 1enavide8 Ct., 2a<ati, 2etro 2anila. #ttention: 2r. #lfredo .. 1anaria C%;$Treasurer GE&TFE2E&: This refers to our outstandin0 place"ent of ;4,'),,'''.'- as evidenced /+ +our ;ro"issor+ &ote &o. ,4B$#, dated #pril ,), ,*(), to "ature on #pril ', ,*(,. #s a0reed upon, e enclose our non$ne0otia/le ;ro"issor+ &ote &o. 6-B) and 6-B, for ;6,))),))).)) each, dated #pril ,), ,*(), to /e offsetted NsicO a0ainst +our ;& &o. ,4B$# upon co$ter"inal "aturit+. ;lease deliver the proceeds of our ;&s to our representative, 2r. Eric Castillo. %er+ Trul+ Gours, 5C0d.7 4lorencio 1. 1ia0an Cenior %ice ;resident ,B Ae find nothin0 in his =Fetter of #0ree"ent= hich can /e reasona/l+ construed as a prohi/ition upon ;hilfinance assi0nin0 or transferrin0 all or part of 32C ;& &o. 6-B,, /efore the "aturit+ thereof. It is scarcel+ necessar+ to add that, even had this =Fetter of #0ree"ent= set forth an e?plicit prohi/ition of transfer upon ;hilfinance, such a prohi/ition cannot /e invo<ed a0ainst an assi0nee or transferee of the &ote ho parted ith valua/le consideration in 0ood faith and ithout notice of such prohi/ition. It is not disputed that petitioner as such an assi0nee or transferee. .ur conclusion on this point is reinforced /+ the fact that hat ;hilfinance and 3elta ere doin0 /+ their e?chan0e of their pro"issor+ notes as this: 3elta invested, /+ "a<in0 a "one+ "ar<et place"ent ith ;hilfinance, appro?i"atel+ ;4,')),))).)) on ,) #pril ,*()I /ut pro"ptl+, on the sa"e da+, /orro ed /ac< the /ul< of that place"ent, i.e., ;4,))),))).)), /+ issuin0 its t o 567 pro"issor+ notes: 32C ;& &o. 6-B) and 32C ;& &o. 6-B,, /oth also dated ,) #pril ,*(). Thus, ;hilfinance as left ith not ;4,')),))).)) /ut onl+ ;')),))).)) in cash and the t o 567 3elta pro"issor+ notes. #propos 3elta9s co"plaint that the partial assi0n"ent /+ ;hilfinance of 32C ;& &o. 6-B, had /een effected ithout the consent of 3elta, e note that such consent as not necessar+ for the validit+ and enforcea/ilit+ of the assi0n"ent in favor of petitioner. ,4 3elta9s ar0u"ent that ;hilfinance9s sale or assi0n"ent of part of its ri0hts to 32C ;& &o. 6-B, constituted conventional su/ro0ation, hich re!uired its 53elta9s7 consent, is !uite "ista<en. Conventional su/ro0ation, hich in the first place is never li0htl+ inferred, ,5 "ust /e clearl+ esta/lished /+ the une!uivocal ter"s of the su/stitutin0 o/li0ation or /+ the evident inco"pati/ilit+ of the ne and old o/li0ations on ever+ point. ,' &othin0 of the sort is present in the instant case. It is in fact difficult to /e i"pressed ith 3elta9s co"plaint, since it released its 32C ;& &o. 6-B, to ;hilfinance, an entit+ en0a0ed in the /usiness of /u+in0 and sellin0 de/t instru"ents and other securities, and "ore 0enerall+, in "one+ "ar<et transactions. In ;ere8 v. Court of #ppeals, ,- the Court, spea<in0 throu0h 2"e. Justice >errera, "ade the follo in0 i"portant state"ent: There is another aspect to this case. Ahat is involved here is a "one+ "ar<et transaction. #s defined /+ Fa rence C"ith =the "one+ "ar<et is a "ar<et dealin0 in standardi8ed short$ter" credit instru"ents 5involvin0 lar0e a"ounts7 here lenders and /orro ers do not deal directl+ ith each other /ut throu0h a "iddle "anor a dealer in the open "ar<et.= It involves =co""ercial papers= hich are instru"ents =evidencin0 inde/tness of an+ person or entit+. . ., hich are issued, endorsed, sold or transferred or in an+ "anner conve+ed to another person or entit+, ith or ithout recourse=. The funda"ental function of the "one+ "ar<et device in its operation is to "atch and /rin0 to0ether in a "ost i"personal "anner /oth the =fund users= and the =fund suppliers.= The "one+ "ar<et is an

33

=i"personal "ar<et=, free fro" personal considerations. =The "ar<et "echanis" is intended to provide !uic< "o/ilit+ of "one+ and securities.= The i"personal character of the "one+ "ar<et device overloo<s the individuals or entities concerned. The issuer of a co""ercial paper in the "one+ "ar<et necessaril+ <no s in advance that it ould /e e?penditiousl+ transacted and transferred to an+ investorDlender ithout need of notice to said issuer. In practice, no notification is 0iven to the /orro er or issuer of co""ercial paper of the sale or transfer to the investor. ??? ??? ??? There is need to individuate a "one+ "ar<et transaction, a relativel+ novel institution in the ;hilippine co""ercial scene. It has /een intended to facilitate the flo and ac!uisition of capital on an i"personal /asis. #nd as specificall+ re!uired /+ ;residential 3ecree &o. '-(, the investin0 pu/lic "ust /e 0iven ade!uate and effective protection in availin0 of the credit of a /orro er in the co""ercial paper "ar<et. ,( 5Citations o"ittedI e"phasis supplied7 Ae turn to 3elta9s ar0u"ents concernin0 alle0ed co"pensation or offsettin0 /et een 32C ;& &o. 6-B, and ;hilfinance ;& &o. ,4B$ #. It is i"portant to note that at the ti"e ;hilfinance sold part of its ri0hts under 32C ;& &o. 6-B, to petitioner on * 4e/ruar+ ,*(,, no co"pensation had as +et ta<en place and indeed none could have ta<en place. The essential re!uire"ents of co"pensation are listed in the Civil Code as follo s: #rt. ,6-*. In order that co"pensation "a+ /e proper, it is necessar+: 5,7 That each one of the o/li0ors /e /ound principall+, and that he /e at the sa"e ti"e a principal creditor of the otherI 567 That /oth de/ts consists in a su" of "one+, or if the thin0s due are consu"a/le, the+ /e of the sa"e <ind, and also of the sa"e !ualit+ if the latter has /een statedI 5B7 That the t o de/ts are dueI 547 That the+ /e li!uidated and de"anda/leI 557 That over neither of the" there /e an+ retention or controvers+, co""enced /+ third persons and co""unicated in due ti"e to the de/tor. 5E"phasis supplied7 .n * 4e/ruar+ ,*(,, neither 32C ;& &o. 6-B, nor ;hilfinance ;& &o. ,4B$# as due. This as e?plicitl+ reco0ni8ed /+ 3elta in its ,) #pril ,*() =Fetter of #0ree"ent= ith ;hilfinance, here 3elta ac<no led0ed that the relevant pro"issor+ notes ere =to /e offsetted 5sic7 a0ainst N;hilfinanceO ;& &o. ,4B$# upon co$ter"inal "aturit+.= #s noted, the assi0n"ent to petitioner as "ade on * 4e/ruar+ ,*(, or fro" fort+$nine 54*7 da+s /efore the =co$ter"inal "aturit+= date, that is to sa+, /efore an+ co"pensation had ta<en place. 4urther, the assi0n"ent to petitioner ould have prevented co"pensation had ta<en place /et een ;hilfinance and 3elta, to the e?tent of ;B)4,5BB.BB, /ecause upon e?ecution of the assi0n"ent in favor of petitioner, ;hilfinance and 3elta ould have ceased to /e creditors and de/tors of each other in their o n ri0ht to the e?tent of the a"ount assi0ned /+ ;hilfinance to petitioner. Thus, e conclude that the assi0n"ent effected /+ ;hilfinance in favor of petitioner as a valid one and that petitioner accordin0l+ /eca"e o ner of 32C ;& &o. 6-B, to the e?tent of the portion thereof assi0ned to hi". The record sho s, ho ever, that petitioner notified 3elta of the fact of the assi0n"ent to hi" onl+ on ,4 Jul+ ,*(,, ,*that is, after the "aturit+ not onl+ of the "one+ "ar<et place"ent "ade /+ petitioner /ut also of /oth 32C ;& &o. 6-B, and ;hilfinance ;& &o. ,4B$#. In other ords, petitioner notified 3elta of his ri0hts as assi0nee after co"pensation had ta<en place /+ operation of la /ecause the offsettin0 instru"ents had /oth reached "aturit+. It is a fir"l+ settled doctrine that the ri0hts of an assi0nee are not an+ 0reater that the ri0hts of the assi0nor, since the assi0nee is "erel+ su/stituted in the place of the assi0nor 6) and that the assi0nee ac!uires his ri0hts su/@ect to the e!uities L i.e., the defenses L hich the de/tor could have set up a0ainst the ori0inal assi0nor /efore notice of the assi0n"ent as 0iven to the de/tor. #rticle ,6(5 of the Civil Code provides that: #rt. ,6(5. The de/tor ho has consented to the assi0n"ent of ri0hts "ade /+ a creditor in favor of a third person, cannot set up a0ainst the assi0nee the co"pensation hich ould pertain to hi" a0ainst the assi0nor, unless the assi0nor as notified /+ the de/tor at the ti"e he 0ave his consent, that he reserved his ri0ht to the co"pensation. If the creditor co""unicated the cession to hi" /ut the de/tor did not consent thereto, the latter "a+ set up the co"pensation of de/ts previous to the cession, /ut not of su/se!uent ones. If the assi0n"ent is "ade ithout the <no led0e of the de/tor, he "a+ set up the co"pensation of all credits prior to the sa"e and also later ones until he had <no led0e of the assi0n"ent. 5E"phasis supplied7 #rticle ,'6' of the sa"e code states that: =the de/tor ho, /efore havin0 <no led0e of the assi0n"ent, pa+s his creditor shall /e released fro" the o/li0ation.= In Cison v. Gap$Tico, 6, the Court e?plained that: NnOo "an is /ound to re"ain a de/torI he "a+ pa+ to hi" ith ho" he contacted to pa+I and if he pa+ /efore notice that his de/t has /een assi0ned, the la holds hi" e?onerated, for the reason that it is the dut+ of the person ho has ac!uired a title /+ transfer to de"and pa+"ent of the de/t, to 0ive his de/t or notice. 66 #t the ti"e that 3elta as first put to notice of the assi0n"ent in petitioner9s favor on ,4 Jul+ ,*(,, 32C ;& &o. 6-B, had alread+ /een dischar0ed /+ co"pensation. Cince the assi0nor ;hilfinance could not have then co"pelled pa+"ent ane /+ 3elta of 32C ;& &o. 6-B,, petitioner, as assi0nee of ;hilfinance, is si"ilarl+ disa/led fro" collectin0 fro" 3elta the portion of the &ote assi0ned to hi".

