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RIGOR, petitioner,
PHILIPPINES, respondent.






This is a petition for review on certiorari of the decision of the Court of

Appeals, in CA-G.R. CR No. 18855, which affirmed the decision of the
Regional Trial Court of Pasig, Branch 163, in Criminal Case No. 86025,
convicting petitioner Alfredo Rigor of violation of Batas Pambansa Blg. 22 (the
Bouncing Checks Law), and imposing upon him the penalty of imprisonment
for six (6) months and ordering him to restitute to the Rural Bank of San Juan
the sum of P500,000 and to pay the costs.
The Information against petitioner reads:

That on or about the 16th day of November 1989 in the Municipality of San Juan,
Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, did then and there willfully, unlawfully and feloniously make
or draw and issue to Rural Bank of San Juan, Inc. thru its loan officer Carlos N.
Garcia, a postdated check to apply on account or for value the check described below:
Check No.

Drawn against


Associated Bank, Tarlac Branch

In the Amount of



February 16, 1990

Payable to

Rural Bank of San Juan

said accused well knowing that at the time of issue on 16 November 1989, he has
already insufficient funds or credit with the drawee bank for the payment in full of the
face amount of such check and that as of 2 February 1990 his bank accounts were
already closed and that check when presented for payment from and after the date
thereof, was subsequently dishonored for the reason Account Closed and despite

receipt of notice of such dishonor, the accused failed to pay said payee the face
amount of said check or to make arrangement for full payment thereof during the
period of not less than five (5) banking days after receiving notice.
When arraigned, petitioner pleaded not guilty. Thereafter, trial on the
merits ensued.
The facts, as narrated by the Court of Appeals, are as follows:
The prosecution evidence was furnished by witnesses Edmarcos Basangan of Rural
Bank of San Juan (RBSJ) and Esteban Pasion, employee of the Associated Bank. It
was shown that on November 16, 1989, appellant (petitioner herein) applied for a
commercial loan from the Rural Bank of San Juan, Inc., at N. Domingo St., San Juan,
Metro Manila in the sum of P500,000.00 (Exh. A). He signed a promissory note
stating that an interest of 24% per annum from its date will be charged on the loan
(Exh. B). The loan was approved by RBSJs Bank Manager Melquecedes de
Guzman and Controller Agustin Uy. A cashiers check with RBSJ No. 2023424 in the
amount of P487,000.00, net proceeds of the loan, was issued to appellant (Exh. C).
Appellant endorsed, then encashed the check with RBSJ Teller Eleneth Cruz, who
stamped thereon the word paid (Exh. C-4). After appellant received the proceeds,
he issued an undated check, Associated Bank Check No. 165476, Tarlac Branch, in
the amount of P500,000, payable to RBSJ (Exh. D).
It was not the bank policy for a borrower to apply for a loan, obtain its approval and
its proceeds on the same day. Appellants case was a special one considering that he
is the kumpare of the President of RBSJ and he is well-known to all the banks
directors since he, like them, comes from Tarlac.
Appellant failed to pay his loan upon its maturity on December 16, 1989. He
personally asked de Guzman for a two-month extension and advised RBSJ to
date to February 16, 1990 his Associated Bank check no. 165476. Failing anew to
pay, he asked for another two-month extension or up to April 16, 1990. Both requests
de Guzman granted. On April 16, 1990, appellant still failed to pay his loan.
Basangan and his co-employee, Carlos Garcia, went to Tarlac to collect from
appellant the amount of the loan. Appellants written request for another 30-day
extension was denied by de Guzman who instead, sent him a formal demand letter
dated April 25, 1990.

On May 25, 1990, Associated Bank check no. 165476 was deposited with PS Bank,
San Juan Branch. The check was later returned with the words closed
account stamped on its face. Associated Bank employee PASION declared that
appellants Current Account No. 1022-001197-9 with Associated Bank had
been closed since February 2, 1990. Appellants balance under the banks statement
of account as of November 16, 1989 was only P859. The most appellant had on his
account was P40,000 recorded on November 19, 1989 (Exh. K).
Basangan and Garcia, in Tarlac, advised appellant of the dishonor of his check.
Appellant wrote Atty. Joselito Lim, RBSJ Chairman of the Board, about the loan and
arrangements as to the schedule of his payment. His letter was referred to de
Guzman, who, in turn, sent to him another demand letter dated September 17, 1990.
The letter informed him of the dishonor of his check. De Guzman required him to
take the necessary step for the early settlement of his obligation. He still refused to
Appellant denied the charge. He claimed that on November 16, 1989, Agapito Uy and
his sister Agnes Angeles proposed to him that he secure a loan from the RBSJ
for P500,000. P200,000 of it will be for him and the P300,000 will go to Uy and to
his sister to pay unpaid loans of borrowers in their side banking activities. For the
approval of his loan, Uy told him that appellant can put up his four-door Mercedes
Benz as collateral for the P200,000 loan. The P300,000 will have no collateral. Uy
also told him the he (Uy) has complete control of the bank and his Mercedes Benz
will be enough collateral for the P500,000.
Appellant agreed to the proposal. He signed a blank loan application form and a
promissory note plus a chattel mortgage for his Mercedes Benz. Thereafter, he was
told to come back in two days. Uy gave him two Premiere Bank checks
worthP100,000 each. He gave one check to his brother Efren Rigor and the other to
his sister-in-law for encashment in Tarlac. He issued to Uy a personal check
for P500,000 undated. This check was deposited in the bank for encashment in the
later part of May, 1990 but it bounced. When demand was made for him to pay his
loan, he told Uy to get his Mercedes Benz as payment for P200,000 but Uy refused.
Uy wanted him to pay the whole amount of P500,000.

On July 8, 1994, the trial court rendered judgment against petitioner, the
dispositive portion of which reads:

WHEREFORE, foregoing premises considered, this Court finds accused Alfredo

Rigor guilty beyond reasonable doubt of the crime of Violation of Section 1 of Batas
Pambansa Blg. 22 and there being no mitigating or aggravating circumstance on
record, imposes upon him the penalty of imprisonment for six (6) months and to
restitute to the Rural Bank of San Juan the sum of P500,000.00 and to pay the costs.


The trial court stated the reasons for petitioners conviction, thus:
In the case at bar, accused admitted having issued Associated Bank Check No. 165476
in the amount of P500,000.00. the check was undated when issued. Records,
however, show that it was issued on 16 November 1989 but as it appear[s] now it is
dated 16 February 1990. The probable reason must be because upon the maturity of
his loan on 16 December 1989, accused asked for extension of two (2) months to pay
the same. And the expiration of that two (2) months period is 16 February 1990.
Nevertheless, Exhibit K for the prosecution including its submarkings show that the
highest outstanding amount in the current account of accused with the Associated
Bank, Tarlac Branch for the month of November 1989, the month Rigor issued
aforesaid check, is only about P40,000.00. Hence, Rigor has no sufficient deposit in
the bank to cover the amount of P500,000.00 when he issued Check No. 165476.
Therefore, Rigor knowingly issued the same he having no sufficient funds in or credit
with the drawee bank in violation of section 1 of [B.P.] Blg. 22.
The defense of the accused that the amount of loan he secured from the Rural Bank of
San Juan is only P200,000.00 is of no moment. The fact is he admitted having issued
Associated Bank Check No. 165476 in the amount of P500,000.00 and upon its
deposit for encashment, the same was dishonored for reason account closed.

Petitioner appealed his conviction to the Court of Appeals, which affirmed

the trial courts decision. The dispositive portion of the appellate courts
decision reads:
WHEREFORE, the appealed decision is AFFIRMED with the modification that the
reference to lack of mitigating or aggravating circumstances should be deleted and

Hence, this petition for review on certiorari.

Petitioner raises the following:

1) Absent the element of knowingly issuing a worthless check entitles the

petitioner to acquittal;
2) Without proof that accused actually received a notice of dishonor, a
prosecution for violation of the Bouncing Checks Law cannot prosper;
3) The Pasig Court below had no jurisdiction to try and decide the case for
violation of Batas Pambansa Bilang 22.[6]

Petitioner contends that he did not violate Batas Pambansa Bilang

22 because he told the officers of the complainant bank from the very
beginning that he did not have sufficient funds in the bank; he was merely
enticed by Agustin Uy, the banks managing director and comptroller, to obtain
the instant loan where he received only P200,000, while Uy took P300,000;
and his check was partly used to collateralize an accommodation in favor of
Uy in the amount of P300,000.
The contention is without merit.
Petitioner is charged with violation of Section 1 of Batas Pambansa Bilang
22, thus:
SECTION 1.Checks without sufficient funds.-- Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been dishonored
for the same reason had not the drawer, without any valid reason, ordered the bank to
stop payment, shall be punished by imprisonment of not less than thirty days but not
more than one (1) year or by a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed Two hundred thousand pesos,
or both such fine and imprisonment at the discretion of the court.
The elements of the offense are: (1) Making, drawing, and issuance of
any check to apply on account or for value; (2) knowledge of the maker,
drawer, or issuer that at the time of issue he does not have sufficient funds in
or credit with the drawee bank for the payment of the check in full upon its
presentment; and (3) subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit, or dishonor of the check for the same

reason had not the drawer, without any valid cause, ordered the bank to stop

As found by the Regional Trial Court and the Court of Appeals, all the
aforementioned elements are present in this case.
The evidence shows that on November 16, 1989, petitioner applied for a
loan in the amount of P500,000 with the Rural Bank of San Juan and on the
same day, he issued an undated Associated Bank Check No.
165476 worth P500,000 payable to Rural Bank of San Juan in connection
with the loan, which check was later dated February 16, 1990. The check
was thus issued to apply for value. This shows the presence of the first
element of the offense.




