You are on page 1of 21

G.R. No.

123031 October 12, 1999
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.
QUISUMBING, J .:
This petition for review on certiorari assails respondent appellate court's Decision,
1
dated December 8, 1995, in CA G.R. CV No.
44085, which affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The dispositive portion of the trial court's decision
reads:
WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to pay plaintiff [herein
private respondent]:
(1) the principal sum of P514,390.94 with legal interest thereon computed from August 6,
1991 until fully paid; and
(2) the costs of suit.
SO ORDERED.
2

Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00) pesos, in cash.
Petitioner issued a promissory note to mature on May 27, 1991. The note for five hundred sixteen thousand, two hundred thirty-eight
pesos and sixty-seven centavos (P516,238.67) covered private respondent's placement plus interest at twenty and a half (20.5%)
percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred fourteen thousand, three hundred
ninety pesos and ninety-four centavos (P514,390.94) in favor of the private respondent as proceeds of his matured investment plus
interest. The CHECK was drawn from petitioner's current account number 0011-0803-59, maintained with the Bank of the Philippine
Islands (BPI), main branch at Makati City.1âwphi1.nêt
On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking Corp. (RCBC), in Puerto
Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of an Investigation." BPI took
custody of the CHECK pending an investigation of several counterfeit checks drawn against CIFC's aforestated checking account.
BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in
cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI.
Thereafter, private respondent, through counsel, made a formal demand for the payment of his money market placement. In turn,
CIFC promised to replace the CHECK but required an impossible condition that the original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint
3
for recovery of a sum of money against the petitioner with the
Regional Trial Court of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action
4
for collection of a sum
of money with the RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully deducted from CIFC's checking account,
counterfeit checks amounting to one million, seven hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight
centavos (P1,724,364.58). The action included the prayer to collect the amount of the CHECK paid to Vicente Alegre but dishonored
by BPI.
Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for leave of court to file a third-party
complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemnity, with respect to Alegre's claim.
CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-party complaint on the ground of
pendency of another action with RTC-Makati, Branch 147. Acting on the motion, the trial court dismissed the third-party complaint
on November 4, 1992, after finding that the third party complaint filed by CIFC against BPI is similar to its ancillary claim against the
bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito Arieta, Bank Manager of BPI,
testified that the bank, indeed, dishonored the CHECK, retained the original copy and forwarded only a certified true copy to RCBC.
When Arieta was recalled on July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said amount from the
account of CIFC, but the proceeds, as well as the CHECK remained in BPI's custody. The bank's move was in accordance with the
Compromise Agreement
5
it entered with CIFC to end the litigation in RTC-Makati, Branch 147. The compromise agreement, which
was submitted for the approval of the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of P1,724,364.58 plus
P20,000 litigation expenses as full and final settlement of all of plaintiff's claims as
contained in the Amended Complaint dated September 10, 1992. The aforementioned
amount shall be credited to plaintiff's current account No. 0011-0803-59 maintained at
defendant's Main Branch upon execution of this Compromise Agreement.
2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current
account representing payment/discharge of BPI Check No. 513397 payable to Vicente
Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from
the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant:
otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff [CIFC] may
however set-up the defense of payment/discharge stipulated in par. 2 above.
6

On July 27, 1993, BPI filed a separate collection suit
7
against Vicente Alegre with the RTC-Makati, Branch 62. The complaint
alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several checks of BPI's client, CIFC.
The total amount of counterfeit checks was P1,724,364.58. BPI prevented the encashment of some checks amounting to two
hundred ninety five thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07). BPI admitted that the CHECK,
payable to Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence, the balance of the loss incurred by BPI was nine
hundred fourteen thousand, one hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty
thousand (P20,000.00) pesos. The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial court.
Hence this appeal,
8
in which petitioner interposes the following assignments of errors:
1. The Honorable Court of Appeals erred in affirming the finding of the Honorable Trial
Court holding that petitioner was not discharged from the liability of paying the value of the
subject check to private respondent after BPI has debited the value thereof against
petitioner's current account.
2. The Honorable Court of Appeals erred in applying the provisions of paragraph 2 of
Article 1249 of the Civil Code in the instant case. The applicable law being the Negotiable
Instruments Law.
3. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's findings
that the petitioner was guilty of negligence and delay in the performance of its obligation to
the private respondent.
4. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's decision
ordering petitioner to pay legal interest and the cost of suit.
5. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's dismissal
of petitioner's third-party complaint against BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE
PRESENT CASE;
2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY COMPLAINT OF
PETITIONER AGAINST BPI BY REASON OF LIS PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinent laws to govern its
money market transaction with private respondent, and not paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it
had already been discharged from the liability of paying the value of the CHECK due to the following circumstances:
1) There was "ACCEPTANCE" of the subject check by BPI, the drawee bank, as defined
under the Negotiable Instruments Law, and therefore, BPI, the drawee bank, became
primarily liable for the payment of the check, and consequently, the drawer, herein
petitioner, was discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject check; and,
3) The act of BPI, the drawee bank of debiting/deducting the value of the check from
petitioner's account amounted to and/or constituted a discharge of the drawer's
(petitioner's) liability under the instrument/subject check.
9

Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
Liability of drawee retaining or destroying bill — Where a drawee to whom a bill is delivered for
acceptance destroys the same, or refuses within twenty-four hours after such delivery or such other
period as the holder may allow, to return the bill accepted or non-accepted to the Holder, he will be
deemed to have accepted the same.
Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of the CHECK.
Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedly committed by the private
respondent, the check was deemed paid.
Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the
"payment of debts." It provides that:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency, which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of
the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Considering the nature of a money market transaction, the above-quoted provision should be applied in the present controversy. As
held in Perez vs. Court of Appeals,
10
a "money market is a market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or
dealer.
11

In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The
private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for
encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI's annotation: "Check (is) subject of
an investigation." These facts were testified to by BPI's manager. Under these circumstances, and after the notice of dishonor,
12
the
holder has an immediate right of recourse against the drawer,
13
and consequently could immediately file an action for the recovery
of the value of the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of
a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In the case of Philippine Airlines, Inc.
vs. Court of Appeals,
14
this Court held:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument
does not, by itself, operate as payment (citation omitted). A check, whether a manager's check or ordinary
check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may
be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3.)
15

Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's current account, this did not ipso
facto operate as a discharge or payment of the instrument. Although the value of the CHECK was deducted from the funds of CIFC,
it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of
CIFC checks, allegedly committed by Alegre. The confiscation of the value of the check was agreed upon by CIFC and BPI. The
parties intended to amicably settle the collection suit filed by CIFC with the RTC-Makati, Branch 147, by entering into a compromise
agreement, which reads:
xxx xxx xxx
2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current
account representing payment/discharge of BPI Check No. 513397 payable to Vicente
Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from
the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant;
otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff however (sic) set-
up the defense of payment/discharge stipulated in par. 2
above.
16

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already
commenced.
17
It is an agreement between two or more persons who, for preventing or putting an end to a lawsuit, adjust their
difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining,
balanced by the danger of losing.
18
The compromise agreement could not bind a party who did not sign the compromise agreement
nor avail of its benefits.
19
Thus, the stipulations in the compromise agreement is unenforceable against Vicente Alegre, not a party
thereto. His money could not be the subject of an agreement between CIFC and BPI. Although Alegre's money was in custody of
the bank, the bank's possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own. The
codal admonition on this issue is clear:
Art. 1317 —
No one may contract in the name of another without being authorized by the latter, or unless he has by law a
right to represent him.
A Contract entered into in the name of another by one who has no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other contracting party.
20

BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid proceeding in court.
Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of the defendant in the
hands of a third person or money owed to such third person or a garnishee to the defendant.
21
The garnishment procedure must be
upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction over the collection suit filed by BPI against Alegre. In
effect, CIFC has not yet tendered a valid payment of its obligation to the private respondent. Tender of payment involves a positive
and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and
demanding that the latter accept the same.
22
Tender of payment cannot be presumed by a mere inference from surrounding
circumstances.
With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following requisites must concur:
(a) identity of parties or at least such as to represent the same interest in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should be such that the judgment which
may be rendered in one would, regardless of which party is successful, amount to res judicata in the other.
23