34

It /ears so"e e"phasis that petitioner could have notified 3elta of the assi0n"ent or sale as effected on * 4e/ruar+ ,*(,. >e could have notified 3elta as soon as his "one+ "ar<et place"ent "atured on ,B 2arch ,*(, ithout pa+"ent thereof /ein0 "ade /+ ;hilfinanceI at that ti"e, co"pensation had +et to set in and dischar0e 32C ;& &o. 6-B,. #0ain petitioner could have notified 3elta on 6' 2arch ,*(, hen petitioner received fro" ;hilfinance the 3eno"inated Custodianship Receipt 5=3CR=7 &o. ,)()5 issued /+ private respondent ;ilipinas in favor of petitioner. ;etitioner could, in fine, have notified 3elta at an+ ti"e /efore the "aturit+ date of 32C ;& &o. 6-B,. 1ecause petitioner failed to do so, and /ecause the record is /are of an+ indication that ;hilfinance had itself notified 3elta of the assi0n"ent to petitioner, the Court is co"pelled to uphold the defense of co"pensation raised /+ private respondent 3elta. .f course, ;hilfinance re"ains lia/le to petitioner under the ter"s of the assi0n"ent "ade /+ ;hilfinance to petitioner. II. Ae turn no to the relationship /et een petitioner and private respondent ;ilipinas. ;etitioner contends that ;ilipinas /eca"e solidaril+ lia/le ith ;hilfinance and 3elta hen ;ilipinas issued 3CR &o. ,)()5 ith the follo in0 ords: Upon +our ritten instruction, e N;ilipinasO shall underta<e ph+sical deliver+ of the a/ove securities full+ assi0ned to +ou L. 6B The Court is not persuaded. Ae find nothin0 in the 3CR that esta/lishes an o/li0ation on the part of ;ilipinas to pa+ petitioner the a"ount of ;B)-,*BB.BB nor an+ assu"ption of lia/ilit+ in solidu" ith ;hilfinance and 3elta under 32C ;& &o. 6-B,. Ae read the 3CR as a confir"ation on the part of ;ilipinas that: 5,7 it has in its custod+, as dul+ constituted custodian /an<, 32C ;& &o. 6-B, of a certain face value, to "ature on ' #pril ,*(, and pa+a/le to the order of ;hilfinanceI 567 ;ilipinas as, fro" and after said date of the assi0n"ent /+ ;hilfinance to petitioner 5* 4e/ruar+ ,*(,7, holdin0 that &ote on /ehalf and for the /enefit of petitioner, at least to the e?tent it had /een assi0ned to petitioner /+ pa+ee ;hilfinanceI 64

