[G.R. No. 141278. March 23, 2004] MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A.

, ASSOCIATED
BANK and FRANK TAN, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the Decision[2] of the
Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538.
As culled from the records, the appeal at bench stemmed from the following factual backdrop:
On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for damages
against the respondents Citibank, N.A. and Associated Bank. [3] The case was docketed as Civil Case No. 91538. The complaint materially alleged that, on or about August 25, 1989, the petitioner purchased from the
Citibank Managers Check No. 20-015301 (the check for brevity) in the amount of P1,545,000 payable to
respondent Frank Tan; the petitioner later received information that the aforesaid managers check was
deposited with the respondent Associated Bank, Rosario Branch, to the account of a certain Julius Dizon
under Savings Account No. 19877; the clearing and/or payment by the respondents of the check to an
improper party and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear
violation of the respondents obligations under the Negotiable Instruments Law and standard banking
practice; considering that the petitioners intended payee for the check, the respondent Frank Tan, did not
receive the value thereof, the petitioner demanded from the respondents Citibank and the Associated Bank
the payment or reimbursement of the value of the check; the respondents, however, obstinately refused to
heed his repeated demands for payment and/or reimbursement of the amount of the check; hence, the
petitioner was compelled to file this complaint praying for the restitution of the amount of the check, and for
moral damages and attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint [4] impleading Frank
Tan as an additional defendant. The petitioner averred therein that the check was purchased by him as a
demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not receive the proceeds
of the check, the petitioner might have no right to collect from respondent Frank Tan and is consequently left
with no recourse but to seek payment or reimbursement from either or both respondents Citibank and/or
Associated Bank.
In its answer to the amended complaint,[5] the respondent Associated Bank alleged that the petitioner was
not the real party-in-interest but respondent Frank Tan who was the payee of the check. The respondent also
maintained that the check was deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon,
through its Ayala Head Office and was credited to the savings account of Julius Dizon; the Ayala office
confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that of respondent
Frank Tan; it never committed any violation of its duties and responsibilities as the proceeds of the check
went and was credited to respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of
non-payment to the payee is self-serving; as such, the petitioners claim for damages is baseless, unfounded
and without legal basis.
On the other hand, the respondent Citibank, in answer to the amended complaint, [6] alleged that the
payment of the check was made by it in due course and in the exercise of its regular banking function. Since
a managers check is normally purchased in favor of a third party, the identity of whom in most cases is
unknown to the issuing bank, its only responsibility when paying the check was to examine the genuineness
of the check. It had no way of ascertaining the genuineness of the signature of the payee respondent Frank

Tan who was a total stranger to it. If at all, the petitioner had a cause of action only against the respondent
Associated Bank which, as depository or collecting bank, was obliged to make sure that the check in question
was properly endorsed by the payee. It is not expected of the respondent Citibank to ascertain the
genuineness of the indorsement of the payee or even the lack of indorsement by him, most especially when
the check was presented for payment with the respondent Associated Banks guaranteeing all prior
indorsements or lack thereof.
On March 16, 1992, the trial court declared Frank Tan in default for failure to file his answer. [7] On June
10, 1992, the pre-trial conference was concluded without the parties reaching an amicable settlement.
[8]
Hence, trial on the merits ensued.
After evaluating the evidence adduced by the parties, the trial court resolved that the preponderance of
evidence supports the claim of the petitioner as against respondent Frank Tan only but not against
respondents Banks. Hence, on February 21, 1995, the trial court rendered judgment in favor of the petitioner
and against respondent Frank Tan. The complaints against the respondents Banks were dismissed. The
dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered as follows :
1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five Hundred
Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon at 12% per annum
from January 1990, date of extra-judicial demand until the full amount is paid;
2. Dismissing the complaint against defendants Citibank and Associated Bank;
3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for lack of merit.
With costs against defendant Frank Tan.[9]
The petitioner appealed the decision,[10] while respondent Frank Tan did not. On November 26, 1999, the
appellate court rendered judgment affirming in toto the decision of the trial court. Aggrieved, the petitioner
assailed the decision in his petition at bar.
The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED BANK LIABLE TO
PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGERS CHECK NO. 20015301 BY
JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS DIZON ARE ONE
AND THE SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO ASSOCIATED BANK
AND WAS NOT BINDING ON PETITIONER.[11]
The petition is denied.
The petitioner asserts that the check was payable to the order of respondent Tan. However, the
respondent Associated Bank ordered the check to be deposited to the account of one Julius Dizon, although
the check was not endorsed by respondent Tan. As Julius Dizon was not a holder of the check in due course,
he could not validly negotiate the check. The latter was not even a transferee in due course because
respondent Tan, the payee, did not endorse the said check. The position of the respondent Bank is akin to
that of a bank accepting a check for deposit wherein the signature of the payee or endorsee has been forged.