The trial court's ruling as adopted by the respondent court states, thus:
A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International Finance Corporation vs. Bank
of the Philippine Islands now pending before Branch 147 of this Court and the Third Party Complaint in the
instant case would readily show that the parties are not only identical but also the cause of action being
asserted, which is the recovery of the value of BPI Check No. 513397 is the same. In Civil Case No. 92-1940
and in the Third Party Complaint the rights asserted and relief prayed for, the reliefs being founded on the facts,
are identical.
xxx xxx xxx
WHEREFORE, the motion to dismiss is granted and consequently, the Third Party Complaint is hereby ordered
dismissed on ground of lis pendens.
24

We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner against BPI in
Civil Case No. 92-515 and petitioner's ancillary claim against the bank in Civil Case No. 92-1940, there is identity of parties as well
as identity of rights asserted, and that any judgment that may be rendered in one case will amount to res judicata in another.
The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is adjudged liable to Vicente Alegre
in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff (CIFC) cannot go after the defendant
(BPI); otherwise stated, the defendant shall not be liable to the plaintiff."
25
Clearly, this stipulation expressed that CIFC had already
abandoned any further claim against BPI with respect to the value of BPI Check No. 513397. To ask this Court to allow BPI to be a
party in the case at bar, would amount to res judicata and would violate terms of the compromise agreement between CIFC and
BPI. The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter
definitely stated therein, or which by implication from its terms should be deemed to have been included therein.
26
This holds true
even if the agreement has not been judicially approved.
27

WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 44085 is
AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.
G.R. No. 176664 July 21, 2008
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.
D E C I S I O N
NACHURA, J .:
Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision
1
dated July 12, 2006, and
Resolution
2
dated February 13, 2007, which dismissed its complaint for replevin and damages and granted the respondents’
counterclaim for damages.
The case stems from the following undisputed facts:
On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a
Promissory Note
3
for P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a maturity date of August 18, 1997.
The Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage
4
in favor of Toyota over a certain motor
vehicle, more particularly described as follows:
<
p>Make and Type 1993 Toyota Corolla 1.3 XL
Motor No. 2E-2649879
Serial No. EE100-9512571
Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of Assignment
5
transferring all its rights, title, and interest in the Chattel
Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from May 18, 1997 to August 18,
1997, FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty.
6
The
respondents refused to pay on the ground that they had already paid their obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court
(MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest
and/or late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the
payment of P24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the
vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.
7

In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing Department of FEBTC eight (8)
postdated checks in different amounts totaling P97,281.78. The Acknowledgment Receipt,
8
which they attached to the Answer,
showed that FEBTC received the following checks:
DATE BANK CHECK NO. AMOUNT
26 May 97 Landbank #610945 P13,824.15
6 June 97 Head Office #610946 12,381.63
30 May 97 FEBTC #17A00-11550P 12,021.00
15 June 97 Shaw Blvd. #17A00-11549P 12,021.00
30 June 97 " #17A00-11551P 12,021.00
18 June 97 Landbank #610947 11,671.00
18 July 97 Head Office #610948 11,671.00
18 August 97 #610949 11,671.00
The respondents further averred that they did not receive any notice from the drawee banks or from FEBTC that these checks were
dishonored. They explained that, considering this and the fact that the checks were issued three years ago, they believed in good
faith that their obligation had already been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then
prayed that they be awarded moral and exemplary damages, attorney’s fees and costs of suit.
9

During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had assumed the position of
Account Analyst since its merger with BPI. He admitted that they had, in fact, received the eight checks from the respondents.
However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to P23,692.00
were dishonored. He recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the two
checks. He said that after deducting these payments, the total outstanding balance of the obligation was P48,084.00, which
represented the last four monthly installments.
On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for damages, thus:
WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and on the counterclaim, plainti ff
is ordered to indemnify the defendants as follows:
a) The sum of PhP30,000.00 as and by way of moral damages;
b) The sum of PhP30,000.00 as and by way of exemplary damages;
c) The sum of PhP20,000.00 as and by way of attorney’s fees; and
d) To pay the costs of the suit.
SO ORDERED.
10

On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents to pay the amount claimed by
the petitioner. The dispositive portion of its Decision
11
dated August 11, 2005 reads:
WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated February 23, 2005 is REVERSED
and a new one entered directing the defendants-appellees to pay the plaintiff-appellant, jointly and severally,
1. The sum of P48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per annum from May 18,
1997 until fully paid;
2. The sum of P10,000.00 as attorney’s fees; and
3. The costs of suit.
SO ORDERED.
12

The RTC denied the respondents’ motion for reconsideration.
13

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They succeeded in obtaining a
favorable judgment when the CA set aside the RTC’s Decision and reinstated the MeTC’s Decision on July 12, 2006.
14
On February
13, 2007, the CA denied the petitioner’s motion for reconsideration.
15

The issues submitted for resolution in this petition for review are as follows:
I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE
OF THEIR AFFIRMATIVE DEFENSES.
II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.
III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES.
16

The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that, under the law and existing
jurisprudence, delivery of checks does not constitute payment. It points out that this principle stands despite the fact that there was
no notice of dishonor of the two checks and the demand to pay was made three years after default.
On the other hand, the respondents postulate that they have established payment of the amount being claimed by the petitioner
and, unless the petitioner proves that the checks have been dishonored, they should not be made liable to pay the obligation
again.
17

The petition is partly meritorious.
In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence which is
more convincing to the court as worthy of belief than that which is offered in opposition thereto.
18
Thus, the party, whether plaintiff or
defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For
the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative defense is one which is not a
denial of an essential ingredient in the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an
"avoidance" of the claim.
19

In Jimenez v. NLRC,
20
cited by both the RTC and the CA, the Court elucidated on who, between the plaintiff and defendant, has the
burden to prove the affirmative defense of payment:
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. Where the debtor
introduces some evidence of payment, the burden of going forward with the evidence - as distinct from the general burden of proof -
shifts to the creditor, who is then under a duty of producing some evidence to show non-payment.
21

In applying these principles, the CA and the RTC, however, arrived at different conclusions. While both agreed that the respondents
had the burden of proof to establish payment, the two courts did not agree on whether the respondents were able to present
sufficient evidence of payment — enough to shift the burden of evidence to the petitioner. The RTC found that the respondents
failed to discharge this burden because they did not introduce evidence of payment, considering that mere delivery of checks does
not constitute payment.
22
On the other hand, the CA concluded that the respondents introduced sufficient evidence of payment, as
opposed to the petitioner, which failed to produce evidence that the checks were in fact dishonored. It noted that the petitioner could
have easily presented the dishonored checks or the advice of dishonor and required respondents to replace the dishonored checks
but none was presented. Further, the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a failed
amortization only after three years from the due date.
The divergence in this conflict of opinions can be narrowed down to the issue of whether the Acknowledgment Receipt was
sufficient proof of payment. As correctly observed by the RTC, this is only proof that respondents delivered eight checks in payment
of the amount due. Apparently, this will not suffice to establish actual payment.
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid
tender of payment.
23
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument
does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation
is not extinguished and remains suspended until the payment by commercial document is actually realized.
24

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner,
but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents
could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in
good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already
lapsed since they issued the checks.1avvphi1
Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to
prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon
whom it is lodged was able to adduce preponderant evidence to prove its claim.
25

To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who
would benefit from such fact. That payment was effected through the eight checks was the respondents’ affirmative allegation that
they had to establish with legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a
notice of dishonor was properly given would have devolved upon it.
26
The fact is that the petitioner’s cause of action was based on
the original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment
thereof.
Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the respondents of the dishonor of
the checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability
of the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their
liability thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the
petitioner for not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission
belonged only to the petitioner.
In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s possession of the documents
pertaining to the obligation strongly buttresses its claim that the obligation has not been extinguished. The creditor’s possession of
the evidence of debt is proof that the debt has not been discharged by payment.
27
A promissory note in the hands of the creditor is a
proof of indebtedness rather than proof of payment.
28
In an action for replevin by a mortgagee, it is prima facie evidence that the
promissory note has not been paid.
29
Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the
presumption that the mortgage debt is unpaid.
30

Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three years since the checks were
issued. We do not agree. Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of
statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New Civil
Code.
31
The petitioner’s action was filed within the ten-year prescriptive period provided under Article 1144 of the New Civil Code.
Hence, there is no room for the application of laches.
Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they were not notified of the non-
payment of the checks. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment
of an obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it
causes any prejudice to the drawer. In light of this and the fact that the obligation has been partially paid, we deem it just and
equitable to reduce the 3% per month penalty charge as stipulated in the Promissory Note to 12% per annum.
32
Although a court is
not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit, as long as they contravene
no law, morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the
courts if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with.
33

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated July 12, 2006,
and Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August
11, 2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle,
or in the alternative, pay the petitioner P48,084.00 plus late penalty charges/interest thereon at the rate of 12% per annum from May
18, 1997 until fully paid.
SO ORDERED.
G.R. No. 157833 October 15, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
GREGORIO C. ROXAS, Respondent.
D E C I S I O N
SANDOVAL-GUTIERREZ, J .:
For our resolution is the instant Petition for Review on Certiorari assailing the Decision
1
of the Court of Appeals (Fourth Division)
dated February 13, 2003 in CA-G.R. CV No. 67980.
The facts of the case, as found by the trial court and affirmed by the Court of Appeals, are:
Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of vegetable oil to spouses Rodrigo and
Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of P348,805.50. However, when
respondent tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured him that they would
replace the bounced check with a cashier’s check from the Bank of the Philippine Islands (BPI), petitioner.
On March 31, 1993, respondent and Rodrigo Cawili went to petitioner’s branch at Shaw Boulevard, Mandaluyong City where Elma
Capistrano, the branch manager, personally attended to them. Upon Elma’s instructions, Lita Sagun, the bank teller, prepared BPI
Cashier’s Check No. 14428 in the amount of P348,805.50, drawn against the account of Marissa Cawili, payable to respondent.
Rodrigo then handed the check to respondent in the presence of Elma.
The following day, April 1, 1993, respondent returned to petitioner’s branch at Shaw Boulevard to encash the cashier’s check but it
was dishonored. Elma informed him that Marissa’s account was closed on that date.
Despite respondent’s insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He then
called his lawyer who advised him to deposit the check in his (respondent’s) account at Citytrust, Ortigas Avenue. However, the
check was dishonored on the ground "Account Closed."
On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of money
against petitioner, docketed as Civil Case No. 63663. Respondent prayed that petitioner be ordered to pay the amount of the check,
damages and cost of the suit.
In its answer, petitioner specifically denied the allegations in the complaint, claiming that it issued the check by mistake in good faith;
that its dishonor was due to lack of consideration; and that respondent’s remedy was to sue Rodrigo Cawili who purchased the
check. As a counterclaim, petitioner prayed that respondent be ordered to pay attorney’s fees and expenses of litigation.
Petitioner filed a third-party complaint against spouses Cawili. They were later declared in default for their failure to file their answer.
After trial, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor of herein plaintiff and orders the
defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas:
1) The sum of P348,805.50, the face value of the cashier’s check, with legal interest thereon computed from April 1, 1993
until the amount is fully paid;
2) The sum of P50,000.00 for moral damages;
3) The sum of P50,000.00 as exemplary damages to serve as an example for the public good;
4) The sum of P25,000.00 for and as attorney’s fees; and the
5) Costs of suit.
As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are hereby ordered to indemnify
defendant Bank of the Philippine Islands such amount(s) adjudged and actually paid by it to herein plaintiff Gregorio C. Roxas,
including the costs of suit.
SO ORDERED.
On appeal, the Court of Appeals, in its Decision, affirmed the trial court’s judgment.
Hence, this petition.
Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; and (2) in
holding that it (petitioner) is liable to respondent for the amount of the cashier’s check.
Section 52 of the Negotiable Instruments Law provides:
SEC. 52. What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of person
negotiating it.
As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who claims
otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due course are
lacking. In this case, petitioner contends that the element of "value" is not present, therefore, respondent could not be a holder in
due course.
Petitioner’s contention lacks merit. Section 25 of the same law states:
SEC. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing
debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time.
In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co., Inc.,
2
this Court
ruled that value "in general terms may be some right, interest, profit or benefit to the party who makes the contract or some
forbearance, detriment, loan, responsibility, etc. on the other side." Here, there is no dispute that respondent received Rodrigo
Cawili’s cashier’s check as payment for the former’s vegetable oil. The fact that it was Rodrigo who purchased the cashi er’s check
from petitioner will not affect respondent’s status as a holder for value since the check was delivered to him as payment for the
vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a holder in due
course of the cashier’s check.
Furthermore, it bears emphasis that the disputed check is a cashier’s check. In International Corporate Bank v. Spouses
Gueco,
3
this Court held that a cashier’s check is really the bank’s own check and may be treated as a promissory note with the bank
as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay
upon demand. In New Pacific Timber & Supply Co. Inc. v. Señeris,
4
this Court took judicial notice of the "well-known and accepted
practice in the business sector that a cashier’s check is deemed as cash." This is because the mere issuance of a cashier’s
check is considered acceptance thereof.
In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashier’s check.
Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the same upon presentment
by the former.1âwphi1
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 67980
is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 148211 July 25, 2006
SINCERE Z. VILLANUEVA, petitioner,
vs.
MARLYN P. NITE,
*
respondent.
D E C I S I O N
CORONA, J .:
In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals (CA) erred in annulling and setting
aside the Regional Trial Court (RTC) decision on the ground of extrinsic fraud.
The facts follow.
1

Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent issued petitioner an Asian Bank
Corporation (ABC) check (Check No. AYA 020195) in the amount of P325,500 dated February 8, 1994. The date was later changed
to June 8, 1994 with the consent and concurrence of petitioner.
The check was, however, dishonored due to a material alteration when petitioner deposited the check on due date. On August 24,
1994, respondent, through her representative Emily P. Abojada, remitted P235,000 to petitioner as partial payment of the loan. The
balance of P174, 000 was due on or before December 8, 1994.
On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil Case No. Q-94-21495) against ABC
for the full amount of the dishonored check. And in a decision dated May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his
favor.
2
When respondent went to ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she was
unable to do so because the trial court had ordered ABC to pay petitioner the value of respondent’s ABC check.
On August 25, 1997, ABC remitted to the sheriff a manager’s check amounting to P325,500 drawn on respondent’s account. The
check was duly received by petitioner on the same date.
Respondent then filed a petition in the CA seeking to annul and set aside the trial court’s decision ordering ABC to pay petitioner the
value of the ABC check.
3
The CA ruled:
WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May 23, 1997 of the public
respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud.
[Petitioner] Villanueva is hereby ordered to pay [Nite] —
1) the sum of [P146,500] as actual damages plus interest at 12% per annum from August 25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary damages; and
4) the sum of [P50,000] as attorney’s fees and cost of suit.
SO ORDERED.
4

Thus, this petition. We find for respondent.
Annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled is promulgated. It can
be filed by one who was not a party to the case in which the assailed judgment was rendered. Section 1 of Rule 47 provides:
Section 1. Coverage. – This Rule shall govern the annulment by the Court of Appeals of judgments or final orders and
resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for relief or
other appropriate remedies are no longer available through no fault of the petitioner.
Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary remedies of new trial, appeal and
petition for relief were not available to her for the simple reason that she was not made a party to the suit against ABC. Thus, she
was neither able to participate in the original proceedings nor resort to the other remedies because the case was filed when she was
abroad.
Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction.
5
Extrinsic or collateral fraud pertains to such
fraud which prevents the aggrieved party from having a trial or presenting his case to the court, or is used to procure the judgment
without fair submission of the controversy.
6
This refers to acts intended to keep the unsuccessful party away from the courts as
when there is a false promise of compromise or when one is kept in ignorance of the suit.
7