5B7 petitioner "a+ inspect the &ote either =personall+ or /+ authori8ed representative=, at an+ ti"e durin0 re0ular /an< hoursI and 547 upon ritten instructions of petitioner, ;ilipinas ould ph+sicall+ deliver the 32C ;& &o. 6-B, 5or a participation therein to the e?tent of ;B)-,*BB.BB7 =should this 3eno"inated Custodianship receipt re"ain outstandin0 in Npetitioner9sO favor thirt+ 5B)7 da+s after its "aturit+.= Thus, e find nothin0 ritten in printers in< on the 3CR hich could reasona/l+ /e read as convertin0 ;ilipinas into an o/li0or under the ter"s of 32C ;& &o. 6-B, assi0ned to petitioner, either upon "aturit+ thereof or an+ other ti"e. Ae note that /oth in his co"plaint and in his testi"on+ /efore the trial court, petitioner referred "erel+ to the o/li0ation of private respondent ;ilipinas to effect the ph+sical deliver+ to hi" of 32C ;& &o. 6-B,. 65 #ccordin0l+, petitioner9s theor+ that ;ilipinas had assu"ed a solidar+ o/li0ation to pa+ the a"ount represented /+ a portion of the &ote assi0ned to hi" /+ ;hilfinance, appears to /e a ne theor+ constructed onl+ after the trial court had ruled a0ainst hi". The solidar+ lia/ilit+ that petitioner see<s to i"pute ;ilipinas cannot, ho ever, /e li0htl+ inferred. Under article ,6)- of the Civil Code, =there is a solidar+ lia/ilit+ onl+ hen the la or the nature of the o/li0ation re!uires solidarit+,= The record here e?hi/its no e?press assu"ption of solidar+ lia/ilit+ vis$a$vis petitioner, on the part of ;ilipinas. ;etitioner has not pointed to us to an+ la hich i"posed such lia/ilit+ upon ;ilipinas nor has petitioner ar0ued that the ver+ nature of the custodianship assu"ed /+ private respondent ;ilipinas necessaril+ i"plies solidar+ lia/ilit+ under the securities, custod+ of hich as ta<en /+ ;ilipinas. #ccordin0l+, e are una/le to hold ;ilipinas solidaril+ lia/le ith ;hilfinance and private respondent 3elta under 32C ;& &o. 6-B,. Ae do not, ho ever, "ean to su00est that ;ilipinas has no responsi/ilit+ and lia/ilit+ in respect of petitioner under the ter"s of the 3CR. To the contrar+, e find, after prolon0ed anal+sis and deli/eration, that private respondent ;ilipinas had /reached its underta<in0 under the 3CR to petitioner Ces/reQo. Ae /elieve and so hold that a contract of deposit as constituted /+ the act of ;hilfinance in desi0natin0 ;ilipinas as custodian or depositar+ /an<. The depositor as initiall+ ;hilfinanceI the o/li0ation of the depositor+ as o ed, ho ever, to petitioner Ces/reQo as /eneficiar+ of the custodianship or depositor+ a0ree"ent. Ae do not consider that this is a si"ple case of a stipulation pour autri. The custodianship or depositar+ a0ree"ent as esta/lished as an inte0ral part of the "one+ "ar<et transaction entered into /+ petitioner ith ;hilfinance. ;etitioner /ou0ht a portion of 32C ;& &o. 6-B,I ;hilfinance as assi0nor$vendor deposited that &ote ith ;ilipinas in order that the thin0 sold ould /e placed outside the control of the vendor. Indeed, the constitutin0 of the depositar+ or custodianship a0ree"ent as e!uivalent to constructive deliver+ of the &ote 5to the e?tent it had /een sold or assi0ned to petitioner7 to petitioner. It ill /e seen that custodianship a0ree"ents are desi0ned to facilitate transactions in the "one+ "ar<et /+ providin0 a /asis for confidence on the part of the investors or placers that the instru"ents /ou0ht /+ the" are effectivel+ ta<en out of the poc<et, as it ere, of the vendors and placed safel+ /e+ond their reach, that those instru"ents ill /e there availa/le to the placers of funds should the+ have need of the". The depositar+ in a contract of deposit is o/li0ed to return the securit+ or the thin0 deposited upon de"and of the depositor 5or, in the presented case, of the /eneficiar+7 of the contract, even thou0h a ter" for such return "a+ have /een esta/lished in the said contract. 6' #ccordin0l+, an+ stipulation in the contract of deposit or custodianship that runs counter to the funda"ental purpose of that a0ree"ent or hich as not /rou0ht to the notice of and accepted /+ the placer$/eneficiar+, cannot /e enforced as a0ainst such /eneficiar+$placer. Ae /elieve that the position ta<en a/ove is supported /+ considerations of pu/lic polic+. If there is an+ part+ that needs the e!uali8in0 protection of the la in "one+ "ar<et transactions, it is the "e"/ers of the 0eneral pu/lic ho" place their savin0s in such "ar<et for the purpose of 0eneratin0 interest revenues. 6- The custodian /an<, if it is not related either in ter"s of e!uit+ o nership or "ana0e"ent control to the /orro er of the funds, or the co""ercial paper dealer, is nor"all+ a preferred or traditional /an<er of such /orro er or dealer 5here, ;hilfinance7. The custodian /an< ould have ever+ incentive to protect the interest of its client the /orro er or dealer as a0ainst the placer of funds. The providers of such funds "ust /e safe0uarded fro" the i"pact of stipulations privatel+ "ade /et een the /orro ers or dealers and the custodian /an<s, and disclosed to fund$providers onl+ after trou/le has erupted. In the case at /ar, the custodian$depositar+ /an< ;ilipinas refused to deliver the securit+ deposited ith it hen petitioner first de"anded ph+sical deliver+ thereof on 6 #pril ,*(,. Ae "ust a0ain note, in this connection, that on 6 #pril ,*(,, 32C ;& &o. 6-B, had not +et "atured and therefore, co"pensation or offsettin0 a0ainst ;hilfinance ;& &o. ,4B$# had not +et ta<en place. Instead of co"pl+in0 ith the de"and of the petitioner, ;ilipinas purported to re!uire and a ait the instructions of ;hilfinance, in o/vious

35

contravention of its underta<in0 under the 3CR to effect ph+sical deliver+ of the &ote upon receipt of = ritten instructions= fro" petitioner Ces/reQo. The ostensi/le ter" ritten into the 3CR 5i.e., =should this N3CRO re"ain outstandin0 in +our favor thirt+ NB)O da+s after its "aturit+=7 as not a defense a0ainst petitioner9s de"and for ph+sical surrender of the &ote on at least three 0rounds: firstl+, such ter" as never /rou0ht to the attention of petitioner Ces/reQo at the ti"e the "one+ "ar<et place"ent ith ;hilfinance as "adeI secondl+, such ter" runs counter to the ver+ purpose of the custodianship or depositar+ a0ree"ent as an inte0ral part of a "one+ "ar<et transactionI and thirdl+, it is inconsistent ith the provisions of #rticle ,*(( of the Civil Code noted a/ove. Indeed, in principle, petitioner /eca"e entitled to de"and ph+sical deliver+ of the &ote held /+ ;ilipinas as soon as petitioner9s "one+ "ar<et place"ent "atured on ,B 2arch ,*(, ithout pa+"ent fro" ;hilfinance. Ae conclude, therefore, that private respondent ;ilipinas "ust respond to petitioner for da"a0es sustained /+ arisin0 out of its /reach of dut+. 1+ failin0 to deliver the &ote to the petitioner as depositor$/eneficiar+ of the thin0 deposited, ;ilipinas effectivel+ and unla full+ deprived petitioner of the &ote deposited ith it. Ahether or not ;ilipinas itself /enefitted fro" such conversion or unla ful deprivation inflicted upon petitioner, is of no "o"ent for present purposes.;ri"a facie, the da"a0es suffered /+ petitioner consisted of ;B)4,5BB.BB, the portion of the 32C ;& &o. 6-B, assi0ned to petitioner /ut lost /+ hi" /+ reason of dischar0e of the &ote /+ co"pensation, plus le0al interest of si? percent 5'E7 per annu" containin0 fro" ,4 2arch ,*(,. The conclusion ;hilfinance. III. The third principal contention of petitioner L that ;hilfinance and private respondents 3elta and ;ilipinas should /e treated as one corporate entit+ L need not detain us for lon0. In the first place, as alread+ noted, @urisdiction over the person of ;hilfinance as never ac!uired either /+ the trial court nor /+ the respondent Court of #ppeals. ;etitioner si"ilarl+ did not see< to i"plead ;hilfinance in the ;etition /efore us. Cecondl+, it is not disputed that ;hilfinance and private respondents 3elta and ;ilipinas have /een or0ani8ed as separate corporate entities. ;etitioner as<s us to pierce their separate corporate entities, /ut has /een a/le onl+ to cite the presence of a co""on 3irector L 2r. Ricardo Cilverio, Cr., sittin0 on the 1oard of 3irectors of all three 5B7 co"panies. ;etitioner has neither alle0ed nor proved that one or another of the three 5B7 concededl+ related co"panies used the other t o 567 as "ere alter e0os or that the corporate affairs of the other t o 567 ere ad"inistered and "ana0ed for the /enefit of one. There is si"pl+ not enou0h evidence of record to @ustif+ disre0ardin0 the separate corporate personalities of delta and ;ilipinas and to hold the" lia/le for an+ assu"ed or undeter"ined lia/ilit+ of ;hilfinance to petitioner. 6( A>ERE4.RE, for all the fore0oin0, the 3ecision and Resolution of the Court of #ppeals in C.#.$G.R. C% &o. ,5,*5 dated 6, "arch ,*(* and ,- Jul+ ,*(*, respectivel+, are here/+ 2.3I4IE3 and CET #CI3E, to the e?tent that such 3ecision and Resolution had dis"issed petitioner9s co"plaint a0ainst ;ilipinas 1an<. ;rivate respondent ;ilipinas /an< is here/+ .R3ERE3 to inde"nif+ petitioner for da"a0es in the a"ount of ;B)4,5BB.BB, plus le0al interest thereon at the rate of si? percent 5'E7 per annu" counted fro" 6 #pril ,*(,. #s so "odified, the 3ecision and Resolution of the Court of #ppeals are here/+ #44IR2E3. &o pronounce"ent as to costs. C. .R3ERE3. 1idin, 3avide, Jr., Ro"ero and 2elo, JJ., concur. e have reached is, of course, ithout pre@udice to such ri0ht of rei"/urse"ent as ;ilipinas "a+ havevis$a$vis