The presence of the second element of the offense is shown by

petitioners admission that he knew of the insufficiency of his funds in the
drawee bank when he issued the check and he allegedly did not hide the fact
from the officials of the Rural Bank of San Juan.

The Court of Appeals correctly ruled, thus:


Knowledge involves a state of mind difficult to establish. We hold that

appellants admission of the insufficiency of his fund at the time he issued the
check constitutes the very element of knowledge contemplated in Sec. 1 of
BP 22. The prima facie presumption of knowledge required in Sec. 2, Ibid.,
does not apply because (a) the check was presented for payment only on May
25, 1990 or beyond the 90-day period, which expired on May 16, 1990,
counted from the maturity date of the check on February 16, 1990 and (b) an
actually admitted knowledge of a fact needs no presumption.
While it is true that if a check is presented beyond ninety (90) days from
its due date, there is no more presumption of knowledge by the drawer that at
the time of issue his check has no sufficient funds, the presumption in this case
is supplanted by appellants own admission that he did not hide the fact that he
had no sufficient funds for the check. In fact, it appears that when he

authorized RBSJ to date his check on February 16, 1990, his current account
was already closed two weeks earlier, on February 2, 1990.

Petitioner, however, argues that since the officers of the bank knew that he
did not have sufficient funds, he has not violated Batas Pambansa Bilang 22.
Assuming arguendo that the payee had knowledge that he had insufficient
funds at the time he issued the check, such knowledge by the payee is
immaterial as deceit is not an essential element of the offense underBatas
Pambansa Bilang 22. The gravamen of the offense is the issuance of a bad
check; hence, malice and intent in the issuance thereof are inconsequential.


Moreover, the cited case of Magno v. Court of Appeals, which resulted in

the acquittal of the accused therein, is inapplicable to petitioner as the facts of
said case are different. In Magno, the bounced checks were issued to cover a
warranty deposit in a lease contract, where the lessor-supplier was also the
financier of the deposit. It was a modus operandi whereby the supplier of the
goods is also able to sell or lease the same goods at the same time privately
financing those in desperate need so they may be accommodated. The
Court therein held:



To charge the petitioner for the refund of a warranty deposit which he did not
withdraw as it was not his own account, it having remained with LS Finance, is to
even make him pay an unjust debt, to say the least, since petitioner did not receive
the amount in question. All the while, said amount was in the safekeeping of the
financing company, which is managed, supervised and operated by the corporation
officials and employees of LS Finance. Petitioner did not even know that the checks
he issued were turned over by Joey Gomez to Mrs. Teng, whose operation was kept
from his knowledge on her instruction. This fact alone evoke suspicion that the
transaction is irregular and immoral per se, hence, she specifically requested Gomez
not to divulge the source of the warrant deposit.
It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was
she who accommodated petitioners request for Joey Gomez, to source out the
needed funds for the warranty deposit. Thus it unfolds the kind of transaction that
is shrouded with mystery, gimmickry and doubtful legality. It is in simple language, a
scheme whereby Mrs. Teng as the supplier of the equipment in the name of her

corporation, Mancor, would be able to sell or lease its goods as in this case, and at
the same time, privately financing those who desperately need petty accommodations
as this one. This modus operandi has in so many instances victimized unsuspecting
businessmen, who likewise need protection from the law, by availing of the
deceptively called warranty deposit not realizing that they also fall prey to leasing
equipment under the guise of a lease purchase agreement when it is a scheme
designed to skim off business clients.

This case, however, involves an ordinary loan transaction between

petitioner and the Rural Bank of San Juan wherein petitioner issued the check
certainly to be applied to the payment of his loan since the check and the loan
have the same value of P500,000. Whether petitioner agreed to give a
portion of the proceeds of his loan to Agustin Uy, an officer of complainant
bank, to finance Uys and his (petitioner) sisters alleged side-banking
activity, such agreement is immaterial to petitioners liability for issuing the
dishonored check under Batas Pambansa Bilang 22.
Lozano v. Martinez states:

The gravamen of the offense punished by BP 22 is the act of making and issuing a
worthless check or a check that is dishonored upon its presentation for payment. It is
not the non-payment of an obligation which the law punishes. The law is not intended
or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit,
under pain of penal sanctions, the making of worthless checks and putting them in
circulation. Because of its deleterious effects on the public interest, the practice is
proscribed by the law. The law punishes the act not as an offense against property, but
an offense against public order.
People v. Nitafan held that to require that the agreement surrounding the
issuance of checks be first looked into and thereafter exempt such issuance
from the provisions of Batas Pambansa Bilang 22 on the basis of such
agreement or understanding would frustrate the very purpose for which the
law was enacted.

Further, the presence of the third element of the offense is shown by the
fact that after the check was deposited for encashment, it was dishonored by
Associated Bank for reason of closed account as evidenced by its Check

Return Slip. Despite receipt of a notice of dishonor from complainant bank,

petitioner failed to pay his obligation.

Petitioner next contends that he did not receive a notice of dishonor, the
absence of which precludes criminal prosecution.
The contention is likewise of no merit.
The notice of dishonor of a check may be sent to the drawer or maker by
the drawee bank, the holder of the check, or the offended party either by
personal delivery or by registered mail. The notice of dishonor to the maker
of a check must be in writing.


In this case, prosecution witness Edmarcos Basangan testified that after

petitioners check was dishonored, he and co-employee Carlos Garcia went to
petitioners residence in Tarlac to inform him about it. Thereafter, petitioner
wrote a letter dated June 28, 1990 to Atty. Joselito Lim, RBSJ chairman of the
Board of Directors, proposing a manner of paying the loan. The letter was
referred to the bank manager who sent petitioner another demand
letter dated September 17, 1990 through registered mail.
Said letter
informed petitioner of the dishonor of his check for the reason of account
closed, and required him to settle his obligation, thus:


September 17, 1990
Mr. Alfredo Rigor
Victoria, Tarlac
Dear Mr. Rigor,
Please be informed that the check dated February 16, 1990, that you
issued purportedly for the payment of your loan, which has already become
due and demandable in the sum of PESOS: Five Hundred Thousand Pesos
Only (P500,000.00) was dishonored on February 16, 1990 (should be May
25, 1990) for the reason Account Closed (AC).

We trust that you will take the necessary step for the early settlement
of your obligation to us.
Very truly yours,
The transcript of records shows that petitioner admitted knowledge of the
dishonor of his check through a demand letter sent to him. Hence, petitioner
cannot pretend that he did not receive a notice of dishonor of his check.

Lastly, petitioner contends that the Regional Trial Court of Pasig had no
jurisdiction over this case since no proof has been offered that his check was
issued, delivered, dishonored or that knowledge of insufficiency of funds
occurred in the Municipality of San Juan, Metro Manila.
The contention is untenable.
As regards venue of a criminal action, Section 15, paragraph (a), of Rule
110 of the 2000 Revised Rules of Criminal Procedure, which reflects the old
rule, provides:

Sec. 15. Place where action is to be instituted.

(a) Subject to existing laws, the criminal action shall be instituted and tried in the
court of the municipality or territory where the offense was committed or where any
of its essential ingredients occurred. (Emphasis supplied.)
Violations of Batas Pambansa Bilang 22 are categorized as transitory or
continuing crimes. In such crimes, some acts material and essential to the
crimes and requisite to their consummation occur in one municipality or
territory and some in another, in which event, the court of either has
jurisdiction to try the cases, it being understood that the first court taking
cognizance of the case excludes the other. Hence, a person charged with a
transitory crime may be validly tried in any municipality or territory where the
offense was in part committed.



The evidence clearly shows that the undated check was issued and
delivered at the Rural Bank of San Juan, Metro Manila on November 16,
1989, and subsequently the check was dated February 16, 1990 thereat. On
May 25, 1990, the check was deposited with PS Bank, San Juan Branch,
Metro Manila. Thus, the Court of Appeals correctly ruled:


Violations of B.P. 22 are categorized as transitory or continuing crimes. A suit on the

check can be filed in any of the places where any of the elements of the offense
occurred, that is, where the check is drawn, issued, delivered or dishonored. x x x
The information at bar effectively charges San Juan as the place of drawing and
issuing. The jurisdiction of courts in criminal cases is determined by the allegations
of the complaint or information. Although, the check was dishonored by the drawee,
Associated Bank, in its Tarlac Branch, appellant has drawn, issued and delivered it at
RBSJ, San Juan. The place of issue and delivery was San Juan and knowledge, as an
essential part of the offense, was also overtly manifested in San Juan. There is no
question that crimes committed in November, 1989 in San Juan are triable by the RTC
stationed in Pasig. In short both allegation and proof in this case sufficiently vest
jurisdiction upon the RTC in Pasig City.