We uphold the appellate court’s finding of extrinsic fraud:
Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the balance of P174,000.00 shall be
paid on or before December 8, 1994, [Sincere] filed his complaint against [ABC] for the full amount of the dishonored
check in the sum of P320,500.00 without impleading petitioner. The apparent haste by which [Sincere] filed his complaint
and his failure to implead [Marlyn] clearly shows his intent to prevent [Marlyn] from opposing his action.
[A]t the time news about [Marlyn] having left the country was widespread, appearing even in print media as early as May
1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as partial payment on [August 18, 1994], through a
representative.
Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted an action for collection with
damages for the whole amount of the issued check.
[Sincere] does not deny knowledge of such payment neither of the fact that he concurred in settling the balance of
P174,000.00 on December 8, 1994.
[His] actuation and pronouncement shows not only bad faith on his part but also of his fraudulent intention to completely
exclude [Marlyn] from the proceedings in the court a quo. By doing what he did he prevented the [trial court] from fully
appreciating the particulars of the case.
8

In any event, the RTC decision may be annulled for lack of jurisdiction over the person of respondent. The pertinent provisions of
the Negotiable Instruments Law are enlightening:
SEC. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a
check.
9
(emphasis ours)
SEC. 189. When check operates as an assignment. – A check of itself does not operate as an assignment of any part of
the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts
or certifies the check. (emphasis ours)
If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in view of the cited sections,
sue the bank. The payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic
and established legal principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there
was no such privity of contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs, except in cases where
the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of
law.
10
None of the foregoing exceptions to the relativity of contracts applies in this case.
The contract of loan was between petitioner and respondent. No collection suit could prosper without respondent who was
an indispensable party. Rule 3, Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be
had of an action shall be joined either as plaintiffs or defendants. (emphasis ours)
An indispensable party is one whose interest in the controversy is such that a final decree will necessarily affect his rights. The court
cannot proceed without his presence.
11
If an indispensable party is not impleaded, any judgment is ineffective.
12
On this, Aracelona
v. Court of Appeals
13
declared:
Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-in-interest without whom there can be no
final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with
reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties where possible,
and the joinder of all indispensable parties under any and all conditions, their presence being sine qua non for the
exercise of judicial power. It is precisely "when an indispensable party is not before the court (that) the action should be
dismissed." The absence of an indispensable party renders all subsequent actions of the court null and void for want of
authority to act, not only as to the absent parties but even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 44971 isAFFIRMED in toto.
Costs against petitioner.
SO ORDERED.
G.R. No. 169334 September 8, 2006
LETICIA G. MIRANDA, petitioner,
vs.
PHILIPPINE DEPOSIT INSURANCE CORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS
BANK, Respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks a reversal of the Decision
1
of the Court of Appeals
dated February 23, 2005 in CA-G.R. CV No. 77556 which reversed and set aside the Decision
2
of the Regional Trial Court of
Santiago City, Branch 35, in Civil Case No. 35-2844 and the July 7, 2005 Resolution denying petitioner's Motion for
Reconsideration.
3

Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank, Santiago City Branch. On June 3, 1999, she withdrew
substantial amounts from her account, but instead of cash she opted to be issued a crossed cashier's check. She was thus issued
cashier's check no. 0000000518 in the sum of P2,500,000.00 and cashier's check no. 0000000514 in the amount of P3,002,000.00.
4

Petitioner deposited the two checks into her account in another bank on the same day, however, Bangko Sentral ng Pilipinas (BSP)
suspended the clearing privileges of Prime Savings Bank effective 2:00 p.m. of June 3, 1999. The two checks of petitioner were
returned to her unpaid.
5

On June 4, 1999, Prime Savings Bank declared a bank holiday. On January 7, 2000, the BSP placed Prime Savings Bank under the
receivership of the Philippine Deposit Insurance Corporation (PDIC).
6

Petitioner filed a civil action for sum of money in the Regional Trial Court of Santiago City, Isabela to recover the funds from her
unpaid checks against Prime Savings Bank, PDIC and the BSP. Judgment on the pleadings was rendered on March 1, 2001, the
dispositive portion of which reads:
WHEREFORE, judgment is rendered against defendants namely: Philippine Deposit Insurance Corporation, Bangko
Sentral ng Pilipinas and Prime Bank, to pay jointly and solidarily the amount of P5,502,000.00 to the plaintiff.
SO ORDERED.
7

On appeal, the Court of Appeals reversed the trial court and ruled in favor of the PDIC and BSP, dismissing the case against them,
without prejudice to the right of petitioner to file her claim before the court designated to adjudicate on claims against Prime Savings
Bank. The dispositive portion of the appellate court's decision dated February 23, 2005 thus reads:
WHEREFORE, the appeal is GRANTED and the decision appealed from is REVERSED and SET ASIDE and the case is
DISMISSED, without prejudice to the right of Miranda to file her claim before the court designated to adjudicate on claims
against Prime Savings Bank.
SO ORDERED.
8

Petitioner's motion for reconsideration was denied,
9
hence, this petition.
The issues presented by the petitioner before this Court can be summarized as follows: (1) Whether the two cashier's checks
operate as an assignment of funds in the hands of the petitioner; (2) Whether the claim lodged by the petitioner is a disputed claim
under Section 30 of Republic Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and therefore, under the
jurisdiction of the liquidation court; and (3) Whether the respondents are solidarily liable to the petitioner.
Petitioner contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance of the two cashier's checks
to her. As a holder in due course of the cashier's checks as defined under Sections 52 and 191 of the Negotiable Instruments Law,
she is an assignee of the funds of Prime Savings Bank as drawer thereof and entitled to its immediate payment.
10

Petitioner next argues that the present claim is not a disputed claim in contemplation of Section 30 of the New Central Bank Act.
Since disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach
of contract, or damages, it is manifest that petitioner's claim cannot fall within the purview of a disputed claim because she is
recovering assigned funds which are segregated monies of Prime Savings Bank.
11

Petitioner further states that by the mere issuance of the cashier's check, the funds represented by the check are transferred from
the credit of the maker to that of the payee or holder. Hence, petitioner alleges that she cannot be placed on the same footing with
the ordinary creditors of the bank because Section 30 of R.A. No. 7653 is for equality among creditors. She avers that she is not a
creditor thus is entitled to the immediate payment of her claim, pursuant to Section 189 of the Negotiable Instruments Law and
existing jurisprudence. She argues that putting her on equal footing with ordinary creditors, would contravene the provisions of the
Negotiable Instruments Law and would greatly diminish her rights as a holder in due course of said two cashier's checks.
12

Petitioner also argues that respondents PDIC and BSP contrary to Sections 185 and 189 of the Negotiable Instruments Law have
caused damage to the petitioner and should be held solidarily liable by indemnifying the petitioner for the value of the two cashier's
checks.
13

Respondents, on the other hand, state that the mere issuance of the cashier's checks did not operate as assignment of funds in
favor of the petitioner. They argue that even prior to the issuance of the cashier's checks, the bank was already cash-strapped,
which negates petitioner's claim that there was an assignment of funds in her favor.
14
There can be no assignment of funds when
there is no funds to speak of in the first place.
They likewise argue that the cashier's checks issued to petitioner were not certified but crossed, hence, there was no assignment of
funds made by the cashier or manager of respondent Prime Savings Bank-Santiago City Branch as it had insufficient funds to meet
the said checks either in its cash vault or with respondent BSP to clear the said checks.
15

Respondents argue that the instant case involves a disputed claim of sum of money against a closed financial institution. Sections
30 and 31 of R.A. No. 7653, exclusively vests the authority to assess, evaluate and determine the condition of any bank with the
BSP, while the PDIC has the primary responsibility of acting as receiver or liquidator of the closed financial institution.
16
Since the
relationship between petitioner and Prime Savings Bank is one of creditor and debtor, petitioner should file her claim with the
liquidation court constituted precisely for purposes of adjudicating claims against the bank in accordance with the rules on
concurrence and preference of credits.
17

Respondent PDIC alleges that it was impleaded in its representative capacity as the receiver/liquidator of the closed institution,
therefore, it has no direct, personal and solidary liability for the payment of the two cashier's checks. Its involvement came about
only because a bank under receivership or liquidation cannot sue or be sued except through its receiver or liquidator.
18

Respondent BSP also insists that not being a party to the said checks nor for imposing sanctions on co-respondent Prime Savings
Bank, is not liable on the said crossed cashier's checks.
19