G.R. No. L230 23 ),.r5&r4 23, 19 9 GO*ERNMENT SER*ICE INSURANCE S#STEM, p,6i6io',r, +8. COURT O) A""EALS &'( MR. ? MRS. ISABELO R. RAC%O, r,8po'(,'68. REG#F#3. , J.: ;rivate respondents, 2r. and 2rs. Isa/elo R. Racho, to0ether ith the spouses 2r. and 2rs 4laviano Fa0asca, e?ecuted a deed of "ort0a0e, dated &ove"/er ,B, ,*5-, in favor of petitioner Govern"ent Cervice Insurance C+ste" 5hereinafter referred to as GCIC7 and su/se!uentl+, another deed of "ort0a0e, dated #pril ,4, ,*5(, in connection ith t o loans 0ranted /+ the latter in the su"s of ; ,,,5)).)) and ; B,))).)), respectivel+. , # parcel of land covered /+ Transfer Certificate of Title &o. B(*(* of the Re0ister of 3eed of Kue8on Cit+, co$o ned /+ said "ort0a0or spouses, as 0iven as securit+ under the aforesaid t o deeds. 6 The+ also e?ecuted a 9pro"issor+ note= hich states in part: ... for value received, e the undersi0ned ... J.I&TFG, CE%ER#FFG and C.FI3#RIFG, pro"ise to pa+ the G.%ER&2E&T CER%ICE I&CUR#&CE CGCTE2 the su" of . . . 5; ,,,5)).))7 ;hilippine Currenc+, ith interest at the rate of si? 5'E7 per centu" co"pounded "onthl+ pa+a/le in . . . 5,6)7e!ual "onthl+ install"ents of . . . 5; ,6-.'57 each. B .n Jul+ ,,, ,*',, the Fa0asca spouses e?ecuted an instru"ent deno"inated =#ssu"ption of 2ort0a0e= under hich the+ o/li0ated the"selves to assu"e the aforesaid o/li0ation to the GCIC and to secure the release of the "ort0a0e coverin0 that portion of the land /elon0in0 to herein private respondents and hich as "ort0a0ed to the GCIC. 4 This underta<in0 as not fulfilled. 5 Upon failure of the "ort0a0ors to co"pl+ ith the conditions of the "ort0a0e, particularl+ the pa+"ent of the a"orti8ations due, GCIC e?tra@udiciall+ foreclosed the "ort0a0e and caused the "ort0a0ed propert+ to /e sold at pu/lic auction on 3ece"/er B, ,*'6. ' 2ore than t o +ears thereafter, or on #u0ust 6B, ,*'5, herein private respondents filed a co"plaint a0ainst the petitioner and the Fa0asca spouses in the for"er Court of

36

4irst Instance of Kue8on Cit+, - pra+in0 that the e?tra@udicial foreclosure ="ade on, their propert+ and all other docu"ents e?ecuted in relation thereto in favor of the Govern"ent Cervice Insurance C+ste"= /e declared null and void. It as further pra+ed that the+ /e allo ed to recover said propert+, andDor the GCIC /e ordered to pa+ the" the value thereof, andDor the+ /e allo ed to repurchase the land. #dditionall+, the+ as<ed for actual and "oral da"a0es and attorne+9s fees. In their aforesaid co"plaint, private respondents alle0ed that the+ si0ned the "ort0a0e contracts not as sureties or 0uarantors for the Fa0asca spouses /ut the+ "erel+ 0ave their co""on propert+ to the said co$o ners ho ere solel+ /enefited /+ the loans fro" the GCIC. The trial court rendered @ud0"ent on 4e/ruar+ 65, ,*'( dis"issin0 the co"plaint for failure to esta/lish a cause of action. ( Caid decision as reversed /+ the respondent Court of #ppeals * hich held that: ... althou0h for"all+ the+ are co$"ort0a0ors, the+ are so onl+ for acco"odation 5sic7 in that the GCIC re!uired their consent to the "ort0a0e of the entire parcel of land hich as covered ith onl+ one certificate of title, ith full <no led0e that the loans secured there/+ ere solel+ for the /enefit of the appellant 5sic7 spouses ho alone applied for the loan. ???? 9It is, therefore, clear that as a0ainst the GCIC, appellants have a valid cause for havin0 foreclosed the "ort0a0e ithout havin0 0iven sufficient notice to the" as re!uired either as to their delin!uenc+ in the pa+"ent of a"orti8ation or as to the su/se!uent foreclosure of the "ort0a0e /+ reason of an+ default in such pa+"ent. The notice pu/lished in the ne spaper, 93ail+ Record 5E?h. ,67 and posted pursuant to Cec B of #ct B,B5 is not the notice to hich the "ort0a0or is entitled upon the application /ein0 "ade for an e?tra@udicial foreclosure. ... ,) .n the fore0oin0 findin0s, the respondent court conse!uentl+ decreed that$ In vie of all the fore0oin0, the @ud0"ent appealed fro" is here/+ reversed, and another one entered 5,7 declarin0 the foreclosure of the "ort0a0e void insofar as it affects the share of the appellantsI 567 directin0 the GCIC to reconve+ to appellants their share of the "ort0a0ed propert+, or the value thereof if alread+ sold to third part+, in the su" of ; B5,))).)), and 5B7 orderin0 the appellees 4laviano Fa0asca and Esther Fa0asca to pa+ the appellants the su" of ; ,),)).)) as "oral da"a0es, ; 5,))).)) as attorne+9s fees, and costs. ,, The case is no /efore us in this petition for revie . In su/"ittin0 their case to this Court, /oth parties relied on the provisions of Cection 6* of #ct &o. 6)B,, other ise <no n as the &e0otia/le Instru"ents Fa , hich provide that an acco""odation part+ is one ho has si0ned an instru"ent as "a<er, dra er, acceptor of indorser ithout receivin0 value therefor, /ut is held lia/le on the instru"ent to a holder for value althou0h the latter <ne hi" to /e onl+ an acco""odation part+. This approach of /oth parties appears to /e "isdirected and their reliance "isplaced. The pro"issor+ note herein/efore !uoted, as ell as the "ort0a0e deeds su/@ect of this case, are clearl+ not ne0otia/le instru"ents. These docu"ents do not co"pl+ ith the fourth re!uisite to /e considered as such under Cection , of #ct &o. 6)B, /ecause the+ are neither pa+a/le to order nor to /earer. The note is pa+a/le to a specified part+, the GCIC. #/sent the aforesaid re!uisite, the provisions of #ct &o. 6)B, ould not appl+I 0overnance shall /e afforded, instead, /+ the provisions of the Civil Code and special la s on "ort0a0es. #s earlier indicated, the factual findin0s of respondent court are that private respondents si0ned the docu"ents =onl+ to 0ive their consent to the "ort0a0e as re!uired /+ GCIC=, ith the latter havin0 full <no led0e that the loans secured there/+ ere solel+ for the /enefit of the Fa0asca spouses. ,6 This appears to /e dul+ supported /+ sufficient evidence on record. Indeed, it ould /e unusual for the GCIC to arran0e for and deduct the "onthl+ a"orti8ations on the loans fro" the salar+ as an ar"+ officer of 4laviano Fa0asca ithout li<e ise affectin0 deductions fro" the salar+ of Isa/elo Racho ho as also an ar"+ ser0eant. Then there is also the undisputed fact, as alread+ stated, that the Fa0asca spouses e?ecuted a so$called =#ssu"ption of 2ort0a0e= pro"isin0 to e?clude private respondents and their share of the "ort0a0ed propert+ fro" lia/ilit+ to the "ort0a0ee. There is no inti"ation that the for"er e?ecuted such instru"ent for a consideration, thus confir"in0 that the+ did so pursuant to their ori0inal a0ree"ent. The parol evidence rule ,B cannot /e used /+ petitioner as a shield in this case for it is clear that there as no o/@ection in the court /elo re0ardin0 the ad"issi/ilit+ of the testi"on+ and docu"ents that ere presented to prove that the private respondents si0ned the "ort0a0e papers @ust to acco""odate their co$o ners, the Fa0asca spouses. 1esides, the introduction of such evidence falls under the e?ception to said rule, there /ein0 alle0ations in the co"plaint of private respondents in the court /elo re0ardin0 the failure of the "ort0a0e contracts to e?press the true a0ree"ent of the parties. ,4 >o ever, contrar+ to the holdin0 of the respondent court, it cannot /e said that private respondents are ithout lia/ilit+ under the aforesaid "ort0a0e contracts. The factual conte?t of this case is precisel+ hat is conte"plated in the last para0raph of #rticle 6)(5 of the Civil Code to the effect that third persons ho are not parties to the principal o/li0ation "a+ secure the latter /+ pled0in0 or "ort0a0in0 their o n propert+ Co lon0 as valid consent as 0iven, the fact that the loans ere solel+ for the /enefit of the Fa0asca spouses ould not invalidate the "ort0a0e ith respect to private respondents9 share in the propert+. In consentin0 thereto, even assu"in0 that private respondents "a+ not /e assu"in0 personal lia/ilit+ for the de/t, their share in the propert+ shall nevertheless secure and respond for the perfor"ance of the principal o/li0ation. The parties to the "ort0a0e could not have intended that the sa"e ould appl+ onl+ to the ali!uot portion of the Fa0asca spouses in the propert+, other ise the consent of the private respondents ould not have /een re!uired. The supposed re!uire"ent of prior de"and on the private respondents ould not /e in point here since the "ort0a0e contracts created o/li0ations ith specific ter"s for the co"pliance thereof. The facts further sho that the private respondents e?pressl+ /ound the"selves as solidar+ de/tors in the pro"issor+ note herein/efore !uoted.