WHEREFORE, the petition is DENIED and the assailed Decision of the

Court of Appeals, in CA-G.R. CR No. 18855, is hereby AFFIRMED. Costs
against petitioner.

vs. VICENTE HENRY TAN, respondent.

BANK), petitioner,

While banks are granted by law the right to debit the value of a dishonored
check from a depositors account, they must do so with the highest degree of
care, so as not to prejudice the depositor unduly.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the January 27, 2003 Decision of the Court of Appeals (CA) in CAGR CV No. 56292. The CA disposed as follows:


WHEREFORE, premises considered, the Decision dated December 3, 1996, of

the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in
Civil Case No. 892-AF is hereby AFFIRMED. Costs against the [petitioner].

The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor
of the Associated Bank (hereinafter referred to as the BANK). Sometime in
September 1990, he deposited a postdated UCPB check with the said BANK in the
amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The
check was duly entered in his bank record thereby making his balance in the amount
of P297,000.00, as of October 1, 1990, from his original deposit
ofP196,000.00. Allegedly, upon advice and instruction of the BANK that
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN,
on the same date, withdrew the sum of P240,000.00, leaving a balance
of P57,793.45. A day after, TAN deposited the amount of P50,000.00 making his
existing balance in the amount of P107,793.45, because he has issued several checks
to his business partners, to wit:
a. 138814
b. 138804
c. 138787
d. 138847
e. 167054
f. 138792

Sept. 29, 1990
Oct. 8, 1990
Sept. 30, 1990
Sept. 29, 1990
Sept. 29, 1990
Sept. 29, 1990


g. 138774
h. 167072
i. 168802

Oct. 2, 1990
Oct. 10, 1990
Oct. 10, 1990


However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his
lawyer, informed the BANK to take positive steps regarding the matter for he has
adequate and sufficient funds to pay the amount of the subject checks. Nonetheless,
the BANK did not bother nor offer any apology regarding the incident. Consequently,
TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the
Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil
Case No. 892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the
subject checks and alleged that his suppliers decreased in number for lack of trust. As
he has been in the business community for quite a time and has established a good
record of reputation and probity, plaintiff claimed that he suffered embarrassment,
humiliation, besmirched reputation, mental anxieties and sleepless nights because of
the said unfortunate incident. [Respondent] further averred that he continuously lost
profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way
of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25%
of the amount claimed including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same
was denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner]
BANK on March 20, 1991 filed its Answer denying, among others, the allegations of
[respondent] and alleged that no banking institution would give an assurance to any of
its client/depositor that the check deposited by him had already been cleared and
backed up by sufficient funds but it could only presume that the same has been
honored by the drawee bank in view of the lapse of time that ordinarily takes for a
check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave
notice to the [respondent] as to the return of his UCPB check deposit in the amount
of P101,000.00, hence, on even date, [respondent] deposited the amount
of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of
action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent]
which was withdrawn by him prior to its clearing. [Petitioner] further averred that it
has no liability with respect to the clearing of deposited checks as the clearing is being
undertaken by the Central Bank and in accepting [the] check deposit, it merely

obligates itself as depositors collecting agent subject to actual payment by the drawee
bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount
of P1,000,000.00 by way of loss of goodwill,P7,000.00 as acceptance fee
plus P500.00 per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended
Complaint reiterating substantially his allegations in the original complaint, except
that the name of the previous defendant ASSOCIATED BANK is now WESTMONT
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996
in favor of the [respondent] and against the [petitioner], ordering the latter to pay the
[respondent] the sum of P100,000.00 by way of moral damages,P75,000.00 as
exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In
making said ruling, it was shown that [respondent] was not officially informed about
the debiting of the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for accommodation
because the BANK considered him as one of its valued clients. The trial court ruled
that the bank manager was negligent in handling the particular checking account of
the [respondent] stating that such lapses caused all the inconveniences to the
[respondent]. The trial court also took into consideration that [respondents] mother
was originally maintaining with the x x x BANK [a] current account as well as [a]
time deposit, but [o]n one occasion, although his mother made a deposit, the same was
not credited in her favor but in the name of another.

Petitioner appealed to the CA on the issues of whether it was within its

rights, as collecting bank, to debit the account of its client for a dishonored
check; and whether it had informed respondent about the dishonor prior to
debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its
clearing. Having done so, contrary to its obligation to treat respondents
account with meticulous care, the bank violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his
account before unilaterally debiting the amount of P101,000. Without such
notice, it is estopped from blaming him for failing to fund his account.

The CA opined that, had the P101,000 not been debited, respondent
would have had sufficient funds for the postdated checks he had
issued. Thus, the supposed accommodation accorded by petitioner to him is
the proximate cause of his business woes and shame, for which it is liable for
Because of the banks negligence, the CA awarded respondent moral
damages of P100,000. It also granted him exemplary damages of P75,000
and attorneys fees of P25,000.
Hence this Petition.


In its Memorandum, petitioner raises the sole issue of whether or not the
petitioner, which is acting as a collecting bank, has the right to debit the
account of its client for a check deposit which was dishonored by the drawee

The Courts Ruling

The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present
set of facts were misappreciated by the CA. It insists that its right to debit the
amount of the dishonored check from the account of respondent is clear and
unmistakable. Even assuming that it did not give him notice that the check
had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by
respondent on September 17, 1990, expressly stipulated that the bank was
obligating itself merely as the depositors collecting agent and -- until such
time as actual payment would be made to it -- it was reserving the right to
charge against the depositors account any amount previously
credited. Respondent was allowed to withdraw the amount of the check prior
to clearing, merely as an act of accommodation, it added.

At the outset, we stress that the trial courts factual findings that were
affirmed by the CA are not subject to review by this Court. As petitioner itself
takes no issue with those findings, we need only to determine the legal
consequence, based on the established facts.

Right of Setoff
A bank generally has a right of setoff over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a clients account for the value of a dishonored check
that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

Hence, the relationship between banks and depositors has been held to
be that of creditor and debtor. Thus, legal compensation under Article
1278 of the Civil Code may take place when all the requisites mentioned in
Article 1279 are present, as follows:



(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

Nonetheless, the real issue here is not so much the right of petitioner to
debit respondents account but, rather, the manner in which it exercised such
right. The Court has held that even while the right of setoff is conceded,
separate is the question of whether that remedy has properly been exercised.

The liability of petitioner in this case ultimately revolves around the issue
of whether it properly exercised its right of setoff. The determination thereof
hinges, in turn, on the banks role and obligations, first, as respondents
depositary bank; and second, as collecting agent for the check in question.

Obligation as
Depositary Bank
In BPI v. Casa Montessori, the Court has emphasized that the banking
business is impressed with public interest. Consequently, the highest degree
of diligence is expected, and high standards of integrity and performance are
even required of it. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors with meticulous care.


Also affirming this long standing doctrine, Philippine Bank of Commerce v.

Court of Appeals has held that 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. The standard applies, regardless of whether the account
consists of only a few hundred pesos or of millions.




The fiduciary nature of banking, previously imposed by case law, is now

enshrined in Republic Act No. 8791 or the General Banking Law of
2000. Section 2 of the law specifically says that the State recognizes the
fiduciary nature of banking that requires high standards of integrity and

Did petitioner treat respondents account with the highest degree of

care? From all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of
accommodation to a valued client, petitioner allowed the withdrawal of the
face value of the deposited check prior to its clearing. That act certainly
disregarded the clearance requirement of the banking system. Such a
practice is unusual, because a check is not legal tender or money; and its
value can properly be transferred to a depositors account only after the check
has been cleared by the drawee bank.


Under ordinary banking practice, after receiving a check deposit, a

bank either immediately credit the amount to a depositors account; or infuse
value to that account only after the drawee bank shall have paid such amount.
Before the check shall have been cleared for deposit, the collecting bank
can only assume at its own risk -- as herein petitioner did -- that the check
would be cleared and paid out.

Reasonable business practice and prudence, moreover, dictated that

petitioner should not have authorized the withdrawal by respondent

of P240,000 on October 1, 1990, as this amount was over and above his
outstanding cleared balance of P196,793.45. Hence, the lower courts
correctly appreciated the evidence in his favor.

Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors
Collecting agent, assuming no responsibility beyond carefulness in selecting
correspondents, and until such time as actual payments shall have come to its
possession, this Bank reserves the right to charge back to the Depositors account any
amounts previously credited whether or not the deposited item is returned. x x x."

However, this reservation is not enough to insulate the bank from any
liability. In the past, we have expressed doubt about the binding force of such
conditions unilaterally imposed by a bank without the consent of the depositor.
It is indeed arguable that in signing the deposit slip, the depositor does so
only to identify himself and not to agree to the conditions set forth at the back
of the deposit slip.