Anent the first issue, the two cashier's checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands
of the petitioner as there were no funds to speak of in the first place. The bank was financially insolvent for sometime, even before
the issuance of the checks on June 3, 1999. As the Court of Appeals correctly ruled, the issuance of the cashier's checks to
petitioner did not constitute an assignment of funds, of which there was practically none at the time these were issued, as the bank
was in dire financial straits for some time.
20

As regards the second issue, the claim lodged by the petitioner qualifies as a disputed claim subject to the jurisdiction of the
liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a
clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of
jurisdiction, or with grave abuse of discretion.
The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an
exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or
unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial
of due process and equal protection clauses of the Constitution.
21

"Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of
contract, damages, or whatever.
22
Petitioner's claim which involved the payment of the two cashier's checks that were not honored
by Prime Savings Bank due to its closure falls within the ambit of a claim against the assets of the insolvent bank. The issuance of
the cashier's checks by Prime Savings Bank to the petitioner created a debtor/creditor relationship between them. This disputed
claim should therefore be lodged in the liquidation proceedings by the petitioner as creditor, since the closure of Prime Savings
Bank has rendered all claims subsisting at that time moot which can best be threshed out by the liquidation court and not the regular
courts.
It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with
exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency,
or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial
institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to
immediately take charge of its assets and liabilities.
23

In Central Bank of the Philippines v. De la Cruz,
24
we held that the actions of the Monetary Board in proceedings on insolvency are
explicitly declared by law to be "final and executory." They may not be set aside, or restrained, or enjoined by the courts, except
upon "convincing proof that the action is plainly arbitrary and made in bad faith.
Hence, as clearly laid down in Ong v. Court of Appeals,
25
the rationale behind judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body
contemplated that for convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendent of Banks and regulate his operations.
Regarding the third issue, it is only Prime Savings Bank that is liable to pay for the amount of the two cashier's checks. Solidary
liability cannot attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory receiver under R.A.
No. 7653, because they are the principal government agencies mandated by law to determine the financial viability of banks and
quasi-banks, and facilitate receivership and liquidation of closed financial institutions, upon a factual determination of the latter's
insolvency.
As correctly pointed out by the Court of Appeals, the BSP should not be held liable on the crossed cashier's checks for it was not a
party to the issuance of the same; nor can it be held liable for imposing the sanctions on Prime Savings Bank which indirectly
affected Miranda, since it is mandated under Sec. 37 of R.A. No. 7653 to act accordingly.
26
The BSP, through the Monetary Board
was well within its discretion to exercise this power granted by law to issue a resolution suspending the interbank clearing privileges
of Prime Savings Bank, having made a factual determination that the bank had deficient cash reserves deposited before the BSP.
There is no showing that the BSP abused this discretionary power conferred upon it by law.
In addition, co-respondent PDIC was impleaded as a party-litigant only in its representative capacity as the receiver/liquidator of
Prime Savings Bank. Both BSP and PDIC cannot therefore be held directly and solidarily liable for the payment of the two cashier's
checks. Sole liability rests with Prime Savings Bank.
In the absence of fraud, the purchase of a cashier's check, like the purchase of a draft on a correspondent bank, creates the relation
of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a
preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However,
in a situation involving the element of fraud, where a cashier's check is purchased from a bank at a time when it is
insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, it has been held that the
purchase is entitled to a preference in the assets of the bank on its liquidation before the check is paid.
27

As correctly found by the Court of Appeals:
Prime Savings as a bank did not collapse overnight but was hemorrhaging and in financial extremis for some time, a fact
which could not have gone unnoticed by the bank officers. They could not have issued in good faith checks for the total
sum of P5,502,000.00 knowing that the bank's coffers could not meet this.
28

Clearly, there was fraud or the intent to deceive when the two cashier's checks dated June 3, 1999 were issued by Prime Savings
Bank to the petitioner.
In the distribution of assets of Prime Savings Bank, Section 31 of the New Central Bank Act which provides that "[i]n case of
liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the
receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with
the rules on concurrence and preference of credit as provided in the Civil Code," should apply.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated February 23, 2005 and the Resolution dated
July 7, 2005, in CA-G.R. CV No. 77556, are AFFIRMED with the MODIFICATION that petitioner Leticia G. Miranda is entitled to a
preference in the assets of Prime Savings Bank in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00, respectively
stated in Cashier's Check No. 0000000514 and 0000000518 dated June 3, 1999 in the proceedings before the liquidation court
designated to adjudicate on all claims against Prime Savings Bank, in accordance with the rules on concurrence and preference of
credits as provided in the Civil Code.
SO ORDERED.
G.R. No. 156207 September 15, 2006
EQUITABLE PCI BANK (the Banking Entity into which Philippine Commercial International Bank was merged), petitioner,
vs.
ROWENA ONG, respondent.
D E C I S I O N
CHICO-NAZARIO, J .:
On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank Magsaysay
Avenue, Santa Ana District, Davao City Branch, under Account No. 8502-00347-6, a PCI Bank General Santos City Branch,
TCBT
1
Check No. 0249188 in the amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5 December 1991 on whether
TCBT Check No. 0249188 had been cleared, she received an affirmative answer. Relying on this assurance, she issued two checks
drawn against the proceeds of TCBT Check No. 0249188. One of these was PCI Bank Check No. 073661 dated 5 December 1991
forP132,000.00 which Sarande issued to respondent Rowena Ong Owing to a business transaction. On the same day, Ong
presented to PCI Bank Magsaysay Avenue Branch said Check No. 073661, and instead of encashing it, requested PCI Bank to
convert the proceeds thereof into a manager's check, which the PCI Bank obliged. Whereupon, Ong was issued PCI Bank
Manager's Check No. 10983 dated 5 December 1991 for the sum ofP132,000.00, the value of Check No. 073661.
The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check No. 10983 in her account with Equitable Banking
Corporation Davao City Branch. On 9 December 1991, she received a check return-slip informing her that PCI Bank had stopped
the payment of the said check on the ground of irregular issuance. Despite several demands made by her to PCI Bank for the
payment of the amount in PCI Bank Manager's Check No. 10983, the same was met with refusal; thus, Ong was constrained to file
a Complaint for sum of money, damages and attorney's fees against PCI Bank.
2

From PCI Bank's version, TCBT-General Santos City Check No. 0249188 was returned on 5 December 1991 at 5:00 pm on the
ground that the account against which it was drawn was already closed. According to PCI Bank, it immediately gave notice to
Sarande and Ong about the return of Check No. 0249188 and requested Ong to return PCI Bank Manager's Check No. 10983
inasmuch as the return of Check No. 0249188 on the ground that the account from which it was drawn had already been closed
resulted in a failure or want of consideration for the issuance of PCI Bank Manager's Check No. 10983.
3

After the pre-trial conference, Ong filed a motion for summary judgment.
4
Though they were duly furnished with a copy of the motion
for summary judgment, PCI Bank and its counsel failed to appear at the scheduled hearing.
5
Neither did they file any written
comment or opposition thereto. The trial court thereafter ordered Ong to formally offer her exhibits in writing, furnishing copies of the
same to PCI Bank which was directed to file its comment or objection.
6

Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or objection within the period given to it
despite receipt of the same order.
7
The trial court then granted the motion for summary judgment and in its Order dated 2 March
1995, it held:
IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED, ordering defendant Philippine
Commercial International Bank to pay the plaintiff the amount of ONE HUNDRED THIRTY-TWO THOUSAND PESOS
(P132,000.00) equivalent to the amount of PCIB Manager's Check No. 10983.
Set the reception of the plaintiff's evidence with respect to the damages claimed in the complaint.
8

PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11 April 1996.
9
After the reception of
Ong's evidence in support of her claim for damages, the trial court rendered its Decision
10
dated 3 May 1999 wherein it ruled:
IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has preponderantly established by competent
evidence her claims in the Complaint, judgment in hereby rendered for the plaintiff against the defendant-bank ordering
the latter:
1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the concept of moral damages;
2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary damages;
3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) representing
actual expenses;
4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for attorney's fee's; and
5. To pay the costs.
11