37

Co"in0 no to the e?tra@udicial foreclosure effected /+ GCIC, Ae cannot a0ree ith the rulin0 of respondent court that lac< of notice to the private respondents of the e?tra@udicial foreclosure sale i"pairs the validit+ thereof. In1onnevie, et al. vs. Court of appeals, et al., ,5 the Court ruled that #ct &o. B,B5, as a"ended, does not re!uire personal notice on the "ort0a0or, !uotin0 the re!uire"ent on notice in such cases as follo s: Cection B. &otice shall /e 0iven /+ postin0 notices of sale for not less than t ent+ da+s in at least three pu/lic places of the "unicipalit+ here the propert+ is situated, and if such propert+ is orth "ore than four hundred pesos, such notice shall also /e pu/lished once a ee< for at least three consecutive ee<s in a ne spaper of 0eneral circulation in the "unicipalit+ or cit+. There is no sho in0 that the fore0oin0 re!uire"ent on notice as not co"plied ith in the foreclosure sale co"plained of . The respondent court, therefore, erred in annullin0 the "ort0a0e insofar as it affected the share of private respondents or in directin0 reconve+ance of their propert+ or the pa+"ent of the value thereof Indu/ita/l+, hether or not private respondents herein /enefited fro" the loan, the "ort0a0e and the e?tra@udicial foreclosure proceedin0s ere valid. A>ERE4.RE, @ud0"ent is here/+ rendered RE%ERCI&G the decision of the respondent Court of #ppeals and REI&CT#TI&G the decision of the court a !uo in Civil Case &o. K$*4,( thereof. C. .R3ERE3. 2elencio$>errera 5Chairperson7, ;aras, ;adilla and Car"iento, JJ., concur.

G.R. No. 97753 A5@586 10, 1992 CALTE; ("%ILI""INES), INC., p,6i6io',r, +8. COURT O) A""EALS &'( SECURIT# BAN/ AN! TRUST COM"AN#, r,8po'(,'68. REG#F#3., J.: This petition for revie on certiorari i"pu0ns and see<s the reversal of the decision pro"ul0ated /+ respondent court on 2arch (, ,**, in C#$G.R. C% &o. 6B',5 , affir"in0 ith "odifications, the earlier decision of the Re0ional Trial Court of 2anila, 1ranch HFII, 6 hich dis"issed the co"plaint filed therein /+ herein petitioner a0ainst respondent /an<. The undisputed /ac<0round of this case, as found /+ the court a !uo and adopted /+ respondent court, appears of record: ,. .n various dates, defendant, a co""ercial /an<in0 institution, throu0h its Cucat 1ranch issued 6() certificates of ti"e deposit 5CT3s7 in favor of one #n0el dela Cru8 ho deposited ith herein defendant the a00re0ate a"ount of ;,,,6),))).)), as follo s: 5Joint ;artial Ctipulation of 4acts and Ctate"ent of Issues, .ri0inal Records, p. 6)-I 3efendant9s E?hi/its , to 6()7I CT3 CT3 3ates Cerial &os. Kuantit+ #"ount 66 4e/. (6 *),), to *),6) 6) ;(),))) 6' 4e/. (6 -4')6 to -4'*, *) B'),))) 6 2ar. (6 -4-), to -4-4) 4) ,'),))) 4 2ar. (6 *),6- to *),4' 6) (),)))