Further, by the express terms of the stipulation, petitioner took upon itself
certain obligations as respondents agent, consonant with the well-settled rule
that the relationship between the payee or holder of a commercial paper and
the collecting bank is that of principal and agent. Under Article 1909 of the
Civil Code, such bank could be held liable not only for fraud, but also for


As a general rule, a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment. Due to the very nature of their business, banks are expected to
exercise the highest degree of diligence in the selection and supervision of
their employees. Jurisprudence has established that the lack of diligence of a
servant is imputed to the negligence of the employer, when the negligent or
wrongful act of the former proximately results in an injury to a third person; in
this case, the depositor.



The manager of the banks Cabanatuan branch, Consorcia Santiago,

categorically admitted that she and the employees under her control had
breached bank policies. They admittedly breached those policies when,
without clearance from the drawee bank in Baguio, they allowed respondent

to withdraw on October 1, 1990, the amount of the check

deposited. Santiago testified that respondent was not officially informed
about the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x.

Being the branch manager, Santiago clearly acted within the scope of her
authority in authorizing the withdrawal and the subsequent debiting without
notice. Accordingly, what remains to be determined is whether her actions
proximately caused respondents injury. Proximate cause is that which -- in a
natural and continuous sequence, unbroken by any efficient intervening cause
--produces the injury, and without which the result would not have occurred.

Let us go back to the facts as they unfolded. It is undeniable that the

banks premature authorization of the withdrawal by respondent on October 1,
1990, triggered -- in rapid succession and in a natural sequence -- the debiting
of his account, the fall of his account balance to insufficient levels, and the
subsequent dishonor of his own checks for lack of funds. The CA correctly
noted thus:
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that
his money was already cleared. Without such advice, [respondent] would not have
withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was
[petitioners] fault which allowed [respondent] to withdraw a huge sum which he
believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the
check. Had the P101,000.00 not [been] debited, the subject checks would not have
been dishonored. Hence, we can say that [respondents] injury arose from the
dishonor of his well-funded checks. x x x.

Aggravating matters, petitioner failed to show that it had immediately and

duly informed respondent of the debiting of his account. Nonetheless, it
argues that the giving of notice was discernible from his act of
depositing P50,000 on October 2, 1990, to augment his account and allow the
debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers
account, respondent was considered a valued client whose checks had
always been sufficiently funded from 1987 to 1990, until the October
imbroglio. Thus, he deserved nothing less than an official notice of the
precarious condition of his account.

Second, under the provisions of the Negotiable Instruments Law regarding

the liability of a general indorser and the procedure for a notice of dishonor,

it was incumbent on the bank to give proper notice to respondent. In Gullas

v. National Bank, the Court emphasized:


x x x [A] general indorser of a negotiable instrument engages that if the instrument

the check in this case is dishonored and the necessary proceedings for its dishonor
are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held
by a long line of authorities that notice of dishonor is necessary to charge an indorser
and that the right of action against him does not accrue until the notice is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of
dishonor, and without waiting for any action by Gullas, the bank made use of the
money standing in his account to make good for the treasury warrant. At this point
recall that Gullas was merely an indorser and had issued checks in good faith. As to
a depositor who has funds sufficient to meet payment of a check drawn by him in
favor of a third party, it has been held that he has a right of action against the bank
for its refusal to pay such a check in the absence of notice to him that the bank has
applied the funds so deposited in extinguishment of past due claims held against
him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be,
as to an indorser the situation is different, and notice should actually have been given
him in order that he might protect his interests.

Third, regarding the deposit of P50,000 made by respondent on October

2, 1990, we fully subscribe to the CAs observations that it was not unusual for
a well-reputed businessman like him, who ordinarily takes note of the amount
of money he takes and releases, to immediately deposit money in his current
account to answer for the postdated checks he had issued.

Inasmuch as petitioner does not contest the basis for the award of
damages and attorneys fees, we will no longer address these matters.
is DENIED and
Decision AFFIRMED. Costs against petitioner.



G.R. No. 101163 January 11, 1993

Escober, Alon & Associates for petitioner.
Martin D. Pantaleon for private respondents.

The liability to a holder in due course of the drawer of checks issued to another merely as security,
and the right of a real estate mortgagee after extrajudicial foreclosure to recover the balance of the
obligation, are the issues in this Petition for Review of the Decision of respondent Court of Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to
be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the amount of
Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30 September
1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc.
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the
checks. The checks, however, could no longer be retrieved as they had already been negotiated.
Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20
December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that
it be paid in cash instead, although MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and
expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry
was never sold and the checks were negotiated without her knowledge and consent. She also
instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility
for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and
ordered STATE to pay MOULIC P3,000.00 for attorney's fees.

STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the
trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period
prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on
MOULIC within the reglementary period it would be of no consequence as the checks should never
have been presented for payment. The sale of the jewelry was never effected; the checks, therefore,
ceased to serve their purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the
pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the checks in
due course. 1
In this regard, Sec. 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 was 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.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course. 2 Consequently, the burden of proving that STATE is not a holder in
due course lies in the person who disputes the presumption. In this regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due
dates; 3 (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d)
petitioner was never informed nor made aware that these checks were merely issued to payee as security
and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from
any defect of title of prior parties, and from defenses available to prior parties among themselves;
STATE may, therefore, enforce full payment of the checks. 4
MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for
which they were issued and therefore is not a holder in due course.
That the post-dated checks were merely issued as security is not a ground for the discharge of the
instrument as against a holder in due course. For the only grounds are those outlined in Sec. 119 of
the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a)

By payment in due course by or on behalf of the principal debtor; (b) By payment in
due course by the party accommodated, where the instrument is made or accepted
for his accommodation; (c) By the intentional cancellation thereof by the holder; (d)
By any other act which will discharge a simple contract for the payment of money; (e)
When the principal debtor becomes the holder of the instrument at or after maturity in
his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of
the instrument. But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up, 5 burning it, 6 or writing the
word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder
of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the
intentional cancellation of the said checks is altogether impossible.
On the other hand, the acts which will discharge a simple contract for the payment of money under
paragraph (d) are determined by other existing legislations since Sec. 119 does not specify what
these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the modes of extinguishing
obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor.
In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the
jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The
need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable
Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice of dishonor is not
required to be given to the drawer in the following cases: (a) Where the drawer and
the drawee are the same person; (b) When the drawee is a fictitious person or a
person not having capacity to contract; (c) When the drawer is the person to whom
the instrument is presented for payment: (d) Where the drawer has no right to expect
or require that the drawee or acceptor will honor the instrument; (e) Where the
drawer had countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she
returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to
another to protect herself. After withdrawing her funds, she could not have expected her checks to
be honored. In other words, she was responsible for the dishonor of her checks, hence, there was
no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon
proper proceedings taken, has not been accepted or has not been paid, and that the party notified is
expected to pay it. 8

In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering
or hampering transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single
case. 9
The drawing and negotiation of a check have certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated
paper makes a contract with the parties on the face of the instrument. There is an implied
representation that funds or credit are available for the payment of the instrument in the bank upon
which it is drawn. 10 Consequently, the withdrawal of the money from the drawee bank to avoid liability on
the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal
renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks, 11 so that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust
enrichment on the part of STATE Investment House, Inc. This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of
Corazon Victoriano and her husband at the time their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1
million. 12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from the debtor. 13 The step thus taken by
the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the
sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for
the whole debt. 14 For, while Act 3135, as amended, does not discuss the mortgagee's right to recover
such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this
jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency
resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the
deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold
on installment basis, in the event of foreclosure, the vendor "shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be void". 16
It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be
concluded that the creditor loses his right recognized by the Rules of Court to take action for the
recovery of any unpaid balance on the principal obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him
by the mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC
and the VICTORIANO spouses, respectively, is just another means of recovering the unpaid balance
of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due
course, STATE, without prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new
one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE
INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the total
amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any
action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.
Costs against private respondent.

G.R. Nos. L-25836-37 January 31, 1981

JOSE M. ARUEGO, defendant-appellant.

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First
Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default, 1and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant were
docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are involved.