From this decision, PCI Bank sought recourse before the Court of Appeals. In a Decision
12
dated 29 October 2002, the appellate
court denied the appeal of PCI Bank and affirmed the orders and decision of the trial court.
Unperturbed, PCI Bank then filed the present petition for review before this Court and raised the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE ERROR WHEN IT
SUSTAINED THE LOWER COURT'S ORDER DATED 2 MARCH 1999 GRANTING RESPONDENT'S MOTION FOR
SUMMARY JUDGMENT NOTWITHSTANDING THE GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND
FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF EVIDENCE.
2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED THE LOWER COURT'S
DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN RESPONDENT ONG'S COMPLAINT
INSPITE OF THE FACT THAT RESPONDENT ONG WOULD BE "UNJUSTLY ENRICHED" AT THE EXPENSE OF
PETITIONER BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN UNFUNDED CHECK.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS WHEN IT AFFIRMED THE
COURT A QUO'S DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO RESPONDENT ONG AND HOLDING
THAT RESPONDENT ONG HAD PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN
THE COMPLAINT INSPITE OF THE FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF
DAMAGES.
4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT AFFIRMED THE
LOWER COURT'S FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999 HOLDING RESPONDENT ONG A
"HOLDER IN DUE COURSE" INSPITE OF THE FACT THAT THE REQUISITE OF "GOOD FAITH" AND FOR VALUE IS
LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH FACTUAL ISSUE.
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT UPHELD THE
LOWER COURT'S DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI BANK'S COUNTERCLAIM INSPITE
OF THE FACT THAT IT WAS SHOWN THAT RESPONDENT ONG'S COMPLAINT LACKS MERIT.
13

We affirm the Decision of the trial court and the Court of Appeals.
The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court:
SECTION 1. Summary judgment for claimant. – A party seeking to recover upon a claim, counterclaim, or cross-claim or
to obtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting
affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof.
Thus, it has been held that a summary judgment is proper where, upon a motion filed after the issues had been joined and on the
basis of the pleadings and papers filed, the court finds that there is no genuine issue as to any material fact to except as to the
amount of damages. A genuine issue has been defined as an issue of fact which calls for the presentation of evidence, as
distinguished from an issue which is sham, fictitious, contrived and patently unsubstantial so as not to constitute a genuine issue for
trial.
14

A court may grant summary judgment to settle expeditiously a case if, on motion of either party, there appears from the pleadings,
depositions, admissions, and affidavits that no important issues of fact are involved, except the amount of damages.
15
Rule 35,
Section 3, of the Rules of Court provides two requisites for summary judgment to be proper: (1) there must be no genuine issue as
to any material fact, except for the amount of damages; and (2) the party presenting the motion for summary judgment must be
entitled to a judgment as a matter of law.
16

Certainly, when the facts as pleaded appear uncontested or undisputed, then there's no real or genuine issue or question as to the
facts, and summary judgment is called for.
17

By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just any check but a manager's
check for that matter, PCI Bank's liability is fixed. Under the circumstances, we find that summary judgment was proper and a
hearing would serve no purpose. That summary judgment is appropriate was incisively expounded by the trial court when it made
the following observation:
[D]efendant-bank had certified plaintiff's PCIB Check No. 073661 and since certification is equivalent to acceptance,
defendant-bank as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor
of the plaintiff who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the defendant-
bank (Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the bank for more than the amount of the
check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the certifying bank as all the liabilities under Sec. 62 of the
Negotiable Instruments Law which refers to liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36).
It may be true that plaintiff's PCIB Check No. 073661 for P132,000.00 which was paid to her by Warliza Sarande was
actually not funded but since plaintiff became a holder in due course, defendant-bank cannot interpose a defense of want
or lack of consideration because that defense is equitable or personal and cannot prosper against a holder in due course
pursuant to Section 28 of the Negotiable Instruments Law. Therefore, when the aforementioned check was endorsed and
presented by the plaintiff and certified to and accepted by defendant-bank in the purchase of PCIB Manager's Check No.
1983 in the amount ofP132,000.00, there was a valid consideration.
18

The property of summary judgment was further explained by this Court when it pronounced that:
The theory of summary judgment is that although an answer may on its face appear to tender issues – requiring trial – yet
if it is demonstrated by affidavits, depositions, or admissions that those issues are not genuine, but sham or fictitious, the
Court is unjustified in dispensing with the trial and rendering summary judgment for plaintiff. The court is expected to act
chiefly on the basis of the affidavits, depositions, admissions submitted by the movant, and those of the other party in
opposition thereto. The hearing contemplated (with 10-day notice) is for the purpose of determining whether the issues
are genuine or not, not to receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer. The
matter may be resolved, and usually is, on the basis of affidavits, depositions, admissions. This is not to say that a hearing
may be regarded as a superfluity. It is not, and the Court has plenary discretion to determine the necessity therefore.
19

The second and fourth issues are inter-related and so they shall be resolved together. The second issue has reference to PCI
Bank's claim of unjust enrichment on the part of Ong if it would be compelled to make good the manager's check it had issued. As
asserted by PCI Bank under the fourth issue, Ong is not a holder in due course because the manager's check was drawn against a
closed account; therefore, the same was issued without consideration.
On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the transfer of value without just cause or
consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff;
and lack of cause. The main objective is to prevent one to enrich himself at the expense of another.
20
It is based on the equitable
postulate that it is unjust for a person to retain benefit without paying for it.
21
It is well to stress that the check of Sarande had been
cleared by the PCI Bank for which reason the former issued the check to Ong. A check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his
account.
22

Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege want or failure of consideration
between it and Sarande. Under settled jurisprudence, Ong is a stranger as regards the transaction between PCI Bank and
Sarande.
23

PCI Bank next insists that since there was no consideration for the issuance of the manager's check, ergo, Ong is not a holder in
due course. This claim is equally without basis. Pertinent provisions of the Negotiable Instruments Law are hereunder quoted:
SECTION 52. What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice it had been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. – Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.
Sec. 26. What constitutes holder for value. – Where value has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who become such prior to that time.
Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a matter of defense as against any
person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.
Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a manager's check. A manager's
check is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its
issuance. By its peculiar character and general use in commerce, a manager's check is regarded substantially to be as good as the
money it represents.
24

A manager's check stands on the same footing as a certified check.
25
The effect of certification is found in Section 187, Negotiable
Instruments Law.
Sec. 187. Certification of check; effect of. – Where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance.
26

The effect of issuing a manager's check was incontrovertibly elucidated when we declared that:
A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to
effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is
really the bank's own check and may be treated as a promissory note with the bank as a maker. The check becomes the
primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance
of it is considered an acceptance thereof. x x x.
27

In the case of New Pacific Timber & Supply Co., Inc. v. Seneris
28
:
[S]ince the said check had been certified by the drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on
which it is drawn, the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so
applied whenever the check is presented for payment. It is an understanding that the check is good then, and shall
continue good, and this agreement is as binding on the bank as its notes circulation, a certificate of deposit payable to the
order of depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to
enable the holder to use it as money." When the holder procures the check to be certified, "the check operates as an
assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63 of the
Central Bank Act to the effect "that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account" shall apply in this
case x x x.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a manager's check in exchange thereof,
PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments engages that he will pay it according to the
tenor of his acceptance; and admits –
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument;
and
(b) The existence of the payee and his then capacity to indorse.
With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or want of consideration for PCI
Bank's issuance of the manager's check is out of sync.
Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees:
SEC. 2. Declaration of Policy. – The State recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
In Associated Bank v. Tan,
29
it was reiterated:
"x x x the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of
their relationship with their depositors is concerned." Indeed, the banking business is vested with the trust and confidence
of the public; hence the "appropriate standard of diligence must be very high, if not the highest degree of diligence."
Measured against these standards, the next question that needs to be addressed is: Did PCI Bank exercise the requisite degree of
diligence required of it? From all indications, it did not. PCI Bank distinctly made the following uncontested admission:
1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI Bank's Magsaysay Avenue
Branch, TCBT-General Santos Branch Check No. 0249188 for P225,000.00. Said check, however, was inadvertently
sent by PCI Bank through local clearing when it should have been sent through inter-regional clearing since the
check was drawn at TCBT-General Santos City.
2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had been cleared. Not having
received any advice from the drawee bank within the regular clearing period for the return of locally cleared checks, and
unaware then of the error of not having sent the check through inter-regional clearing, PCI Bank advised her that
Check No. 024188 is treated as cleared. x x x.
30
(Emphasis supplied.)
From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the highest degree of care
31
required of it
under the law.
In the case of Philippine National Bank v. Court of Appeals,
32
we declared:
The banking system has become an indispensable institution in the modern world and plays a vital role in the economic
life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and, most of all, confidence.
Having settled the other issues, we now resolve the question on the award of moral and exemplary damages by the trial court to the
respondent.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendant's wrongful act or omission.
33
The requisites for an award of moral damages are well-
defined, thus, firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant
is the proximate cause of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances
expressed or envisioned by Article 2219
34
and Article 2220
35
of the Civil Code. All these elements are present in the instant case.
36