38

5 2ar. (6 -4-*- to *4()) 4 ,',))) 5 2ar. (6 (**'5 to (**(' 66 ((,))) 5 2ar. (6 -),4- to *),5) 4 ,',))) ( 2ar. (6 *))), to *))6) 6) (),))) * 2ar. (6 *))6B to *))5) 6( ,,6,))) * 2ar. (6 (***, to *)))) ,) 4),))) * 2ar. (6 *)65, to *)6-6 66 ((,))) LLL LLLL Total 6() ;,,,6),))) SSSSS SSSSSSSS 6. #n0el dela Cru8 delivered the said certificates of ti"e 5CT3s7 to herein plaintiff in connection ith his purchased of fuel products fro" the latter 5.ri0inal Record, p. 6)(7. B. Co"eti"e in 2arch ,*(6, #n0el dela Cru8 infor"ed 2r. Ti"oteo Tian0co, the Cucat 1ranch 2an0er, that he lost all the certificates of ti"e deposit in dispute. 2r. Tian0co advised said depositor to e?ecute and su/"it a notari8ed #ffidavit of Foss, as re!uired /+ defendant /an<9s procedure, if he desired replace"ent of said lost CT3s 5TC&, 4e/ruar+ *, ,*(-, pp. 4($5)7. 4. .n 2arch ,(, ,*(6, #n0el dela Cru8 e?ecuted and delivered to defendant /an< the re!uired #ffidavit of Foss 53efendant9s E?hi/it 6(,7. .n the /asis of said affidavit of loss, 6() replace"ent CT3s ere issued in favor of said depositor 53efendant9s E?hi/its 6(6$ 5',7. 5. .n 2arch 65, ,*(6, #n0el dela Cru8 ne0otiated and o/tained a loan fro" defendant /an< in the a"ount of Ei0ht >undred Cevent+ 4ive Thousand ;esos 5;(-5,))).))7. .n the sa"e date, said depositor e?ecuted a notari8ed 3eed of #ssi0n"ent of Ti"e 3eposit 5E?hi/it 5'67 hich stated, a"on0 others, that he 5de la Cru87 surrenders to defendant /an< =full control of the indicated ti"e deposits fro" and after date= of the assi0n"ent and further authori8es said /an< to pre$ter"inate, set$off and =appl+ the said ti"e deposits to the pa+"ent of hatever a"ount or a"ounts "a+ /e due= on the loan upon its "aturit+ 5TC&, 4e/ruar+ *, ,*(-, pp. ')$'67. '. Co"eti"e in &ove"/er, ,*(6, 2r. #ranas, Credit 2ana0er of plaintiff Calte? 5;hils.7 Inc., ent to the defendant /an<9s Cucat /ranch and presented for verification the CT3s declared lost /+ #n0el dela Cru8 alle0in0 that the sa"e ere delivered to herein plaintiff =as securit+ for purchases "ade ith Calte? ;hilippines, Inc.= /+ said depositor 5TC&, 4e/ruar+ *, ,*(-, pp. 54$'(7. -. .n &ove"/er 6', ,*(6, defendant received a letter 53efendant9s E?hi/it 5'B7 fro" herein plaintiff for"all+ infor"in0 it of its possession of the CT3s in !uestion and of its decision to pre$ter"inate the sa"e. (. .n 3ece"/er (, ,*(6, plaintiff as re!uested /+ herein defendant to furnish the for"er =a cop+ of the docu"ent evidencin0 the 0uarantee a0ree"ent ith 2r. #n0el dela Cru8= as ell as =the details of 2r. #n0el dela Cru8= o/li0ation a0ainst hich plaintiff proposed to appl+ the ti"e deposits 53efendant9s E?hi/it 5'47. *. &o cop+ of the re!uested docu"ents as furnished herein defendant. ,). #ccordin0l+, defendant /an< re@ected the plaintiff9s de"and and clai" for pa+"ent of the value of the CT3s in a letter dated 4e/ruar+ -, ,*(B 53efendant9s E?hi/it 5''7. ,,. In #pril ,*(B, the loan of #n0el dela Cru8 ith the defendant /an< "atured and fell due and on #u0ust 5, ,*(B, the latter set$off and applied the ti"e deposits in !uestion to the pa+"ent of the "atured loan 5TC&, 4e/ruar+ *, ,*(-, pp. ,B)$,B,7. ,6. In vie of the fore0oin0, plaintiff filed the instant co"plaint, pra+in0 that defendant /an< /e ordered to pa+ it the a00re0ate value of the certificates of ti"e deposit of ;,,,6),))).)) plus accrued interest and co"pounded interest therein at ,'E per annu", "oral and e?e"plar+ da"a0es as ell as attorne+9s fees. #fter trial, the court a !uo rendered its decision dis"issin0 the instant co"plaint. B .n appeal, as earlier stated, respondent court affir"ed the lo er court9s dis"issal of the co"plaint, hence this petition herein petitioner faults respondent court in rulin0 5,7 that the su/@ect certificates of deposit are non$ne0otia/le despite /ein0 clearl+ ne0otia/le instru"entsI 567 that petitioner did not /eco"e a holder in due course of the said certificates of depositI and 5B7 in disre0ardin0 the pertinent provisions of the Code of Co""erce relatin0 to lost instru"ents pa+a/le to /earer. 4 The instant petition is /ereft of "erit. # sa"ple te?t of the certificates of ti"e deposit is reproduced /elo recourse. CECURITG 1#&J to provide a /etter understandin0 of the issues involved in this

39

#&3 TRUCT C.2;#&G '--( #+ala #ve., 2a<ati &o. *),), 2etro 2anila, ;hilippines CUC#T .44ICE; 4,))).)) CERTI4IC#TE .4 3E;.CIT Rate ,'E 3ate of 2aturit+ 4E1. 6B, ,*(4 4E1 66, ,*(6, ,*PPPP This is to Certif+ that 1 E # R E R has deposited in this 1an< the su" of ;EC.C: 4.UR T>.UC#&3 .&FG, CECURITG 1#&J CUC#T .44ICE ;4,))) : )) CTC ;esos, ;hilippine Currenc+, repa+a/le to said depositor -B, da+s. after date, upon presentation and surrender of this certificate, ith interest at the rate of ,'E per cent per annu". 5C0d. Ille0i/le7 5C0d. Ille0i/le7 LLLLLLLLLL LLLLLLLLLLL #UT>.RIZE3 CIG&#TUREC 5 Respondent court ruled that the CT3s in !uestion are non$ne0otia/le instru"ents, nationali8in0 as follo s: . . . Ahile it "a+ /e true that the ord =/earer= appears rather /oldl+ in the CT3s issued, it is i"portant to note that after the ord =1E#RER= sta"ped on the space provided supposedl+ for the na"e of the depositor, the ords =has deposited= a certain a"ount follo s. The docu"ent further provides that the a"ount deposited shall /e =repa+a/le to said depositor= on the period indicated. Therefore, the te?t of the instru"ent5s7 the"selves "anifest ith clarit+ that the+ are pa+a/le, not to hoever purports to /e the =/earer= /ut onl+ to the specified person indicated therein, the depositor. In effect, the appellee /an< ac<no led0es its depositor #n0el dela Cru8 as the person ho "ade the deposit and further en0a0es itself to pa+ said depositor the a"ount indicated thereon at the stipulated date. ' Ae disa0ree ith these findin0s and conclusions, and here/+ hold that the CT3s in !uestion are ne0otia/le instru"ents. Cection , #ct &o. 6)B,, other ise <no n as the &e0otia/le Instru"ents Fa , enu"erates the re!uisites for an instru"ent to /eco"e ne0otia/le, vi8: 5a7 It "ust /e in ritin0 and si0ned /+ the "a<er or dra erI 5/7 2ust contain an unconditional pro"ise or order to pa+ a su" certain in "one+I 5c7 2ust /e pa+a/le on de"and, or at a fi?ed or deter"ina/le future ti"eI 5d7 2ust /e pa+a/le to order or to /earerI and 5e7 Ahere the instru"ent is addressed to a dra ee, he "ust /e na"ed or other ise indicated therein ith reasona/le certaint+. The CT3s in !uestion undou/tedl+ "eet the re!uire"ents of the la for ne0otia/ilit+. The parties9 /one of contention is ith re0ard to re!uisite 5d7 set forth a/ove. It is noted that 2r. Ti"oteo ;. Tian0co, Cecurit+ 1an<9s 1ranch 2ana0er a+ /ac< in ,*(6, testified in open court that the depositor reffered to in the CT3s is no other than 2r. #n0el de la Cru8. ??? ??? ??? #tt+. Calida: ! In other ords 2r. Aitness, +ou are sa+in0 that per /oo<s of the /an<, the depositor referred 5sic7 in these certificates states that it as #n0el dela Cru8M itness: a Ges, +our >onor, and e have the record to sho that #n0el dela Cru8 as the one ho cause 5sic7 the a"ount. #tt+. Calida: ! #nd no other person or entit+ or co"pan+, 2r. AitnessM itness: a &one, +our >onor. ??? ??? ???