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil
Case No. 42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon
from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days
or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs. 6 The
complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering the
period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered represents the cost of
the printing of "World Current Events," a periodical published by the defendant. To facilitate the payment
of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of

the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an
added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the
plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to
turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all
obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On
December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the hearing
on December 16, 1959. 10 At the hearing, the court denied defendant's motion for extension. Whereupon,
the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground that the
complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for acceptance,
the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo
Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an
accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the
event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by
the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon
the motion for reconsideration filed by the plaintiff, the trial court set aside its order dismissing the
complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order
setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00 o'clock in
the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the ground
that there having been no answer as yet, the issues had not yet been joined. 15 On the same date, the
defendant filed his answer to the complaint interposing the following defenses: That he signed the
document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the
ground that the defendant should have filed his answer on March 11, 1960. He contends that by
filing his answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court
declared the defendant in default. 18 The defendant learned of the order declaring him in default on March
21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in the
afternoon, it could not have been reasonably expected of the defendant to file his answer on the last day
of the reglementary period, March 11, 1960, within office hours, especially because the order of the court
dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960.
The defendant also alleged that he has a good and substantial defense. Attached to the motion are the
affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960

on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that he has a
good and substantial defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20 On
May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of
P35,444.35 representing the total amount of his obligation to the said plaintiff under the twenty-two (22)
causes of action alleged in the complaint as of November 15, 1957 and the sum of P10,000.00 as
attorney's fees. 21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying
his motion to set aside the order declaring him in default, an appeal bond in the amount of P60.00,
and his record on appeal. The plaintiff filed his opposition to the approval of defendant's record on
appeal on May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendant's
appeal from the order dated March 25, 1960 denying his motion to set aside the order of
default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its
previous order dismissing the appeal and approved the defendant's record on appeal. 25 On May 30,
1960, the defendant received a copy of a notice from the Clerk of Court dated May 26, 1960, informing
the defendant that the record on appeal filed ed by the defendant was forwarded to the Clerk of Court of
Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the order
of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the defendant's
motion to set aside the judgment by default in an order of June 11, 1960. 29 On June 20, 1960, the
defendant filed his notice of appeal from the order of the court denying his motion to set aside the
judgment by default, his appeal bond, and his record on appeal. The defendant's record on appeal was
approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the Court of
Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order of default
docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside the
judgment by default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:


It has been held that to entitle a party to relief from a judgment taken against him through his
mistake, inadvertence, surprise or excusable neglect, he must show to the court that he has a
meritorious defense. 32 In other words, in order to set aside the order of default, the defendant must not
only show that his failure to answer was due to fraud, accident, mistake or excusable negligence but also
that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a
motion to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on
January 23, 1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon
the motion for reconsideration, the trial court issued an order setting aside the order of dismissal;
that a copy of the order was received by the defendant on March 11, 1960 at 5:00 o'clock in the
afternoon as shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The
order setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It
was therefore impossible for him to have filed his answer on that same day because the courts then
held office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his
answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable
negligence, he has failed to show that he has a meritorious defense. The defendant does not have a
good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a
representative capacity, as the then President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal," printed by Encal Press and PhotoEngraving, drawer of the said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or
additional party obligor, to add to the security of said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of the face value is advanced to the drawer only
upon acceptance of the same by the drawee, in the case in question, payment for the supposed bills
of exchange were made before acceptance; so that in effect, although these documents are labelled
bills of exchange, legally they are not bills of exchange but mere instruments evidencing
indebtedness of the drawee who received the face value thereof, with the defendant as only
additional security of the same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of
the Philippine Education Foundation Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a person adds to his signature
words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not
liable on the instrument if he was duly authorized; but the mere addition of words describing him as
an agent or as filing a representative character, without disclosing his principal, does not exempt him
from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he
was signing as a representative of the Philippine Education Foundation Company. 34 He merely
signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as such,
should be made liable only after a showing that the drawer is incapable of paying. This contention is
also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking
of the instrument knew him to be only an accommodation party. 35 In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to
enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should
not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the
The defendant also contends that the drafts signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments were made before acceptance. This is also
without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writting addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer. 36 As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will
result in a new trial which will serve no purpose and will just waste the time of the courts as well as
of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of
Manila denying the petition for relief from the judgment rendered in said case is hereby affirmed,
without pronouncement as to costs.


[G.R. No. 125059. March 17, 2000]

FRANCISCO T. SYCIP, JR., petitioner, vs. COURT OF
For review on certiorari is the decision of the Court of Appeals, dated February
29, 1996, in CA-G.R. CR No. 15993, which affirmed the judgment of the
Regional Trial Court of Quezon City, Branch 95, in Criminal Cases Nos. Q-9125910 to 15, finding petitioner guilty beyond reasonable doubt of violating B.P.
Blg. 22, the Bouncing Checks Law.
The facts in this case, as culled from the records, are as follows:
On August 24, 1989, Francisco T. Sycip agreed to buy, on installment, from
Francel Realty Corporation (FRC), a townhouse unit in the latter's project at
Bacoor, Cavite.
Upon execution of the contract to sell, Sycip, as required, issued to FRC,
forty-eight (48) postdated checks, each in the amount of P9,304.00, covering
48 monthly installments.
After moving in his unit, Sycip complained to FRC regarding defects in the unit
and incomplete features of the townhouse project. FRC ignored the complaint.
Dissatisfied, Sycip served on FRC two (2) notarial notices to the effect that he
was suspending his installment payments on the unit pending compliance with
the project plans and specifications, as approved by the Housing and Land
Use Regulatory Board (HLURB). Sycip and 12 out of 14 unit buyers then filed
a complaint with the HLURB. The complaint was dismissed as to the defects,
but FRC was ordered by the HLURB to finish all incomplete features of its
townhouse project. Sycip appealed the dismissal of the complaint as to the
alleged defects.

Notwithstanding the notarial notices, FRC continued to present for

encashment Sycip's postdated checks in its possession. Sycip sent "stop
payment orders" to the bank. When FRC continued to present the other
postdated checks to the bank as the due date fell, the bank advised Sycip to
close his checking account to avoid paying bank charges every time he made
a "stop payment" order on the forthcoming checks. Due to the closure of
petitioner's checking account, the drawee bank dishonored six postdated
checks. FRC filed a complaint against petitioner for violations of B.P. Blg. 22
involving said dishonored checks.
On November 8, 1991, the Quezon City Prosecutor's Office filed with the RTC
of Quezon City six Informations docketed as Criminal Cases No. Q-91-25910
to Q-91-25915, charging petitioner for violation of B.P. Blg. 22.
The accusative portion of the Information in Criminal Case No. Q-91-25910
"That on or about the 30th day of October 1990 in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the
said accused, did then and there, willfully, unlawfully and
feloniously make, draw and issue in favor of Francel Realty
Corporation a check 813514 drawn against Citibank, a duly
established domestic banking institution in the amount of
P9,304.00 Philippine Currency dated/postdated October 30, 1990
in payment of an obligation, knowing fully well at the time of issue
that she/he did not have any funds in the drawee bank of (sic) the
payment of such check; that upon presentation of said check to
said bank for payment, the same was dishonored for the reason
that the drawer thereof, accused Francisco T. Sycip, Jr. did not
have any funds therein, and despite notice of dishonor thereof,
accused failed and refused and still fails and refused (sic) to
redeem or make good said check, to the damage and prejudice of
the said Francel Realty Corporation in the amount aforementioned
and in such other amount as may be awarded under the
provisions of the Civil Code.


Criminal Cases No. Q-91-25911 to Q-91-25915, with Informations similarly

worded as in Criminal Case No. Q-91-25910, except for the dates, and check
numbers were consolidated and jointly tried.

When arraigned, petitioner pleaded "Not Guilty" to each of the charges. Trial
then proceeded.
The prosecution's case, as summarized by the trial court and adopted by the
appellate court, is as follows:
"The prosecution evidence established that on or about August
24, 1989, at the office of the private complainant Francel Realty
Corporation (a private domestic corporation engaged in the real
estate business) at 822 Quezon Avenue, QC, accused Francisco
Sycip, Jr. drew, issued, and delivered to private complainant
Francel Realty Corporation (FRC hereinafter) six checks (among
a number of other checks), each for P9,304.00 and drawn pay to
the order of FRC and against Francisco's account no. 845515 with
Citibank, to wit: Check No. 813514 dated October 30, 1990 (Exh.
C), Check No. 813515 dated November 30, 1990 (Exh. D), Check
No. 813518 dated February 28,1991 (Exh. E), Check No. 813516
dated December 30, 1990 (Exh. F), Check No. 813517 dated
January 30, 1991 (Exh. G) and Check No. 813519 dated March
30, 1991 (Exh. H), as and in partial payment of the unpaid
balance of the purchase price of the house and lot subject of the
written contract executed and entered into by and between FRC
as seller and Francisco as buyer on said date of August 24, 1989
(Exh. B, also Exh. 1). The total stipulated purchase price for the
house and lot was P451,700.00, of which Francisco paid FRC in
the sum of P135,000.00 as down payment, with Francisco
agreeing and committing himself to pay the balance of
P316,000.00 in 48 equal monthly installments of P9,304.00 (which
sum already includes interest on successive monthly balance)
effective September 30, 1989 and on the 30th day of each month
thereafter until the stipulated purchase price is paid in full. The
said six Citibank checks, Exhs. C thru H, as earlier indicated were
drawn, issued, and delivered by Francisco in favor of FRC as and

in partial payment of the said 48 equal monthly installments under

their said contract (Exh. B, also Exh. 1). Sometime in September
1989, the Building Official's certificate of occupancy for the subject
house -a residential townhouse -was issued (Exh. N) and
Francisco took possession and started in the use and occupancy
of the subject house and lot.
"When the subject six checks, Exhs. C thru H, were presented to
the Citibank for payment on their respective due dates, they were
all returned to FRC dishonored and unpaid for the reason:
account closed as indicated in the drawee bank's stamped
notations on the face and back of each check; in fact, as indicated
in the corresponding record of Francisco's account no. 815515
with Citibank, said account already had a zero balance as early as
September 14, 1990 (Exh. 1-5). Notwithstanding the fact that
FRC, first thru its executive vice president and project manager
and thereafter thru its counsel, had notified Francisco, orally and
in writing, of the checks' dishonor and demanded from him the
payment of the amount thereof, still Francisco did not payor make
good any of the checks (Exhs. I thru K)..."