In the first place, by refusing to make good the manager's check it has issued, Ong suffered embarrassment and humiliation arising
from the dishonor of the said check.
37
Secondly, the culpable act of PCI Bank in having cleared the check of Serande and issuing
the manager's check to Ong is undeniable. Thirdly, the proximate cause of the loss is attributable to PCI Bank. Proximate cause is
defined as that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occurred.
38
In this case, the proximate cause of the loss is the act of PCI Bank in having
cleared the check of Sarande and its failure to exercise that degree of diligence required of it under the law which resulted in the
loss to Ong.
On exemplary damages, Article 2229 of the Civil Code states:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition
to the moral, temperate, liquidated or compensatory damages.
The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained
an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all,
confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part.
39
Without a doubt, it
has been repeatedly emphasized that since the banking business is impressed with public interest, of paramount importance thereto
is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it.
40
Having failed in this respect, the award of exemplary damages is warranted.
Article 2216 of the Civil Code provides:
ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary
damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the
court, according to the circumstances of each case.
Based on the above provision, the determination of the amount to be awarded (except liquidated damages) is left to the sound
discretion of the court according to the circumstances of each case.
41
In the case before us, we find that the award of moral
damages in the amount of P50,000.00 and exemplary damages in the amount ofP20,000.00 is reasonable and justified.
With the above disquisition, there is no necessity of further discussing the last issue on the PCI Bank's counterclaim based on the
supposed lack of merit of Ong's complaint.
WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of Appeals dated 29 October 2002 in
CA-G.R. CV No. 65000 affirming the Decision dated 3 may 1999, of the Regional Trial Court of Davao City, Branch 14, in Civil Case
No. 21458-92, are AFFIRMED.
SO ORDERED.
G.R. No. 192413 June 13, 2012
Rizal Commercial Banking Corporation, Petitioner,
vs.
Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.
D E C I S I O N
SERENO, J .:
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking Corporation (RCBC)
against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the
26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA),
1
which reversed and set aside the 19 May
2008 Decision and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case No. 06-244.
2
The case
before the RTC involved the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as
amended by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the
branches of various banks in the Philippines. The trial court declared the amounts, subject of the special proceedings, escheated to
the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the
Republic.
3
The assailed RTC judgments included an unclaimed balance in the amount of P 1,019,514.29, maintained by RCBC in its
Ermita Business Center branch.
We quote the narration of facts of the CA
4
as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are registered owners of six (6) parcels of
land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and
98829 of the Marikina Register of Deeds. These lots were sequestered by the Presidential Commission on Good Government
[(PCGG)].
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry Montemayor, offered to buy said lots for
"P 6,724,085.71", with the promise that she will take care of clearing whatever preliminary obstacles there may[]be to effect a
"completion of the sale". The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in turn, Millan made a
down[]payment of "P 1,019,514.29" for the intended purchase. However, for one reason or another, Millan was not able to clear said
obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her down[]payment
of P 1,019,514.29. However, Millan refused to accept back the P 1,019,514.29 down[]payment. Consequently, the Spouses
Bakunawa, through their company, the Hi-Tri Development Corporation ("Hi-Tri") took out on October 28, 1991, a Manager’s Check
from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millan’s company Rosmil Realty and Development Corporation
("Rosmil") c/o Teresita Millan and used this as one of their basis for a complaint against Millan and Montemayor which they filed with
the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to plaintiffs spouses the Owners’
Copies of Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen
Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos (P 1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of P2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of P 50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that "Teresita Mil[l]an be
correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine
[Centavos] ("P 1,019,514.29")["], the Spouses Bakunawa, upon advice of their counsel, retained custody of RCBC Manager’s Check
No. ER 034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible settlement of the case,
Millan was informed that the Manager’s Check was available for her withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri and Spouses
Bakunawa], x x x RCBC reported the "P 1,019,514.29-credit existing in favor of Rosmil" to the Bureau of Treasury as among its
"unclaimed balances" as of January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza,
Manager and Head of RCBC’s Asset Management, Disbursement & Sundry Department ("AMDSD") was posted within the premises
of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC the action below for
Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only the amount of
"P 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of "P3,000,000.00", [which is] inclusive [of] the
amount of ["]P 1,019,514.29". But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri]
inquired from RCBC-Ermita the availability of the P1,019,514.29 under RCBC Manager’s Check No. ER 034469. [Hi-Tri and
Spouses Bakunawa] were however dismayed when they were informed that the amount was already subject of the escheat
proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the Manager’s Check is currently the
subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial Court.
Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC bank account once an order to debit is
issued upon the payee’s presentation of the Manager’s Check. Since the payee rejected the negotiated Manager’s Check,
presentation of the Manager’s Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of the Manager’s Check was supposed to remain part
of the Corporation[’s] RCBC bank account, which, thereafter, continued to be actively maintained and operated. For this reason, We
hereby demand your confirmation that the amount of Php 1,019,514.29 continues to form part of the funds in the Corporation’s
RCBC bank account, since pay-out of said amount was never ordered. We wish to point out that if there was any attempt on the part
of RCBC to consider the amount indicated in the Manager’s Check separate from the Corporation’s bank account, RCBC would
have issued a statement to that effect, and repeatedly reminded the Corporation that the deposit would be considered dormant
absent any fund movement. Since the Corporation never received any statements of account from RCBC to that effect, and more
importantly, never received any single letter from RCBC noting the absence of fund movement and advising the Corporation that the
deposit would be treated as dormant."
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that:
"The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s Check No. ER034469 in the
escheat proceedings docketed as Civil Case No. 06-244, as well as the status thereof, between 28 January 2008 and 1 February
2008.
x x x x x x x x x
Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check No. ER034469 does not form part of the Bank’s own
account. By simple operation of law, the funds covered by the manager’s check in issue became a deposit/credit susceptible for
inclusion in the escheat case initiated by the OSG and/or Bureau of Treasury.
x x x x x x x x x
Granting arguendo that the Bank was duty-bound to make good the check, the Bank’s obligation to do so prescribed as early as
October 2001."
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its assailed Decision
declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic. Among those
included in the order of forfeiture was the amount of P 1,019,514.29 held by RCBC as allocated funds intended for the payment of
the Manager’s Check issued in favor of Rosmil. The trial court ordered the deposit of the escheated balances with the Treasurer and
credited in favor of the Republic. Respondents claim that they were not able to participate in the trial, as they were not informed of
the ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of the RTC Decision
insofar as it escheated the fund allocated for the payment of the Manager’s Check. They asked that they be included as party-
defendants or, in the alternative, allowed to intervene in the case and their motion considered as an answer-in-intervention.
Respondents argued that they had meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek intervention
in the case. They alleged that the deposit was subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil
since 1991, and that they were interested parties to that case.
5

