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G.R. No.

L-22405 June 30, 1971


PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of
Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment
as follows:

Marcial Esposo for plaintiff-appellant.

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney
Concepcion Torrijos-Agapinan for defendants-appellees.

(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting
from the said Bank's clearing account the sum of P200.00 represented by postal money order
No. 124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-%
per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its
overdraft account;

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine
Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of
P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them with a private checks were not
generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division,
but instead of doing so, Montinola managed to leave building with his own check and the ten(10) money orders
without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent
message was sent to all postmasters, and the following day notice was likewise served upon all banks, instructing
them not to pay anyone of the money orders aforesaid if presented for payment. The Bank of America received a
copy of said notice three days later.

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral
damages in the amount of P1,000.00 or in such amount as will be proved and/or determined by
this Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the
Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the
notice given to the Bank of America on September 27, 1961, deducting from said Bank's clearing
account the sum of P200.00 representing the amount of postal money order No. 124688, or in
the alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the
rate of 8-% per annum from September 27, 1961 until fully paid; without any pronouncement
as to cost and attorney's fees.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of
its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter
cleared it with the Bureau of Posts and received from the latter its face value of P200.00.

The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same
stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office,
acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money
order No. 124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the
amount it represented had been deducted from the bank's clearing account. For its part, on August 2 of the same
year, the Bank of America debited appellant's account with the same amount and gave it advice thereof by means of
a debit memo.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will
therefore be discussed jointly. They raise this main issue: that the postal money order in question is a negotiable
instrument; that its nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the
Director of Posts and addressed to all banks with a clearing account with the Post Office, and that money orders,
once issued, create a contractual relationship of debtor and creditor, respectively, between the government, on the
one hand, and the remitters payees or endorses, on the other.

On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office
deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was
appellant's subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter,
appellant elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the
actions taken by the postal officers.

It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason,
ours are generally construed in accordance with the construction given in the United States to their own postal
statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of
authority in the United States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189
Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing
and operating a postal money order system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of
circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director
of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received
by it from its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or
money orders involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to
the Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you if such step is
deemed necessary." The conditions thus imposed in order to enable the bank to continue enjoying the facilities
theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is therefore bound by them.
That it is so is clearly referred from the fact that, upon receiving advice that the amount represented by the money
order in question had been deducted from its clearing account with the Manila Post Office, it did not file any protest
against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank
of America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the
letter setting forth the terms and conditions aforesaid is void because it was not issued by a Department Head in
accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not
apply to the letter in question because it does not provide for a department regulation but merely sets down certain
conditions upon the privilege granted to the Bank of Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had ample authority to
issue it pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments
of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

G.R. No. 97753 August 10, 1992


CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court
on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial
Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent
bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of
record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited
with herein defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial
Stipulation of Facts and Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to
280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection
with his purchased of fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch
Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required
Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280
replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in
the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date,
said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which
stated, among others, that he (de la Cruz) surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the assignment and further authorizes said bank
to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went
to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by
Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 5468).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein
plaintiff formally informing it of its possession of the CTDs in question and of its decision to preterminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a
copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as
"the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the
value of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and
on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of
the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be
ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint.

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this
petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are nonnegotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of
the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to
lost instruments payable to bearer. 4

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable
instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites
for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;

The instant petition is bereft of merit.

(c) Must be payable on demand, or at a fixed or determinable future time;

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues
involved in this recourse.

(d) Must be payable to order or to bearer; and

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention
is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch
Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr.
Angel de la Cruz.
xxx xxx xxx

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____


Atty. Calida:

This is to Certify that B E A R E R has deposited in this Bank the sum


of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

q In other words Mr. Witness, you are saying that per books of the bank, the
depositor referred (sic) in these certificates states that it was Angel dela
Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz
was the one who cause (sic) the amount.


AUTHORIZED SIGNATURES 5
Atty. Calida:
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

q And no other person or entity or company, Mr. Witness?


. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is
important to note that after the word "BEARER" stamped on the space provided supposedly for
the name of the depositor, the words "has deposited" a certain amount follows. The document
further provides that the amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are
payable, not to whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz
as the person who made the deposit and further engages itself to pay said depositor the amount
indicated thereon at the stipulated date. 6

witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of


time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is
to control, if it can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in
order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to
be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the
amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is
the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that
matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility
so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other
parties not privy to the transaction between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for
resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the
application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The
records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security
for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the
fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized
and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit
Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his

purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may not go
back on his own acts and representations to the prejudice of the other party who relied upon them. 15 In the law of
evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have
easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank,
as defendant in the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as
plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or dates ofpayment of the
alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs
were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion, petitioner now labors under the
presumption that evidence willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National
Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by
their intention, regardless of what language was used or what the form of
the transfer was. If it was intended to secure the payment of money, it must
be construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to
have been absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a deposit of
the property as collateral security. It has been said that a transfer of property
by the debtor to a creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer, and that accordingly the
use of the terms ordinarily importing conveyance of absolute ownership will
not be given that effect in such a transaction if they are also commonly used
in pledges and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law,
an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of
it, or the bearer thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs
would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even
disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder
for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of nonpayment of the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but
the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged.
The instrument proving the right pledged shall be delivered to the creditor, and if negotiable,
must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court
quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did
not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under
Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of
the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a
pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution
of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent
observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement
certificates therefor, on the ground that petitioner failed to raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was
not included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The
issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the
depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the
CTDs and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity
date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from
each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing
enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the first
time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised
on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court
cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly
raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues
of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters.
The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by
the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that
petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal
reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence, petitioner's
submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have
the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed
in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their
applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by
petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to prevent the ownership of the
instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the
"dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission
and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which
petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the
same, and, on the other, an option in favor of the party liable thereon who, for some valid ground, may elect to refuse
to issue a replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically restricts
or prohibits the issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein,
and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is
hereby AFFIRMED.
SO ORDERED.

G.R. No. 88866

February 18, 1991

1. Dismissing the complaint with costs against the plaintiff;

METROPOLITAN BANK & TRUST COMPANY, petitioner,


vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all nonessentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even
abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of
two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these
were directly payable to Gomez while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the
warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from
his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a
"valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the
amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was
P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau
of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
5

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. After trial,
judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as
Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees
and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees
and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on
the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and
conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury
warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent
which cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay
for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden
Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow
Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would
not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged
to the depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account
with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity
of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank
allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the gosignal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the
warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or
of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the
withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one
and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury
warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance
and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses it allowed Golden Savings to withdraw not once, not twice, but thrice from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also
wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the
lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the
deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The
conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting
agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden
Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual
stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged
'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by
it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants
he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not
acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden
Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the
warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way
the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at
bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance
to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the
supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the
drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to
disturb. And as we said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear,
positive and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it
is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor,
in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given
permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels
that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility
thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that
as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil
Code clearly provides that

(d) Must be payable to order or to bearer; and


(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
xxx

xxx

xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within
the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to
be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or
promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that
the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion
conforms to Abubakar vs. Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant
is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face
the words "payable from the appropriation for food administration, is actually an Order for payment out of
"a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a
negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement
was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to
deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the
back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co.,
Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is
inapplicable to the present controversy.1wphi1 That case involved checks whereas this case involves treasury
warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose
of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us.
Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one Antonio
Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the
petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be
charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to
withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that
it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive
portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant
Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the
debit.
SO ORDERED.

G.R. No. 89252

May 24, 1993

RAUL SESBREO, petitioner,


vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.