The contention of the petitioner does not hold water.

The fact of the matter is that the check was endorsed by Julius Dizon and was deposited and credited to
Savings Account No. 19877 with the respondent Associated Bank. But the evidence on record shows that the
said account was in the name of Frank Tan Guan Leng, which is the Chinese name of the respondent Frank
Tan, who also uses the alias Julius Dizon. As correctly ruled by the Court of Appeals:
On the other hand, Associated satisfactorily proved that Tan is using and is also known by his alias of Julius
Dizon. He signed the Agreement On Bills Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh. 2)
both acknowledged on January 16, 1989, where his full name is stated to be FRANK Tan Guan Leng (aka
JULIUS DIZON). Exh. 1 also refers to his Account No. SA#19877, the very same account to which
the P1,545,000.00 from the managers check was deposited. Osmea countered that such use of an alias is
illegal. That is but an irrelevant casuistry that does not detract from the fact that the payee Tan as Julius
Dizon has encashed and deposited the P1,545,000.00.[12]
The respondent Associated Bank presented preponderant evidence to support its assertion that
respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced evidence that Julius
Dizon and Frank Tan are one and the same person. Respondent Tan was a regular and trusted client or
depositor of the respondent Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent
Tan was allowed to maintain two (2) savings accounts therein. [13] The first is Savings Account No. 20161-3
under his name Frank Tan.[14] The other is Savings Account No. 19877 under his assumed Filipino name
Julius Dizon,[15] to which account the check was deposited in the instant case. Both witnesses for the
respondent Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified
that respondent Tan was using the alias Julius Dizon, and that both names referred to one and the same
person, as Frank Tan himself regularly transacted business at the bank under both names.[16] This is also
evidenced by the Agreement on Bills Purchased [17]and the Continuing Suretyship Agreement[18] executed
between Frank Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name appears in
said document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).[19] The same documentary evidence also
made reference to Savings Account No. 19877,[20] the very same account to which the check was deposited and
the entire P1,545,000 was credited. Additionally, Citibank Check No. 075713[21] which was presented by the
petitioner to prove one of the loans previously extended to respondent Tan showed that the endorsement of
respondent Tan at the dorsal side thereof [22] is strikingly similar to the signatures of Frank Tan appearing in
said agreements.
By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent Tan received
the amount of the check. This apprehension was not without any basis at all, for after the petitioner
attempted to communicate with respondent Tan on January or February 1990, demanding payment for the
loan, respondent Tan became elusive of the petitioner.[23]As a matter of fact, respondent Tan did not file his
answer to the amended complaint and was never seen or heard of by the petitioner. [24] Besides, if it were really
a fact that respondent Tan did not receive the proceeds of the check, he could himself have initiated the
instant complaint against respondents Banks, or in the remotest possibility, joined the petitioner in pursuing
the instant claim.
The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000
corresponding to the loan obtained by respondent Tan from him, obviously because respondent Tan had no
intent to pay the amount. The petitioner alleges that the respondents Banks were negligent in paying the
amount to a certain Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law,
without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling of the Court
in Associated Bank v. Court of Appeals,[25]in which we outlined the respective responsibilities and liabilities of
a drawee bank, such as the respondent Citibank, and a collecting bank, such as the defendant Associated
Bank, in the event that payment of a check to a person not designated as the payee, or who is not a holder in
due course, had been made. However, the ruling of the Court therein does not apply to the present case for, as
has been amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed

wrongfully paid by the respondents Banks to a person other than the intended payee. In addition, the
Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or
lightly. Nor should it be brushed aside in order to meet the necessities in a single case.[26]
Moreover, the chain of events following the purported delivery of the check to respondent Tan renders
even more dubious the petitioners claim that respondent Tan had not received the proceeds of the
check. Thus, the petitioner never bothered to find out from the said respondent whether the latter received the
check from his messenger. And if it were to be supposed that respondent Tan did not receive the check, given
that his need for the money was urgent, it strains credulity that respondent Tan never even made an effort to
get in touch with the petitioner to inform the latter that he did not receive the check as agreed upon, and to
inquire why the check had not been delivered to him. The petitioner and respondent Tan saw each other
during social gatherings but they never took the chance to discuss details on the loan or the check. [27] Their
actuations are not those to be usually expected of friends of 15 years who, as the petitioner would want to
impress upon this Court, were transacting business on the basis of confidence. [28] In fact, the first time that
the petitioner attempted to communicate with respondent Tan was on January or February 1990, almost five
or six months after the expected delivery of the check, for the purpose of demanding payment for the
loan. And it was only on that occasion that respondent Tan, as the petitioner insinuates, informed him that
he (Frank Tan) had not received the proceeds of the check and refused to pay his loan. [29] All told, the
petitioners allegation that respondent Tan did not receive the proceeds of the check [30] is belied by the evidence
on record and attendant circumstances.
Conversely, the records would disclose that even the petitioner himself had misgivings about the
truthfulness of his allegation that respondent Tan did not receive the amount of the check. This is made
implicit by respondent Tans being made a party-defendant to the case when the petitioner filed his amended
complaint. In his memorandum in the case below, the petitioner averred inter alia that:
The amount of P1,545,000.00 is sought to be recovered from:
1. Frank Tan for his failure to pay the loan extended by plaintiff; and
2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank managers check
despite the absence of any signature/endorsement by the named payee, Frank Tan.
The claim of the petitioner that respondent Tans use of an alias is illegal does not detract a whit from the
fact that respondent Tan had been credited by the respondent Associated Bank for the amount of the check.
Respondent Tan did not appeal the decision of the RTC.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November 26, 1999 of
the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the petitioner.

METROPOLITAN
BANK
&
TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.
G.R. No. 88866
Cruz, J.:
.CRUZ, J.:

February, 18, 1991

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all
non-essentials, 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
3
warrants.
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.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 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:
1. Dismissing the complaint with costs against the plaintiff;
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,
review on the following grounds:

the decision was affirmed, prompting Metrobank to file this petition for

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 go-signal 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.
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
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;
(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.

Facts:

Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All
warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez
is not allowed to withdraw from his account, later, however, exasperated over Floria repeated inquiries and
also as an accommodation for a valued client Metrobank decided to allow Golden Savings to withdraw from
proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn,
to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.
Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount
withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments
Held:
No. Metrobank is 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. Without such assurance, Golden
Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for
its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw
it anytime 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.
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 Sec. 66 of NIL. The simple reason
that NIL is not applicable to non negotiable instruments, treasury warrants.
No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word:
non negotiable. Moreover, and this is equal significance, it is indicated that they are payable from a particular
fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or
orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is
unconditional though coupled with: 1st, 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 2 nd, a statement of the transaction which give
rise to the instrument. But an order to promise to pay out of 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 conditional and the warrants themselves non-negotiable. There should be no question
that the exception on Section 3 of NIL is applicable in the case at bar.
Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
-negotiability

FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel dela Cruz
who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs to Caltex in connection with his
purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the
CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. When Caltex
presented said CTDs for verification with the bank and formally informed the bank of its decision to

preterminate the same, the bank rejected Caltex claim and demand as Caltex failed to furnish copies of
certain requested documents. In 1983, dela Cruz loan matured and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed a complaint which was dismissed on the ground that the
subject certificates of deposit are non-negotiable.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as
provided for in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts
deposited shall be repayable to the depositor. And according to the document, the depositor 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. However, petitioner cannot recover on
the CTDs. Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and dela Cruz, as ultimately ascertained, requires both delivery and indorsement. In
this case, there was no indorsement as the CTDs were delivered not as payment but only as a security for
dela Cruz' fuel purchases.
**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. The CTDs in question are negotiable instruments as they meet the
requirements of the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The
documents provide that the amounts deposited shall be repayable to the depositor. And according to the
document, the depositor 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.
TRADERS
269 SCRA 15

ROYAL

BANK

V.

CA

FACTS:
Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of
Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization
from the company.
Petitioner and Philfinance later entered into a Repurchase agreement, on
which petitioner bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed
to do so. When the petitioner tried to have it registered in its name in the CB, the latter didn't want to
recognize the transfer.