40

#tt+. Calida: ! 2r. Aitness, ho is the depositor identified in all of these certificates of ti"e deposit insofar as the /an< is concernedM itness: a #n0el dela Cru8 is the depositor. ( ??? ??? ??? .n this score, the accepted rule is that the ne0otia/ilit+ or non$ne0otia/ilit+ of an instru"ent is deter"ined fro" the ritin0, that is, fro" the face of the instru"ent itself. * In the construction of a /ill or note, the intention of the parties is to control, if it can /e le0all+ ascertained. ,) Ahile the ritin0 "a+ /e read in the li0ht of surroundin0 circu"stances in order to "ore perfectl+ understand the intent and "eanin0 of the parties, +et as the+ have constituted the ritin0 to /e the onl+ out ard and visi/le e?pression of their "eanin0, no other ords are to /e added to it or su/stituted in its stead. The dut+ of the court in such case is to ascertain, not hat the parties "a+ have secretl+ intended as contradistin0uished fro" hat their ords e?press, /ut hat is the "eanin0 of the ords the+ have used. Ahat the parties "eant "ust /e deter"ined /+ hat the+ said. ,, Contrar+ to hat respondent court held, the CT3s are ne0otia/le instru"ents. The docu"ents provide that the a"ounts deposited shall /e repa+a/le to the depositor. #nd ho, accordin0 to the docu"ent, is the depositorM It is the =/earer.= The docu"ents do not sa+ that the depositor is #n0el de la Cru8 and that the a"ounts deposited are repa+a/le specificall+ to hi". Rather, the a"ounts are to /e repa+a/le to the /earer of the docu"ents or, for that "atter, hosoever "a+ /e the /earer at the ti"e of present"ent. If it as reall+ the intention of respondent /an< to pa+ the a"ount to #n0el de la Cru8 onl+, it could have ith facilit+ so e?pressed that fact in clear and cate0orical ter"s in the docu"ents, instead of havin0 the ord =1E#RER= sta"ped on the space provided for the na"e of the depositor in each CT3. .n the ordin0s of the docu"ents, therefore, the a"ounts deposited are repa+a/le to hoever "a+ /e the /earer thereof. Thus, petitioner9s aforesaid itness "erel+ declared that #n0el de la Cru8 is the depositor =insofar as the /an< is concerned,= /ut o/viousl+ other parties not priv+ to the transaction /et een the" ould not /e in a position to <no that the depositor is not the /earer stated in the CT3s. >ence, the situation ould re!uire an+ part+ dealin0 ith the CT3s to 0o /ehind the plain i"port of hat is ritten thereon to unravel the a0ree"ent of the parties thereto throu0h facts aliunde. This need for resort to e?trinsic evidence is hat is sou0ht to /e avoided /+ the &e0otia/le Instru"ents Fa and calls for the application of the ele"entar+ rule that the interpretation of o/scure ords or stipulations in a contract shall not favor the part+ ho caused the o/scurit+. ,6 The ne?t !uer+ is hether petitioner can ri0htfull+ recover on the CT3s. This ti"e, the ans er is in the ne0ative. The records reveal that #n0el de la Cru8, ho" petitioner chose not to i"plead in this suit for reasons of its o n, delivered the CT3s a"ountin0 to ;,,,6),))).)) to petitioner ithout infor"in0 respondent /an< thereof at an+ ti"e. Unfortunatel+ for petitioner, althou0h the CT3s are /earer instru"ents, a valid ne0otiation thereof for the true purpose and a0ree"ent /et een it and 3e la Cru8, as ulti"atel+ ascertained, re!uires /oth deliver+ and indorse"ent. 4or, althou0h petitioner see<s to deflect this fact, the CT3s ere in realit+ delivered to it as a securit+ for 3e la Cru89 purchases of its fuel products. #n+ dou/t as to hether the CT3s ere delivered as pa+"ent for the fuel products or as a securit+ has /een dissipated and resolved in favor of the latter /+ petitioner9s o n authori8ed and responsi/le representative hi"self. In a letter dated &ove"/er 6', ,*(6 addressed to respondent Cecurit+ 1an<, J.K. #ranas, Jr., Calte? Credit 2ana0er, rote: =. . . These certificates of deposit ere ne0otiated to us /+ 2r. #n0el dela Cru8 to 0uarantee his purchases of fuel products= 5E"phasis ours.7 ,B This ad"ission is conclusive upon petitioner, its protestations not ithstandin0. Under the doctrine of estoppel, an ad"ission or representation is rendered conclusive upon the person "a<in0 it, and cannot /e denied or disproved as a0ainst the person rel+in0 thereon. ,4 # part+ "a+ not 0o /ac< on his o n acts and representations to the pre@udice of the other part+ ho relied upon the". ,5 In the la of evidence, henever a part+ has, /+ his o n declaration, act, or o"ission, intentionall+ and deli/eratel+ led another to /elieve a particular thin0 true, and to act upon such /elief, he cannot, in an+ liti0ation arisin0 out of such declaration, act, or o"ission, /e per"itted to falsif+ it. ,' If it ere true that the CT3s ere delivered as pa+"ent and not as securit+, petitioner9s credit "ana0er could have easil+ said so, instead of usin0 the ords =to 0uarantee= in the letter afore!uoted. 1esides, hen respondent /an<, as defendant in the court /elo , "oved for a /ill of particularit+ therein ,- pra+in0, a"on0 others, that petitioner, as plaintiff, /e re!uired to aver ith sufficient definiteness or particularit+ 5a7 the due date or dates ofpa+"ent of the alle0ed inde/tedness of #n0el de la Cru8 to plaintiff and 5/7 hether or not it issued a receipt sho in0 that the CT3s ere delivered to it /+ 3e la Cru8 as pa+"ent of the latter9s alle0ed inde/tedness to it, plaintiff corporation opposed the "otion. ,( >ad it produced the receipt pra+ed for, it could have proved, if such trul+ as the fact, that the CT3s ere delivered as pa+"ent and not as securit+. >avin0 opposed the "otion, petitioner no la/ors under the presu"ption that evidence illfull+ suppressed ould /e adverse if produced. ,* Under the fore0oin0 circu"stances, this dis!uisition in Inter0rated Realt+ Corporation, et al. vs. ;hilippine &ational 1an<, et al. 6) is apropos: . . . #dvertin0 a0ain to the Court9s pronounce"ents in Fope8, supra, e !uote therefro": The character of the transaction /et een the parties is to /e deter"ined /+ their intention, re0ardless of hat lan0ua0e as used or hat the for" of the transfer as. If it as intended to secure the pa+"ent of "one+, it "ust /e construed as a pled0eI /ut if there as so"e other intention, it is not a pled0e. >o ever, even thou0h a transfer, if re0arded /+ itself, appears to have /een a/solute, its o/@ect and character "i0ht still /e !ualified and e?plained /+ conte"poraneous ritin0 declarin0 it to have /een a deposit of the propert+ as collateral securit+. It has /een said that a transfer of propert+ /+ the de/tor to a creditor, even if sufficient on its face to "a<e an a/solute conve+ance, should /e treated as a pled0e if the de/t continues in ine?istence and is not dischar0ed /+ the transfer, and that accordin0l+ the use of the ter"s ordinaril+ i"portin0 conve+ance of a/solute o nership ill not /e 0iven that effect in such a transaction if the+ are also co""onl+ used in pled0es and "ort0a0es and therefore do not un!ualifiedl+ indicate a transfer of a/solute o nership, in the a/sence of clear and una"/i0uous lan0ua0e or other circu"stances e?cludin0 an intent to pled0e. ;etitioner9s insistence that the CT3s ere ne0otiated to it /e0s the !uestion. Under the &e0otia/le Instru"ents Fa , an instru"ent is ne0otiated hen it is transferred fro" one person to another in such a "anner as to constitute the transferee the holder thereof, 6, and a holder "a+ /e the pa+ee or indorsee of a /ill or note, ho is in possession of it, or the /earer thereof. 66 In the present case,