The case for the defense, as summarized also by the trial court and adopted
by the Court of Appeals, is as follows:
"The defense evidence in sum is to the effect that after taking
possession and starting in the use and occupancy of the subject
townhouse unit, Francisco became aware of its various
construction defects; that he called the attention of FRC, thru its
project manager, requesting that appropriate measures be
forthwith instituted, but despite his several requests, FRC did not
acknowledge, much less attend to them; that Francisco thus
mailed to FRC a verified letter dated June 6, 1990 (Exh. 2) in sum
giving notice that effective June 1990, he will cease and desist
'from paying my monthly amortization of NINE THOUSAND
THREE HUNDRED FOUR (P9,304.00) PESOS towards the
settlement of my obligation concerning my purchase of Unit No.
14 of FRC Townhomes referred to above, unless and until your

Office satisfactorily complete(s) the construction, renovation

and/or repair of my townhouses (sic) unit referred to above and
that should FRC 'persist in ignoring my aforesaid requests, I shall,
after five (5) days from your receipt of this Verified Notice,
forthwith petition the [HLURB] for Declaratory Relief and
Consignation to grant me provisional relief from my obligation to
pay my monthly amortization to your good Office and allow me to
deposit said amortizations with [HLURB] pending your completion
of FRC Townhomes Unit in question'; that Francisco thru counsel
wrote FRC, its president, and its counsel notices/letters in sum to
the effect that Francisco and all other complainants in the
[HLURB] case against FRC shall cease and desist from paying
their monthly amortizations unless and until FRC satisfactorily
completes the construction of their units in accordance with the
plans and specifications thereof as approved by the [HLURB] and
as warranted by the FRC in their contracts and that the dishonor
of the subject checks was a natural consequence of such
suspension of payments, and also advising FRC not to encash or
deposit all other postdated checks issued by Francisco and the
other complainants and still in FRC's possession (Exhs. 3 thru 5);
that Francisco and the other complainants filed the [HLURB] case
against FRC and later on a decision was handed down therein
and the same is pending appeal with the Board (Exhs. 6, 7, & 12
thru 17, also Exh. 8); that as of the time of presentation of the
subject checks for payment by the drawee bank, Francisco had at
least P150,000.00 cash or credit with Citibank (Exhs. 10 & 11)
and, that Francisco closed his account no. 845515 with Citibank
conformably with the bank's customer service officer's advice to
close his said account instead of making a stop-payment order for
each of his more than 30 post-dated checks still in FRC's
possession at the time, so as to avoid the P600.00-penalty
imposed by the bank for every check subject of a stop-payment

On March 11, 1994, the trial court found petitioner guilty of violating Section 1
of B.P. Blg. 22 in each of the six cases, disposing as follows:

"WHEREFORE, in each of Crim. Cases Nos. Q-91-25910, Q-9125911, Q-91-25912, Q-91-25913, Q-91-25914 and Q-91-25915,
the Court finds accused Francisco T. Sycip, Jr. guilty beyond
reasonable doubt of a violation of Sec. 1 of Batas Pambansa Blg.
22 and, accordingly, he is hereby sentenced in and for each case
to suffer imprisonment of thirty (30) days and pay the costs.
Further, the accused is hereby ordered to pay the offended party,
Francel Realty Corporation, as and for actual damages, the total
sum of fifty-five thousand eight hundred twenty four pesos
(P55,824.00) with interest thereon at the legal rate from date of
commencement of these actions, that is, November 8, 1991, until
full payment thereof.


Dissatisfied, Sycip appealed the decision to the Court of Appeals. His appeal
was docketed as CA-G.R. CR No. 15993. But on February 29, 1996, the
appellate court ruled:
"On the basis of the submission of the People, We find and so
hold that appellant has no basis to rely on the provision of PD 957
to justify the non-payment of his obligation, the closure of his
checking account and the notices sent by him to private
complainant that he will stop paying his monthly amortizations."

Petitioner filed a motion for reconsideration on March 18, 1996, but it was
denied per Resolution dated April 22, 1996.
Hence, the instant petition anchored on the following assignment of errors:


The principal issue before us is whether or not the Court of Appeals erred in
affirming the conviction of petitioner for violation of the Bouncing Checks Law.
Petitioner argues that the court a quo erred when it affirmed his conviction for
violation of B.P. Blg. 22, considering that he had cause to stop payment of the
checks issued to respondent. Petitioner insists that under P.D. No. 957, the
buyer of a townhouse unit has the right to suspend his amortization payments,
should the subdivision or condominium developer fail to develop or complete
the project in accordance with duly-approved plans and specifications. Given
the findings of the HLURB that certain aspects of private complainant's
townhouse project were incomplete and undeveloped, the exercise of his right
to suspend payments should not render him liable under B.P. Blg. 22.
The Solicitor General argues that since what petitioner was charged with were
violations of B.P. Blg. 22, the intent and circumstances surrounding the
issuance of a worthless check are immaterial. The gravamen of the offense

charged is the act itself of making and issuing a worthless check or one that is
dishonored upon its presentment for payment. Mere issuing of a bad check
is malum prohibitum, pernicious and inimical to public welfare. In his view,
P.D. No. 957 does not provide petitioner a sufficient defense against the
charges against him.
Under the provisions of the Bouncing Checks Law (B.P. No. 22), an offense is
committed when the following elements are present:

(1) the making, drawing and issuance of any check to apply for
account or for value;
(2) the knowledge of the maker, drawer, or issuer that at the time
of issue he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its
presentment; and
(3) the subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to
stop payment.

In this case, we find that although the first element of the offense exists, the
other elements have not been established beyond reasonable doubt.
To begin with, the second element involves knowledge on the part of the
issuer at the time of the check's issuance that he did not have enough
funds or credit in the bank for payment thereof upon its presentment. B.P.
No. 22 creates a presumption juris tantum that the second element prima
facie exists when the first and third elements of the offense are present. But
such evidence may be rebutted. If not rebutted or contradicted, it will suffice to
sustain a judgment in favor of the issue, which it supports. As pointed out by
the Solicitor General, such knowledge of the insufficiency of petitioner's funds
"is legally presumed from the dishonor of his checks for insufficiency of
funds." But such presumption cannot hold if there is evidence to the contrary.
In this case, we find that the other party has presented evidence to contradict
said presumption. Hence, the prosecution is duty bound to prove every



element of the offense charged, and not merely rely on a rebuttable

Admittedly, what are involved here are postdated checks. Postdating simply
means that on the date indicated on its face, the check would be properly
funded, not that the checks should be deemed as issued only then. The
checks in this case were issued at the time of the signing of the Contract to
Sell in August 1989. But we find from the records no showing that the time
said checks were issued, petitioner had knowledge that his deposit or credit in
the bank would be insufficient to cover them when presented for encashment.
On the contrary, there is testimony by petitioner that at the time of
presentation of the checks, he had P150,000.00 cash or credit with Citibank.


As the evidence for the defense showed, the closure of petitioner's Account
No. 845515 with Citibank was not for insufficiency of funds. It was made upon
the advice of the drawee bank, to avoid payment of hefty bank charges each
time petitioner issued a "stop payment" order to prevent encashment of
postdated checks in private respondent's possession. Said evidence
contradicts the prima facie presumption of knowledge of insufficiency of funds.
But it establishes petitioner's state of mind at the time said checks were
issued on August 24, 1989. Petitioner definitely had no knowledge that his
funds or credit would be insufficient when the checks would be presented for
encashment. He could not have foreseen that he would be advised by his own
bank in the future, to close his account to avoid paying the hefty banks
charges that came with each "stop payment" order issued to prevent private
respondent from encashing the 30 or so checks in its possession. What the
prosecution has established is the closure of petitioner's checking account.
But this does not suffice to prove the second element of the offense under
B.P. Blg. 22, which explicitly requires "evidence of knowledge of insufficient
funds" by the accused at the time the check or checks are presented for

To rely on the presumption created by B.P. No. 22 as the prosecution did in

this case, would be to misconstrue the import of requirements for conviction
under the law. It must be stressed that every element of the offense must be
proved beyond reasonable doubt, never presumed. Furthermore, penal
statutes are strictly construed against the State and liberally in favor of the

accused. Under the Bouncing Checks Law, the punishable act must come
clearly within both the spirit and letter of the statute.

While B.P. Blg. 22 was enacted to safeguard the interest of the banking
system, it is difficult to see how conviction of the accused in this case will
protect the sanctity of the financial system. Moreover, protection must also be
afforded the interest of townhouse buyers under P.D. No. 957. A statute must
be construed in relation to other laws so as to carry out the legitimate ends
and purposes intended by the legislature. Courts will not strictly follow the
letter of one statute when it leads away from the true intent of legislature and
when ends are inconsistent with the general purpose of the act. More so,
when it will mean the contravention of another valid statute. Both laws have to
be reconciled and given due effect.




Note that we have upheld a buyer's reliance on Section 23 of P.D. 957 to

suspend payments until such time as the owner or developer had fulfilled its
obligations to the buyer. This exercise of a statutory right to suspend
installment payments, is to our mind, a valid defense against the purported
violations of B.P. Blg. 22 that petitioner is charged with.