ISSUE: W/N the CBCI is a negotiable instrument

HELD:
The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered
owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of
negotiability which should have served as an expression of the consent that the instrument may be
transferred
by
negotiation.
The language of negotiability which characterize a negotiable paper as a credit instrument is its

freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating
to the protection of holders in due course, and the freedom of negotiability is the foundation for the
protection, which the law throws around a holder in due course. This freedom in negotiability is
totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a
specified
person
or
entity
for
a
period
of
time.
The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed
by the negotiable instruments law. The pertinent question then iswas the transfer of the CBCI from
Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to
entitle TRB to have the CBCI registered in its name with the Central Bank? Clearly shown in the record
is the fact that Philfinances title over CBCI is defective since it acquired the instrument from Filriters
fictitiously. Although the deed of assignment stated that the transfer was for value received, there was
really no consideration involved. What happened was Philfinance merely borrowed CBCI from Filriters,
a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.
Furthermore, the transfer wasn't in conformity with the regulations set by the CB. Giving more
credence to rule that there was no valid transfer or assignment to petitioner.
G.R. No. L-2516

September 25, 1950

ANG
vs.
THE COURT OF APPEALS, respondent.

TEK

LIAN, petitioner,

Laurel,
Sabido,
Almario
and
Laurel
for
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.

petitioner.

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.
Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation
payable to the order of cash. He delivered it toLee Hua Hong in exchange for money. The check was
presented by Lee Hua hong to the drawee bank for payment, but it w3as dishonored for insufficiency of funds.
With this, Ang Tek Lian was convicted of estafa.
Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order to cash and not have
been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.
Held:
No.Under Sec. 9 of NIL 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 drawers indorsement. However, if the
bank is not sure of the bearers identity or financial solvency, it has the right to demand identification or
assurance against possible complication, such as forgery of drawers signature, loss of the check by the
rightful owner, raising of the amount payable, etc. But where the bank is satisfied of the identity or 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.
Philippine National Bank vs. Manila Oil Refining & By-Products Company, Inc. [GR L-18103, 8 June 1922]
First Division, Malcolm (J): 6 concur
Facts: On 8 May 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company,
Inc,. executed and delivered to the Philippine National Bank (PNB), a written instrument reading as follows:
"RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand after date we promise to pay to the order of
the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank, Manila, P.I. Without
defalcation, value received; and do hereby authorize any attorney in the Philippine Islands, in case this note
be not paid at maturity, to appear in my name and confess judgment for the above sum with interest, cost of
suit and attorney's fees of ten (10) per cent for collection, a release of all errors and waiver of all rights to
inquisition and appeal, and to the benefit of all laws exempting property, real or personal, from levy or sale.
Value received. No. Due MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE
SOTELO, Manager. MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL LOPEZ. Treasurer."

The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. PNB
brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note, together
with interest and costs. Mr. Elias N. Recto, an attorney associated with PNB, entered his appearance in
representation of Manila Oil, and filed a motion confessing judgment. Manila Oil, however, in a sworn
declaration, objected strongly to the unsolicited representation of attorney Recto. Later, attorney Antonio
Gonzalez appeared for Manila Oil and filed a demurrer, and when this was overruled, presented an answer.
The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint. In the
Supreme Court, the question of first impression raised in the case concerns the validity in this jurisdiction of
a provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any
attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney's
fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions.
Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly recognized judgment notes,
enforceable under the regular procedure.
Held [1]: The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an
instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of judgment if
the instrument be not paid at maturity"; but this provision of law cannot be taken to sanction judgments by
confession, because it is a portion of a uniform law which merely provides that, in jurisdictions where
judgments notes are recognized, such clauses shall not affect the negotiable character of the instrument.
Moreover, the same section of the Negotiable Instruments Law concludes with these words: "But nothing in
this section shall validate any provision or stipulation otherwise illegal."
Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess judgments against makers
should not be recognized in Philippine jurisdiction by implication.
Held [2]: Judgments by confession as appeared at common law were considered an amicable, easy, and cheap
way to settle and secure debts. They are quick remedy serve to save the court's time. Time also save time and
money of the litigants and the government the expenses that a long litigation entails. In one sense,
instruments of this character may be considered as special agreements, with power to enter up judgments on
them, binding the parties to the result as they themselves viewed it. On the other hand, are disadvantages to
the commercial world which outweigh the considerations just mentioned. Such warrants of attorney are void
as against public policy, because they enlarge the field for fraud, because under these instruments the
promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down
the right of appeal accorded by statute. The recognition of such form of obligation would bring about a
complete reorganization of commercial customs and practices, with reference to short-term obligations. It can
readily be seen that judgment notes, instead of resulting to the advantage of commercial life the Philippines
might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank
has a meritorious case, the judgment is ultimately certain in the courts. The Court is of the opinion thus that
warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law; and that
provisions in notes authorizing attorneys to appear and confess judgments against makers should not be
recognized in this jurisdiction by implication and should only be considered as valid when given express
legislative sanction.
Evangelista vs. Mercator Finance Corp. [GR 148864, 21 August 2003] Third Division, Puno (J): 2 concur, 2 on
official leave
Facts: Spouses Eduardo B. Evangelista and Epifania C. Evangelista filed a complaint for annulment of titles
against Mercator Finance Corp. Lydia P. Salazar, Lamecs Realty and Development Corporation, and the
Register of Deeds of Bulacan. The spouses Evangelista claimed being the registered owners of 5 parcels of
land contained in the Real Estate Mortgage executed by them and Embassy Farms, Inc. They alleged that they
executed the Real Estate Mortgage in favor of Mercator only as officers of Embassy Farms. They did not
receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus,
they contended that the mortgage was without any consideration as to them since they did not personally
obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests,