Ayala Avenue, Makati,


Metro Manila
February 9, 1981

VALUE DATE
TO

Raul Sesbreo

April 6, 1981

MATURITY DATE
NO. 10805

FELICIANO, J.:

On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with
the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of thirtytwo (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following
documents to petitioner:

DENOMINATED CUSTODIAN RECEIPT


This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE
CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated.
SERIAL MAT.
NUMBER DATE

FACE
VALUE

ISSUED REGISTERED
BY
HOLDER PAYEE

2731
4-6-81
2,300,833.34
UNDERWRITERS
FINANCE CORP.
(a)
the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation
Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;

(b)
the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated
Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and

(c)
post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with
petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of
P304,533.33.

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks
were dishonored for having been drawn against insufficient funds.

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas
Bank ("Pilipinas"). It reads as follows:

PILIPINAS BANK
Makati Stock Exchange Bldg.,

DMC

PHIL.

AMOUNT
307,933.33

We further certify that these securities may be inspected by you or your duly authorized representative at any time
during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you
should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature) 1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and
handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the
DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of
the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the
security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of
P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as
"maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the
Note, nor any certificate of participation in respect thereof, to petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of
petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in "Securities
Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the appropriate
instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner.

Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial satisfaction of
DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of
P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it
had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against
Philfinance PN No. 143-A issued in favor of Delta.

In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and
exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to
date apparently remains in the custody of the SEC. 4

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for
damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and
Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of
merit and for lack of cause of action, with costs against petitioner.

After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give due
course to the petition and required the parties to file their respective memoranda. 7

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent
court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta his assigned
portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN No.
2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce
the veil of corporate entity between Philfinance, and private respondents Delta and Pilipinas, considering that the
three (3) entities belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner vis-a-vis
Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third relationship
that is of critical importance: the relationship of petitioner and Philfinance. However, since Philfinance has not been
impleaded in this case, neither the trial court nor the Court of Appeals acquired jurisdiction over the person of
Philfinance. It is, consequently, not necessary for present purposes to deal with this third relationship, except to the
extent it necessarily impinges upon or intersects the first and second relationships.

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March 1989,
the Court of Appeals denied the appeal and held: 6
I.

Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiffappellant, it is Philfinance. As correctly observed by the trial court:

This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 when its
entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and may
have been motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the investment of
plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident thereto.
Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at bar; hence, this
Court is without jurisdiction to pronounce judgement against it. (p. 11, Decision)

WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost
against plaintiff-appellant.

Petitioner moved for reconsideration of the above Decision, without success.

We consider first the relationship between petitioner and Delta.

The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta promissory
note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33. The
Court of Appeals said on this point:

Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-negotiable" as
stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one person to
another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A
person not a holder cannot sue on the instrument in his own name and cannot demand or receive payment (Section
51, id.) 9

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly
transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the Note,
was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.

Hence, this Petition for Review on Certiorari.


Delta, however, disputes petitioner's contention and argues:

April 10, 1980


(1)
that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamp across the face of the Note 10 and because maker Delta and payee
Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance represented by
Philfinance PN No. 143-A issued to Delta as payee;

Philippine Underwriters Finance Corp.


Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:

(2)
that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its
instructions; and

(3)
assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the
Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against Philfinance
PN No. 143-A. 11

We consider Delta's arguments seriatim.

Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying
as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with
delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may,
however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment
or transfer written in the face of the instrument:

This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated
April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated
April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President 13

We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon Philfinance
assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add
that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration
in good faith and without notice of such prohibition. It is not disputed that petitioner was such an assignee or
transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their
exchange of their promissory notes was this: Delta invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731,

The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the sole
effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject to the equities between the original parties. 12 (Emphasis
added)

both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and
the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without
the consent of Delta, we note that such consent was not necessary for the validity and enforceability of the

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part,
that Note.

assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of its rights to
DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is quite mistaken.
Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearly established by the
unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations on

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in
full:

every point. 16 Nothing of the sort is present in the instant case.