Given the findings of the HLURB as to incomplete features in the construction

of petitioner's and other units of the subject condominium bought on
installment from FRC, we are of the view that petitioner had a valid cause to
order his bank to stop payment. To say the least, the third element of
"subsequent dishonor of the check... without valid cause" appears to us not
established by the prosecution. As already stated, the prosecution tried to
establish the crime on a prima facie presumption in B.P. Blg. 22. Here that
presumption is unavailing, in the presence of a valid cause to stop payment,
thereby negating the third element of the crime.
Offenses punished by a special law, like the Bouncing Checks Law, are not
subject to the Revised Penal Code, but the Code is supplementary to such a
law. We find nothing in the text of B.P. Blg. 22, which would prevent the
Revised Penal Code from supplementing it. Following Article 11 (5) of the
Revised Penal Code, petitioner's exercise of a right of the buyer under Article
23 of P.D. No. 957 is a valid defense to the charges against him.


WHEREFORE, the instant petition is GRANTED. Petitioner Francisco T.

Sycip, Jr., is ACQUITTED of the charges against him under Batas Pambansa
Blg. 22, for lack of sufficient evidence to prove the offenses charged beyond
reasonable doubt. No pronouncement as to costs.

[G.R. No. 120639. September 25, 1998]






The question before this Court is whether private respondent can recover moral damages
arising from the cancellation of his credit card by petitioner credit card corporation.
The facts of the case are as stated in the decision of the respondent court,[1] to wit:

The case arose from the dishonor of the credit card of the plaintiff Atty.
Ricardo J. Marasigan by Cafe Adriatico, a business establishment accredited
with the defendant-appellant BPI Express Card Corporation (BECC for
brevity) on December 8, 1989 when the plaintiff entertained some guests
The records of this case show that plaintiff, who is a lawyer by profession was
a complimentary member of BECC from February 1988 to February 1989 and
was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and
with a monthly billing every 27th of the month (Exh. N), subject to the terms
and conditions stipulated in the contract (Exh. 1-b). His membership was
renewed for another year or until February 1990 and the credit limit was
increased to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his credit
limits (Exhs. I, I-1 to I-12) but this was never taken against him by the
defendant and even his mode of paying his monthly bills in check was
tolerated. Their contractual relations went on smoothly until his statement of

account for October, 1989 amounting to P8,987.84 was not paid in due
time. The plaintiff admitted having inadvertently failed to pay his account for
the said month because he was in Quezon province attending to some
professional and personal commitments. He was informed by his secretary
that defendant was demanding immediate payment of his outstanding account,
was requiring him to issue a check for P15,000.00 which would include his
future bills, and was threatening to suspend his credit card. Plaintiff issued Far
East Bank and Trust Co. Check No. 494675 in the amount of P15,000.00,
postdated December 15, 1989 which was received on November 23, 1989 by
Tess Lorenzo, an employee of the defendant (Exhs. J and J-1), who in turn
gave the said check to Jeng Angeles, a co-employee who handles the account
of the plaintiff. The check remained in the custody of Jeng Angeles. Mr.
Roberto Maniquiz, head of the collection department of defendant was
formally informed of the postdated check about a week later. On November
28, 1989, defendant served plaintiff a letter by ordinary mail informing him of
the temporary suspension of the privileges of his credit card and the inclusion
of his account number in their Caution List. He was also told to refrain from
further use of his credit card to avoid any inconvenience/embarrassment and
that unless he settles his outstanding account with the defendant within 5 days
from receipt of the letter, his membership will be permanently cancelled (Exh.
3). There is no showing that the plaintiff received this letter before December
8, 1989. Confident that he had settled his account with the issuance of the
postdated check, plaintiff invited some guests on December 8, 1989 and
entertained them at Caf Adriatico. When he presented his credit card to Caf
Adriatico for the bill amounting to P735.32, said card was dishonored. One of
his guests, Mary Ellen Ringler, paid the bill by using her own credit card, a
Unibankard (Exhs. M, M-1 and M-2).
In a letter addressed to the defendant dated December 12, 1989, plaintiff
requested that he be sent the exact billing due him as of December 15, 1989, to
withhold the deposit of his postdated check and that said check be returned to
him because he had already instructed his bank to stop the payment thereof as
the defendant violated their agreement that the plaintiff issue the check to the
defendant to cover his account amounting to only P8,987.84 on the condition
that the defendant will not suspend the effectivity of the card (Exh. D). A
letter dated December 16, 1989 was sent by the plaintiff to the manager of

FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of
the check (Exhs. E, E-1). No reply was received by plaintiff from the
defendant to his letter dated December 12, 1989. Plaintiff sent defendant
another letter dated March 12, 1990 reminding the latter that he had long
rescinded and cancelled whatever arrangement he entered into with defendant
and requesting for his correct billing, less the improper charges and penalties,
and for an explanation within five (5) days from receipt thereof why his card
was dishonored on December 8, 1989 despite assurance to the contrary by
defendant's personnel-in-charge, otherwise the necessary court action shall be
filed to hold defendant responsible for the humiliation and embarrassment
suffered by him (Exh. F). Plaintiff alleged further that after a few days, a
certain Atty. Albano, representing himself to be working with office of Atty.
Lopez, called him inquiring as to how the matter can be threshed out
extrajudicially but the latter said that such is a serious matter which cannot be
discussed over the phone. The defendant served its final demand to the
plaintiff dated March 21, 1990 requiring him to pay in full his overdue
account, including stipulated fees and charges, within 5 days from receipt
thereof or face court action also to replace the postdated check with cash
within the same period or face criminal suit for violation of the Bouncing
Check Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April 5,
1990 (Exh. H), demanded defendant's compliance with his request in his first
letter dated March 12, 1990 within three (3) days from receipt, otherwise the
plaintiff will file a case against them, x x x. [2]
Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner
before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.
After trial, the trial court ruled for private respondent, finding that herein petitioner abused
its right in contravention of Article 19 of the Civil Code. [3] The dispositive portion of the decision

Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff

the following:
1. P100,000.00 as moral damages;
2. P50,000.00 as exemplary damages; and

3. P20,000.00 by way of attorney's fees.

On the other hand, plaintiff is ordered to pay defendant its outstanding
obligation in the amount of P14,439.41, amount due as of December 15, 1989.

The trial court's ruling was based on its findings and conclusions, to wit:

There is no question that plaintiff had been in default in the payment of his
billings for more than two months, prompting defendant to call him and
reminded him of his obligation. Unable to personally talk with him, this Court
is convinced that somehow one or another employee of defendant called him
up more than once.
However, while it is true that, as indicated in the terms and conditions of the
application for BPI credit card, upon failure of the cardholder to pay his
outstanding obligation for more than thirty (30) days, the defendant can
automatically suspend or cancel the credit card, that reserved right should not
have been abused, as it was in fact abused, in plaintiff's case. What is more
peculiar here is that there have been admitted communications between
plaintiff and defendant prior to the suspension or cancellation of plaintiff's
credit card and his inclusion in the caution list. However, nowhere in any of
these communications was there ever a hint given to plaintiff that his card had
already been suspended or cancelled. In fact, the Court observed that while
defendant was trying its best to persuade plaintiff to update its account and pay
its obligation, it had already taken steps to suspend/cancel plaintiff's card and
include him in the caution list. While the Court admires defendant's
diplomacy in dealing with its clients, it cannot help but frown upon the
backhanded way defendant dealt with plaintiff's case. For despite Tess
Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by
defendant of the continued honoring of his credit card so long as he pays his
obligation of P15,000.00. Worst, upon receipt of the postdated check,
defendant kept the same until a few days before it became due and said check
was presented to the head of the collection department, Mr. Maniquiz, to take
steps thereon, resulting to the embarrassing situation plaintiff found himself in
on December 8, 1989. Moreover, Mr. Maniquiz himself admitted that his

request for plaintiff to replace the check with cash was not because it was a
postdated check but merely to tally the payment with the account due.
Likewise, the Court is not persuaded by the sweeping denials made by Tess
Lorenzo and her claim that her only participation was to receive the subject
check. Her immediate superior, Mr. Maniquiz testified that he had instructed
Lorenzo to communicate with plaintiff once or twice to request the latter to
replace the questioned check with cash, thus giving support to the testimony of
plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo who she had
talked over the phone regarding plaintiff's account and plaintiff's own
statement that it was this woman who assured him that his card has not yet
been and will not be cancelled/suspended if he would pay defendant the sum
Now, on the issue of whether or not upon receipt of the subject check,
defendant had agreed that the card shall remain effective, the Court takes note
of the following:
1. An employee of defendant corporation unconditionally accepted the subject check
upon its delivery, despite its being a postdated one; and the amount did not tally with
plaintiff's obligation;
2. Defendant did not deny nor controvert plaintiff's claim that all his payments were
made in checks;
3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for
plaintiff to replace his postdated check with cash was merely for the purpose of
tallying plaintiff's outstanding obligation with his payment and not to question the
postdated check;
4. That the card was suspended almost a week after receipt of the postdated check;
5. That despite the many instances that defendant could have informed plaintiff over
the phone of the cancellation or suspension of his credit card, it did not do so, which
could have prevented the incident of December 8, 1989, the notice allegedly sent thru
ordinary mail is not only unreliable but takes a long time. Such action as suspension
of credit card must be immediately relayed to the person affected so as to avoid
embarrassing situations.