the real estate mortgage is void. With the void mortgage, they assailed the validity of the foreclosure
proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of
the transfer certificates of title to it, the subsequent sale of the same parcels of land to Lydia P. Salazar, and
the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs
Realty & Development Corporation. Mercator admitted that the spouses Evangelista were the owners of the
subject parcels of land. It, however, contended that on 16 February 1982, the spouses executed a Mortgage in
favor of Mercator for and in consideration of certain loans, and/or other forms of credit accommodations
obtained from the Mortgagee (Mercator) amounting to P844,625.78 and to secure the payment of the same
and those others that the Mortgagee may extend to the mortgagor. It contended that since the spouses and
Embassy Farms signed the promissory note as co-makers, aside from the Continuing Suretyship Agreement
subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory
notes[8] restructuring the loan, then the spouses are jointly and severally liable with Embassy Farms. Due to
their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the
validity of the title of Mercator. Lamecs admitted the prior ownership of the spouses of the subject parcels of
land, but alleged that they are the present registered owner. Salazar and Lamecs likewise assailed the long
silence and inaction by the spouses as it was only after a lapse of almost 10 years from the foreclosure of the
property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that
petitioners are in estoppel and guilty of laches. After pre-trial, Mercator moved for summary judgment on the
ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued
that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing
suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no
genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are
valid and the complaint must be dismissed. The spouses opposed the motion for summary judgment claiming
that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. The RTC
granted the motion for summary judgment and dismissed the complaint. The spouses motion for
reconsideration was denied for lack of merit. Thus, the spouses went up to the Court of Appeals, but again
were unsuccessful. A motion for reconsideration by the spouses was likewise denied for lack of merit. The
spouses filed the Petition for Review on Certiorari. The spouses allege, inter alia, that there is an ambiguity in
the wording of the promissory note and claim that since it was Mercator who provided the form, then the
ambiguity should be resolved against it.
Issue: Whether the spouses are solidarily liable with Embassy Farms, in light of the promissory note signed
by them.
Held: The promissory note and the Continuing Suretyship Agreement prove that the spouses are solidary
obligors with Embassy Farms. The promissory notes subsequently executed by the spouses and Embassy
Farms, restructuring their loan, likewise prove that the spouses are solidarily liable with Embassy Farms. The
spouses allege that there is an ambiguity in the wording of the promissory note and claim that since it was
Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a
contract only if there is doubt in its letter. But, an examination of the promissory note shows no such
ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments
Law states that "Where the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply: (g) Where an instrument containing the word 'I promise to pay' is signed
by two or more persons, they are deemed to be jointly and severally liable thereon." Further, even if the
spouses intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that
they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with
the principal. The spouses cannot claim that they did not personally receive any consideration for the
contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need
not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is
bound by the same consideration that makes the contract effective between the principal parties thereto.
Having executed the suretyship agreement, there can be no dispute on the personal liability of the spouses.