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that the Republic had
proven compliance with the requirements of publication and notice, which served as notice to all those who may be affected and
prejudiced by the Complaint for Escheat. The RTC also found that the motion failed to point out the findings and conclusions that
were not supported by the law or the evidence presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that the
alternative prayer to intervene was filed out of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November 2008 Order of the
RTC. According to the appellate court,
6
RCBC failed to prove that the latter had communicated with the purchaser of the Manager’s
Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed its Sworn Statement
on the dormant accounts held therein. The CA ruled that the bank’s failure to notify respondents deprived them of an opportunity to
intervene in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process.
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons
claiming interest in the unclaimed balances, as well as to require them to appear after publication and show cause why the
unclaimed balances should not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional requirement of
individual notice by personal service was distinct from the requirement of notice by publication. Consequently, the CA held that the
Decision and Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
I. Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by personal
service
II. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the
Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails
7
the CA judgments insofar as they ruled that notice by personal service upon respondents is a jurisdictional
requirement in escheat proceedings. Petitioner contends that respondents were not the owners of the unclaimed balances and were
thus not entitled to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by the Manager’s
Check were deemed transferred to the credit of the payee or holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action or actions in
the name of the People of the Republic of the Philippines in the Court of First Instance of the province or city where the bank,
building and loan association or trust corporation is located, in which shall be joined as parties the bank, building and loan
association or trust corporation and all such creditors or depositors. All or any of such creditors or depositors or banks, building and
loan association or trust corporations may be included in one action. Service of process in such action or actions shall be made by
delivery of a copy of the complaint and summons to the president, cashier, or managing officer of each defendant bank, building and
loan association or trust corporation and by publication of a copy of such summons in a newspaper of general circulation, either in
English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan association or trust corporation is
situated, if there be any, and in case there is none, in the City of Manila, at such time as the court may order. Upon the trial, the
court must hear all parties who have appeared therein, and if it be determined that such unclaimed balances in any defendant bank,
building and loan association or trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment in favor
of the Government of the Republic of the Philippines, declaring that said unclaimed balances have escheated to the Government of
the Republic of the Philippines and commanding said bank, building and loan association or trust corporation to forthwith deposit the
same with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used as the National
Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed by him, giving the
title and number of said action, and referring to the complaint therein, and directed to all persons, other than those named as
defendants therein, claiming any interest in any unclaimed balance mentioned in said complaint, and requiring them to appear within
sixty days after the publication or first publication, if there are several, of such summons, and show cause, if they have any, why the
unclaimed balances involved in said action should not be deposited with the Treasurer of the Philippines as in this Act provided and
notifying them that if they do not appear and show cause, the Government of the Republic of the Philippines will apply to the court
for the relief demanded in the complaint. A copy of said notice shall be attached to, and published with the copy of, said summons
required to be published as above, and at the end of the copy of such notice so published, there shall be a statement of the date of
publication, or first publication, if there are several, of said summons and notice. Any person interested may appear in said action
and become a party thereto. Upon the publication or the completion of the publication, if there are several, of the summons and
notice, and the service of the summons on the defendant banks, building and loan associations or trust corporations, the court shall
have full and complete jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the persons having
or claiming any interest in the said unclaimed balances, or any of them, and shall have full and complete jurisdiction to hear and
determine the issues herein, and render the appropriate judgment thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and summons upon the
president, cashier, or managing officer of the defendant bank.
8
On the other hand, as to depositors or other claimants of the
unclaimed balances, service is made by publication of a copy of the summons in a newspaper of general circulation in the locality
where the institution is situated.
9
A notice about the forthcoming escheat proceedings must also be issued and published, directing
and requiring all persons who may claim any interest in the unclaimed balances to appear before the court and show cause why the
dormant accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a
jurisdictional requirement, and that failure to effect personal service on them rendered the Decision and the Order of the RTC void
for want of jurisdiction. Escheat proceedings are actions in rem,
10
whereby an action is brought against the thing itself instead of the
person.
11
Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other
claimants.
12
Jurisdiction is secured by the power of the court over the res.
13
Consequently, a judgment of escheat is conclusive upon
persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested.
14

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Manager’s
Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims abandoned, left
vacant, or unclaimed property, without there being an interested person having a legal claim thereto.
15
In the case of dormant
accounts, the state inquires into the status, custody, and ownership of the unclaimed balance to determine whether the inactivity
was brought about by the fact of death or absence of or abandonment by the depositor.
16
If after the proceedings the property
remains without a lawful owner interested to claim it, the property shall be reverted to the state "to forestall an open invitation to self-
service by the first comers."
17
However, if interested parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state.
18
We emphasize that
escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts. It is a proceeding
whereby the state compels the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they
have been abandoned, forgotten, or without an owner.
19

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions in filing a sworn
statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks, building and loan
associations, and trust corporations shall forward to the Treasurer of the Philippines a statement, under oath, of their respective
managing officers, of all credits and deposits held by them in favor of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order according to the names of creditors
and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the persons in whose favor such unclaimed
balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security, and if
the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he made his
last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank, building and loan
association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided, That immediately before
filing the above sworn statement, the bank, building and loan association, and trust corporation shall communicate with the person
in whose favor the unclaimed balance stands at his last known place of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of unclaimed
balances held by banks, building and loan associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed balances. This
notification is meant to inform them that their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn
statement, banks and other similar institutions are under obligation to communicate with owners of dormant accounts. The purpose
of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left
without an owner. If the depositor simply does not wish to touch the funds in the meantime, but still asserts ownership and dominion
over the dormant account, then the bank is no longer obligated to include the account in its sworn statement.
20
It is not the intent of
the law to force depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating
balances that have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to the Republic, the
bank "shall not thereafter be liable to any person for the same and any action which may be brought by any person against in any
bank xxx for unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to such
bank."
21
Otherwise, should it fail to comply with the legally outlined procedure to the prejudice of the depositor, the bank may not
raise the defense provided under Section 5 of Act No. 3936, as amended.
Petitioner asserts
22
that the CA committed a reversible error when it required RCBC to send prior notices to respondents about the
forthcoming escheat proceedings involving the funds allocated for the payment of the Manager’s Check. It explains that, pursuant to
the law, only those "whose favor such unclaimed balances stand" are entitled to receive notices. Petitioner argues that, since the
funds represented by the Manager’s Check were deemed transferred to the credit of the payee upon issuance of the check, the
proper party entitled to the notices was the payee – Rosmil – and not respondents. Petitioner then contends that, in any event, it is
not liable for failing to send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it
was not under any obligation to record the address of the payee of a Manager’s Check.
In contrast, respondents Hi-Tri and Bakunawa allege
23
that they have a legal interest in the fund allocated for the payment of the
Manager’s Check. They reason that, since the funds were part of the Compromise Agreement between respondents and Rosmil in a
separate civil case, the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the funds was evidenced by their continued custody of the Manager’s Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee),
24
requesting the latter to pay a
person named therein (payee) or to the order of the payee or to the bearer, a named sum of money.
25
The issuance of the check
does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer.
26
Here, the bank
becomes liable only after it accepts or certifies the check.
27
After the check is accepted for payment, the bank would then debit the
amount to be paid to the holder of the check from the account of the depositor-drawer.
There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager
or cashier, in the name of the bank, against the bank itself.
28
Typically, a manager’s or a cashier’s check is procured from the bank
by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank
the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed
accepted in advance.
29
Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise
to pay upon demand.
30

Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of
the payee. In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the
Negotiable Instruments Law applicable:
31

Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other
than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for
a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount to be paid for the check
would be sourced from the deposit account of Hi-Tri.
32
When Rosmil did not accept the Manager’s Check offered by respondents,
the latter retained custody of the instrument instead of cancelling it. As the Manager’s Check neither went to the hands of Rosmil nor
was it further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute the fact that
respondents retained custody of the instrument.
33

Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of
respondents was never made. In fact, petitioner confirms that the Manager’s Check was never negotiated or presented for payment
to its Ermita Branch, and that the allocated fund is still held by the bank.
34
As a result, the assigned fund is deemed to remain part of
the account of Hi-Tri, which procured the Manager’s Check. The doctrine that the deposit represented by a manager’s check
automatically passes to the payee is inapplicable, because the instrument – although accepted in advance – remains undelivered.
Hence, respondents should have been informed that the deposit had been left inactive for more than 10 years, and that it may be
subjected to escheat proceedings if left unclaimed.1âwphi1
After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to determine whether
the claim of respondents was valid. There was no contention that they were the procurers of the Manager’s Check. It is undisputed
that there was no effective delivery of the check, rendering the instrument incomplete. In addition, we have already settled that
respondents retained ownership of the funds. As it is obvious from their foregoing actions that they have not abandoned their claim
over the fund, we rule that the allocated deposit, subject of the Manager’s Check, should be excluded from the escheat proceedings.
We reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. We further note
that there is nothing in the records that would show that the OSG appealed the assailed CA judgments. We take this failure to
appeal as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals in
CA-G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.