6. And that the postdated check was deposited on December 20, 1989.
In view of the foregoing observations, it is needless to say that there was
indeed an arrangement between plaintiff and the defendant, as can be inferred
from the acts of the defendant's employees, that the subject credit card is still
good and could still be used by the plaintiff as it would be honored by the duly
accredited establishment of defendant. [5]
Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of
Appeals, which, in a decision promulgated on March 9, 1995 ruled in its dispositive portion:

WHEREFORE, premises considered, the decision appealed from is hereby

AFFIRMED with the MODIFICATION that the defendant-appellant shall pay
the plaintiff-appellee the following: P50,000.00 as moral
damages; P25,000.00 as exemplary damages; and P10,000.00 by way of
attorney's fees.
Hence, the present petition on the following assignment of errors:




We find the petition meritorious.

The first issue to be resolved is whether petitioner had the right to suspend the credit card of
the private respondent.
Under the terms and conditions of the credit card, signed by the private respondent, any card
with outstanding balances after thirty (30) days from original billing/statement shall
automatically be suspended, thus:

PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly

statement of account made through the use of the CARD and the Cardholder
agrees that all charges made through the use of the CARD shall be paid by the
Cardholder on or before the last day for payments, which is twenty (20) days
from the date of the said statement of account, and such payment due date
may be changed to an earlier date if the Cardholder's account is considered
overdue and/or with balances in excess of the approved credit limit; or to such
other date as may be deemed proper by the CARD issuer with notice to the
Cardholder on the same monthly statement of account. If the last day for
payment falls on a Saturday, Sunday or Holiday, the last day for payment
automatically becomes the last working day prior to said payment
date. However, notwithstanding the absence or lack of proof of service of the
statement of charges to the Cardholder, the latter shall pay any or all charges
made through the use of the CARD within thirty (30) days from the date or
dates thereof. Failure of Cardholder to pay any and all charges made through
the CARD within the payment period as stated in the statement of charges or
within thirty (30) days from actual date or dates whichever occur earlier, shall
render him in default without the necessity of demand from BECC, which the
Cardholder expressly waives. These charges or balance thereof remaining
unpaid after the payment due date indicated on the monthly statement of
account shall bear interest at the rate of 3% per month and an additional
penalty fee equivalent to another 3% of the amount due for every month or a
fraction of a month's delay. PROVIDED, that if there occurs any change on
the prevailing market rates. BECC shall have the option to adjust the rate of
interest and/or penalty fee due on the outstanding obligation with prior notice
to the Cardholder.



Any CARD with outstanding balances unpaid after thirty (30) days from
original billing/statement date shall automatically be suspended, and those

with accounts unpaid after sixty (60) days from said original billing/statement
date shall automatically be cancelled, without prejudice to BECC's right to
suspend or cancel any CARD any time and for whatever reason. In case of
default in his obligation as provided for in the preceding paragraph,
Cardholder shall surrender his CARD to BECC and shall in addition to the
interest and penalty charges aforementioned, pay the following liquidated
damages and/or fees (a) a collection fee of 25% of the amount due if the
account is referred to a collection agency or attorney; (b) a service fee of P100
for every dishonored check issued by the Cardholder in payment of his
account, with prejudice, however, to BECC's right of considering Cardholder's
obligation unpaid, cable cost for demanding payment or advising cancellation
of membership shall also be for Cardholder's account; and (c) a final fee
equivalent to 25% of the unpaid balance, exclusive of litigation expenses and
judicial costs, if the payment of the account is enforced through court action. [8]
The aforequoted provision of the credit card cannot be any clearer. By his own admission,
private respondent made no payment within thirty days for his original billing/statement dated 27
September 1989. Neither did he make payment for his original billing/statement dated 27
October 1989. Consequently, as early as 28 October 1989, thirty days from the non-payment of
his billing dated 27 September 1989, petitioner corporation could automatically suspend his
credit card.
The next issue is whether prior to the suspension of private respondent's credit card on 28
November 1989, the parties entered into an agreement whereby the card could still be used and
would be duly honored by duly accredited establisments.
We agree with the findings of the respondent court, that there was an arrangement between
the parties, wherein the petitioner required the private respondent to issue a check worth P15,000
as payment for the latter's billings. However, we find that the private respondent was not able to
comply with his obligation.
As the testimony of private respondent himself bears out, the agreement was for the
immediate payment of the outstanding account:

In said statement of account that you are supposed to pay the P8,974.84 the charge of interest and
penalties, did you note that?

Yes, sir. I noted the date.


When I returned from the Quezon province, sir.


I think November 22, sir.

So that before you used again the credit card you were not able to pay immediately this P8,987.84
in cash?

I paid P15,000.00, sir.

My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties
immediately in cash?

In cash no, but in check, sir.

You said that you noted the word "immediately" in bold letters in your statement of account, why
did you not pay immediately?

Because I received that late, sir.

Yes, on November 22 when you received from the secretary of the defendant telling you to pay the
principal amount of P8,987.84, why did you not pay?

There was a communication between me and the defendant, I was required to pay P8,000.00 but I
paid in check for P15,000.00, sir.

Do you have any evidence to show that the defendant required you to pay in check
for P15,000.00?

Yes, sir.

Where is it?

It was by telecommunication, sir.

So there is no written communication between you and the defendant?

There was none, sir.

There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check,
there is none?

Yes, no written agreement, sir.

And you as a lawyer you know that a check is not considered as cash specially when it is
postdated sent to the defendant?

That is correct, sir.

Clearly, the purpose of the arrangement between the parties on November 22, 1989, was for
the immediate payment of the private respondent's outstanding account, in order that his credit
card would not be suspended.
As agreed upon by the parties, on the following day, private respondent did issue a check
for P15,000. However, the check was postdated 15 December 1989. Settled is the doctrine that
a check is only a substitute for money and not money, the delivery of such an instrument does
not, by itself operate as payment.[9] This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective
payment. It did not comply with his obligation under the arrangement with Miss
Lorenzo. Petitioner corporation was therefore justified in suspending his credit card.
Finally, we find no legal and factual basis for private respondent's assertion that in canceling
the credit card of the private respondent, petitioner abused its right under the terms and
conditions of the contract.
To find the existence of an abuse of right under Article 19 the following elements must be
present: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole
intent of prejudicing or injuring another.[10]
Time and again this Court has held that good faith is presumed and the burden of proving
bad faith is on the party alleging it. [11] This private respondent failed to do. In fact, the action of
the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could
have suspended private respondent's card outright. Instead, petitioner allowed private respondent
to use his card for several weeks. Petitioner had even notified private respondent of the
impending suspension of his credit card and made special accommodations for him for settling
his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily
canceled the private respondent's credit card.
We do not dispute the findings of the lower court that private respondent suffered damages
as a result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those instances in which
the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences
must be borne by the injured person alone, the law affords no remedy for damages resulting from

an act which does not amount to a legal injury or wrong. These situations are often
called damnum absque injuria.[12]
In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility
by the person causing it. The underlying basis for the award of tort damages is the premise that
an individual was injured in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages may be awarded; [13] and the
breach of such duty should be the proximate cause of the injury.
We therefore disagree with the ruling of the respondent court that the dishonor of the credit
card of the private respondent by Caf Adriatico is attributable to petitioner for its willful or
gross neglect to inform the private respondent of the suspension of his credit card, the
unfortunate consequence of which brought social humiliation and embarrassment to the private
It was petitioner's failure to settle his obligation which caused the suspension of his credit
card and subsequent dishonor at Caf Adriatico. He can not now pass the blame to the petitioner
for not notifying him of the suspension of his card. As quoted earlier, the application contained
the stipulation that the petitioner could automatically suspend a card whose billing has not been
paid for more than thirty days. Nowhere is it stated in the terms and conditions of the application
that there is a need of notice before suspension may be effected as private respondent claims.[15]
This notwithstanding, on November 28, 1989, the day of the suspension of private
respondent's card, petitioner sent a letter by ordinary mail notifying private respondent that his
card had been temporarily suspended. Under the Rules on Evidence, there is a disputable
presumption that letters duly directed and mailed were received on the regular course of mail.
Aside from the private respondent's bare denial, he failed to present evidence to rebut the
presumption that he received said notice. In fact upon cross examination, private respondent
admitted that he did received the letter notifying him of the cancellation:

Now you were saying that there was a first letter sent to you by the defendant?

Your letter, sir.

Was that the first letter that you received?

Yes, sir.

Is it that there was a communication first between you and the defendant?

There was none, sir. I received a cancellation notice but that was after November 27.[17]

As it was private respondent's own negligence which was the proximate cause of his
embarrassing and humiliating experience, we find the award of damages by the respondent court
clearly unjustified. We take note of the fact that private respondent has not yet paid his
outstanding account with petitioner.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner
to pay private respondent P100,000.00 as moral damages, P50,000.00 as exemplary damages
and P20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his
outstanding obligation with the petitioner in the amount of P14,439.41.