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ho ever, there as no ne0otiation in the sense of a transfer of the le0al title to the CT3s in favor of petitioner in hich situation, for o/vious reasons, "ere deliver+ of the /earer CT3s ould have sufficed. >ere, the deliver+ thereof onl+ as securit+ for the purchases of #n0el de la Cru8 5and e even disre0ard the fact that the a"ount involved as not disclosed7 could at the "ost constitute petitioner onl+ as a holder for value /+ reason of his lien. #ccordin0l+, a ne0otiation for such purpose cannot /e effected /+ "ere deliver+ of the instru"ent since, necessaril+, the ter"s thereof and the su/se!uent disposition of such securit+, in the event of non$pa+"ent of the principal o/li0ation, "ust /e contractuall+ provided for. The pertinent la on this point is that here the holder has a lien on the instru"ent arisin0 fro" contract, he is dee"ed a holder for value to the e?tent of his lien. 6B #s such holder of collateral securit+, he ould /e a pled0ee /ut the re!uire"ents therefor and the effects thereof, not /ein0 provided for /+ the &e0otia/le Instru"ents Fa , shall /e 0overned /+ the Civil Code provisions on pled0e of incorporeal ri0hts, 64 hich inceptivel+ provide: #rt. 6)*5. Incorporeal ri0hts, evidenced /+ ne0otia/le instru"ents, . . . "a+ also /e pled0ed. The instru"ent provin0 the ri0ht pled0ed shall /e delivered to the creditor, and if ne0otia/le, "ust /e indorsed. #rt. 6)*'. # pled0e shall not ta<e effect a0ainst third persons if a description of the thin0 pled0ed and the date of the pled0e do not appear in a pu/lic instru"ent. #side fro" the fact that the CT3s ere onl+ delivered /ut not indorsed, the factual findin0s of respondent court !uoted at the start of this opinion sho that petitioner failed to produce an+ docu"ent evidencin0 an+ contract of pled0e or 0uarantee a0ree"ent /et een it and #n0el de la Cru8. 65 Conse!uentl+, the "ere deliver+ of the CT3s did not le0all+ vest in petitioner an+ ri0ht effective a0ainst and /indin0 upon respondent /an<. The re!uire"ent under #rticle 6)*' afore"entioned is not a "ere rule of ad@ective la prescri/in0 the "ode here/+ proof "a+ /e "ade of the date of a pled0e contract, /ut a rule of su/stantive la prescri/in0 a condition ithout hich the e?ecution of a pled0e contract cannot affect third persons adversel+. 6' .n the other hand, the assi0n"ent of the CT3s "ade /+ #n0el de la Cru8 in favor of respondent /an< instru"ent. 6- Aith re0ard to this other "ode of transfer, the Civil Code specificall+ declares: as e"/odied in a pu/lic

#rt. ,'65. #n assi0n"ent of credit, ri0ht or action shall produce no effect as a0ainst third persons, unless it appears in a pu/lic instru"ent, or the instru"ent is recorded in the Re0istr+ of ;ropert+ in case the assi0n"ent involves real propert+. Respondent /an< dul+ co"plied ith this statutor+ re!uire"ent. Contraril+, petitioner, hether as purchaser, assi0nee or lien holder of the CT3s, neither proved the a"ount of its credit or the e?tent of its lien nor the e?ecution of an+ pu/lic instru"ent hich could affect or /ind private respondent. &ecessaril+, therefore, as /et een petitioner and respondent /an<, the latter has definitel+ the /etter ri0ht over the CT3s in !uestion. 4inall+, petitioner faults respondent court for refusin0 to delve into the !uestion of hether or not private respondent o/served the re!uire"ents of the la in the case of lost ne0otia/le instru"ents and the issuance of replace"ent certificates therefor, on the 0round that petitioner failed to raised that issue in the lo er court. 6( .n this "atter, e uphold respondent court9s findin0 that the aspect of alle0ed ne0li0ence of private respondent as not included in the stipulation of the parties and in the state"ent of issues su/"itted /+ the" to the trial court.6* The issues a0reed upon /+ the" for resolution in this case are: ,. Ahether or not the CT3s as orded are ne0otia/le instru"ents. 6. Ahether or not defendant could le0all+ appl+ the a"ount covered /+ the CT3s a0ainst the depositor9s loan /+ virtue of the assi0n"ent 5#nne? =C=7. B. Ahether or not there as le0al co"pensation or set off involvin0 the a"ount covered /+ the CT3s and the depositor9s outstandin0 account ith defendant, if an+. 4. Ahether or not plaintiff could co"pel defendant to preter"inate the CT3s /efore the "aturit+ date provided therein. 5. Ahether or not plaintiff is entitled to the proceeds of the CT3s. '. Ahether or not the parties can recover da"a0es, attorne+9s fees and liti0ation e?penses fro" each other. #s respondent court correctl+ o/served, ith appropriate citation of so"e doctrinal authorities, the fore0oin0 enu"eration does not include the issue of ne0li0ence on the part of respondent /an<. #n issue raised for the first ti"e on appeal and not raised ti"el+ in the proceedin0s in the lo er court is /arred /+ estoppel. B) Kuestions raised on appeal "ust /e ithin the issues fra"ed /+ the parties and, conse!uentl+, issues not raised in the trial court cannot /e raised for the first ti"e on appeal. B, ;re$trial is pri"aril+ intended to "a<e certain that all issues necessar+ to the disposition of a case are properl+ raised. Thus, to o/viate the ele"ent of surprise, parties are e?pected to disclose at a pre$trial conference all issues of la and fact hich the+ intend to raise at the trial, e?cept such as "a+ involve privile0ed or i"peachin0 "atters. The deter"ination of issues at a pre$trial conference /ars the consideration of other !uestions on appeal.B6 To accept petitioner9s su00estion that respondent /an<9s supposed ne0li0ence "a+ /e considered enco"passed /+ the issues on its ri0ht to preter"inate and receive the proceeds of the CT3s ould /e tanta"ount to sa+in0 that petitioner could raise on appeal an+ issue. Ae a0ree ith private respondent that the /road ulti"ate issue of petitioner9s entitle"ent to the proceeds of the !uestioned certificates can /e pre"ised on a "ultitude of other le0al reasons and causes of action, of hich respondent /an<9s supposed ne0li0ence is onl+ one. >ence, petitioner9s su/"ission, if accepted, ould render a pre$trial deli"itation of issues a useless e?ercise. BB Ctill, even assu"in0 ar0uendo that said issue of ne0li0ence as raised in the court /elo , petitioner still cannot have the odds in its favor. # close scrutin+ of the provisions of the Code of Co""erce la+in0 do n the rules to /e follo ed in case of lost instru"ents

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pa+a/le to /earer, hich it invo<es, ill reveal that said provisions, even assu"in0 their applica/ilit+ to the CT3s in the case at /ar, are "erel+ per"issive and not "andator+. The ver+ first article cited /+ petitioner spea<s for itself. #rt 54(. The dispossessed o ner, no "atter for hat cause it "a+ /e, "a+ appl+ to the @ud0e or court of co"petent @urisdiction, as<in0 that the principal, interest or dividends due or a/out to /eco"e due, /e not paid a third person, as ell as in order to prevent the o nership of the instru"ent that a duplicate /e issued hi". 5E"phasis ours.7 ??? ??? ??? The use of the ord ="a+= in said provision sho s that it is not "andator+ /ut discretionar+ on the part of the =dispossessed o ner= to appl+ to the @ud0e or court of co"petent @urisdiction for the issuance of a duplicate of the lost instru"ent. Ahere the provision reads ="a+,= this ord sho s that it is not "andator+ /ut discretional. B4 The ord ="a+= is usuall+ per"issive, not "andator+. B5 It is an au?iliar+ ver/ indicatin0 li/ert+, opportunit+, per"ission and possi/ilit+. B' 2oreover, as correctl+ anal+8ed /+ private respondent, B- #rticles 54( to 55( of the Code of Co""erce, on hich petitioner see<s to anchor respondent /an<9s supposed ne0li0ence, "erel+ esta/lished, on the one hand, a ri0ht of recourse in favor of a dispossessed o ner or holder of a /earer instru"ent so that he "a+ o/tain a duplicate of the sa"e, and, on the other, an option in favor of the part+ lia/le thereon ho, for so"e valid 0round, "a+ elect to refuse to issue a replace"ent of the instru"ent. Ci0nificantl+, none of the provisions cited /+ petitioner cate0oricall+ restricts or prohi/its the issuance a duplicate or replace"ent instru"ent sans co"pliance ith the procedure outlined therein, and none esta/lishes a "andator+ precedent re!uire"ent therefor.

A>ERE4.RE, on the "odified pre"ises a/ove set forth, the petition is 3E&IE3 and the appealed decision is here/+ #44IR2E3. C. .R3ERE3. &arvasa, C.J., ;adilla and &ocon, JJ., concur.

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