It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance, an
entity engaged in the business of buying and selling debt instruments and other securities, and more generally, in

(3)

That the two debts are due;

made the following important statement:

(4)

That they be liquidated and demandable;

There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence

(5)

That over neither of them there be any retention or controversy, commenced by third persons and

Smith "the money market is a market dealing in standardized short-term credit instruments (involving large amounts)

communicated in due time to the debtor. (Emphasis supplied)

money market transactions. In Perez v. Court of Appeals, 17 the Court, speaking through Mme. Justice Herrera,

where lenders and borrowers do not deal directly with each other but through a middle manor a dealer in the open
market." It involves "commercial papers" which are instruments "evidencing indebtness of any person or entity. . .,

On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly

which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or

recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that the

without recourse". The fundamental function of the money market device in its operation is to match and bring

relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."

together in a most impersonal manner both the "fund users" and the "fund suppliers." The money market is an
"impersonal market", free from personal considerations. "The market mechanism is intended to provide quick

As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the "co-

mobility of money and securities."

terminal maturity" date, that is to say, before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation had taken place between Philfinance and Delta, to the extent of

The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of

P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have

a commercial paper in the money market necessarily knows in advance that it would be expenditiously transacted

ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by

and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the

Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner was a

borrower or issuer of commercial paper of the sale or transfer to the investor.

valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof
assigned to him.

xxx

xxx

xxx
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 1981,

There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial

19 that is, after the maturity not only of the money market placement made by petitioner but also of both DMC PN

scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically

No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee after

required by Presidential Decree No. 678, the investing public must be given adequate and effective protection in

compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is

availing of the credit of a borrower in the commercial paper market. 18 (Citations omitted; emphasis supplied)

a firmly settled doctrine that the rights of an assignee are not any greater that the rights of the assignor, since the
assignee is merely substituted in the place of the assignor 20 and that the assignee acquires his rights subject to the

We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and

equities i.e., the defenses which the debtor could have set up against the original assignor before notice of the

Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN No.

assignment was given to the debtor. Article 1285 of the Civil Code provides that:

2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have taken
place. The essential requirements of compensation are listed in the Civil Code as follows:

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person,
cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the

Art. 1279. In order that compensation may be proper, it is necessary:

assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.

(1)

If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the

That each one of the obligors be bound principally, and that he be at the same time a principal creditor of

the other;
(2)

compensation of debts previous to the cession, but not of subsequent ones.


That both debts consists 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;

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to
the same and also later ones until he had knowledge of the assignment. (Emphasis supplied)

Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays his

(2)

creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the Court explained that:

holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been assigned to petitioner by

Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981),

payee Philfinance; 24
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay before notice
that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the person who

(3)

has acquired a title by transfer to demand payment of the debt, to give his debt or notice. 22

regular bank hours; and

petitioner may inspect the Note either "personally or by authorized representative", at any time during

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No.

(4)

2731 had already been discharged by compensation. Since the assignor Philfinance could not have then compelled

participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain

payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from

outstanding in [petitioner's] favor thirty (30) days after its maturity."

upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a

collecting from Delta the portion of the Note assigned to him.


Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9

an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or any other

February 1981. He could have notified Delta as soon as his money market placement matured on 13 March 1981

time. We note that both in his complaint and in his testimony before the trial court, petitioner referred merely to the

without payment thereof being made by Philfinance; at that time, compensation had yet to set in and discharge DMC

obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No. 2731. 25 Accordingly,

PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance

petitioner's theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the

the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of

Note assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had ruled

petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731.

against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under

Because petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself notified

article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the obligation requires

Delta of the assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by private

solidarity," The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of

respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment made by

Pilipinas. Petitioner has not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner

Philfinance to petitioner.

argued that the very nature of the custodianship assumed by private respondent Pilipinas necessarily implies
solidary liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold

II.

Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.

We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that

We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under

Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following

the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private respondent

words:

Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.

Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully assigned to

We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as

you . 23

custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depository was owed,
however, to petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We do not consider

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay

that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement was established as

petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta under

an integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a

DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:

portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing
sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary or custodianship

(1)

it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to

mature on 6 April 1981 and payable to the order of Philfinance;

agreement was equivalent to constructive delivery of the Note (to the extent it had been sold or assigned to
petitioner) to petitioner. It will be seen that custodianship agreements are designed to facilitate transactions in the

money market by providing a basis for confidence on the part of the investors or placers that the instruments bought

PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by compensation, plus legal

by them are effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that

interest of six percent (6%) per annum containing from 14 March 1981.

those instruments will be there available to the placers of funds should they have need of them. The depositary in a
contract of deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in the

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may

presented case, of the beneficiary) of the contract, even though a term for such return may have been established in

have vis-a-vis Philfinance.

the said contract. 26 Accordingly, any stipulation in the contract of deposit or custodianship that runs counter to the
fundamental purpose of that agreement or which was not brought to the notice of and accepted by the placer-

III.

beneficiary, cannot be enforced as against such beneficiary-placer.


The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas should be
We believe that the position taken above is supported by considerations of public policy. If there is any party that

treated as one corporate entity need not detain us for long.

needs the equalizing protection of the law in money market transactions, it is the members of the general public
whom place their savings in such market for the purpose of generating interest revenues. 27 The custodian bank, if it

In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by the trial

is not related either in terms of equity ownership or management control to the borrower of the funds, or the

court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition

commercial paper dealer, is normally a preferred or traditional banker of such borrower or dealer (here, Philfinance).

before us.

The custodian bank would have every incentive to protect the interest of its client the borrower or dealer as against
the placer of funds. The providers of such funds must be safeguarded from the impact of stipulations privately made

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as

between the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble has

separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only to

erupted.

cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3)
companies. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related

In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when

companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were

petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this connection, that on 2

administered and managed for the benefit of one. There is simply not enough evidence of record to justify

April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or offsetting against Philfinance PN

disregarding the separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed or

No. 143-A had not yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported to

undetermined liability of Philfinance to petitioner. 28

require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of "written instructions" from petitioner Sesbreo. The ostensible term

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195

written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was

dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the extent that such

not a defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such

Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas

term was never brought to the attention of petitioner Sesbreo at the time the money market placement with

bank is hereby ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal interest

Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or depositary

thereon at the rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and

agreement as an integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of

Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.

Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to demand physical
delivery of the Note held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981
without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by
arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not
Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for
present purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the DMC

SO ORDERED.

[G.R. No. 113236. March 5, 2001]


FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs., COURT OF APPEALS and
LUZON DEVELOPMENT BANK, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision [1] dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No.
29546, which affirmed the judgment [2] of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ7854-P, dismissing Firestones complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:
[D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the
Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company (Fojas-Arca for brevity). Fojas-Arca maintaining a special savings
account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a Franchised Dealership Agreement (Exh. B) whereby FojasArca has the privilege to purchase on credit and sell plaintiffs products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit
Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This singular
circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips
drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a
direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff
the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT

Sep. 15, 1978 42130 981,500.00


These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it
[sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal
slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was
honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact
that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00
plaintiffs belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and
that it had received full value and payment of Fojas-Arcas credit purchased then outstanding at the time. On this
basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per
agreement (Exh. B).
However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated
June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not
paid for the reason NO ARRANGEMENT. As a consequence, the Citibank debited plaintiffs account for the total sum
of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendants
gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the
damages suffered by it. And due to defendants refusal to pay plaintiffs claim, plaintiff has been constrained to file this
complaint, thereby compelling plaintiff to incur litigation expenses and attorneys fees which amount are recoverable
from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned
by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by
defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when
the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were
authentic, and whether or not the deposit level in the passbook concurred with the savings ledger, and whether or
not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca
as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check when it
is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of the
transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give notice
of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy
to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation,
defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).[3]
Petitioners complaint[4] for a sum of money and damages with the Regional Trial Court of Pasay City, Branch
113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank
was liable for damages under Article 2176[5] in relation to Articles 19[6] and 20[7] of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the
special withdrawal slips without the presentation of the depositors passbook thereby giving the impression that the
withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general
appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor
two of the four special withdrawal slips.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and
affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to
present the passbook whenever it received a collection note from another bank, belying petitioners claim that
respondent bank was negligent in not requiring a passbook under the subject transaction. The appellate court also
found that the special withdrawal slips in question were not purposely given the appearance of checks, contrary to
petitioners assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the
respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do
so would have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any
fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the
dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code.[8]
The issue for our consideration is whether or not respondent bank should be held liable for damages suffered
by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires
from the former with special withdrawal slips drawn upon Fojas-Arcas special savings account with respondent bank.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioners current
account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention
arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated
June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of
Fojas-Arcas funds on deposit. That information came about six months from the time Fojas-Arca purchased tires
from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from
petitioners account, causing the alleged pecuniary damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable. [9] Hence,
the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.
[10]
Petitioner itself concedes this point.[11] Thus, respondent bank was under no obligation to give immediate notice
that it would not make payment on the subject withdrawal slips.Citibank should have known that withdrawal slips
were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving
checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had
honored and paid the previous withdrawal slips, automatically credited petitioners current account with the amount of
the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It
presumed that the withdrawal slips were good.
It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate
freely as a substitute for money.[12] The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions of pesos. [13] The fact that the other withdrawal slips were honored
and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and
paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree
of care.[14]
In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on
the basis of deposit slips prepared and signed by the depositor, or the latters agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the name of the depositor or current
account holder, the date of the deposit, and the amount of the deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners current account with Citibank were not checks, as petitioner
admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously
accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of
these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their
admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. L-2516

September 25, 1950

ANG TEK LIAN, petitioner,


vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The
Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check
Exhibits A upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it
to Lee Hua Hong in exchange for money which the latter handed in act. On November 18, 1946, the next business
day, the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant
went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he
(appellant) then brought with him with cash alleging that he needed badly the sum of P4,000 represented by the
check, but could not withdraw it from the bank, it being then already closed; that in view of this request and relying
upon appellant's assurance that he had sufficient funds in the blank to meet Exhibit A, and because they used to
borrow money from each other, even before the war, and appellant owns a hotel and restaurant known as the North
Bay Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash; that despite repeated
efforts to notify him that the check had been dishonored by the bank, appellant could not be located any-where, until
he was summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection therewith; and that
appellant has not paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether
under the facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a
check, or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the
bank, or the funds deposited by him in the bank were not sufficient to cover the amount of the check, and without
informing the payee of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated
that, as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or
an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek
Lian, the defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all
banks in the Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in
support of the argument:

. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so
with full knowledge that it would be dishonored upon presentment. In that sense, the appellant could not
be said to have acted fraudulently because the complainant, in so accepting the check as it was drawn,
must be considered, by every rational consideration, to have done so fully aware of the risk he was
running thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required
the indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where no such
requirement had been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable
to bearer, and the bank may pay it to the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York
(1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104
N. Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App.,
1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of
any person", and hence the instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement. . . .
(Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification
and /or assurance against possible complications, for instance, (a) forgery of drawer's signature, (b) loss of the
check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer or of some other person known to it be obtained. But where the Bank is
satisfied of the identity and /or the economic standing of the bearer who tenders the check for collection, it will pay
the instrument without further question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need
not have the holder identified, and is not negligent in falling to do so. . . . (Michie on Banks and Banking,
Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily
have the holder identified and ordinarily may not be charged with negligence in failing to do so. See
Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for suspecting any irregularity, it will be
protected in paying a bearer check, "no matter what facts unknown to it may have occurred prior to the
presentment." 1 Morse, Banks and Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely
reasonable for the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol.
I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its
dishonor. The Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds
not because the drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ
ofcertiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.