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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.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion Torrijos-Agapinan for defendantsappellees.

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.
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.
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 coappellee, 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.
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.
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:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(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 8-½% per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its
overdraft account;
(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 8-½%
per annum from September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.

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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.
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.
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.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Castro and Makasiar, JJ., took no part.

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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, Hofileña & 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 282561).
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

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Illegible) (Sgd. 1983.. 1987. and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. as earlier stated. SECURITY BANK SUCAT OFFICE P4. moral and exemplary damages as well as attorney's fees. it is important to note that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor. 1982. Makati No. pp. the words "has deposited" a certain amount follows." by said depositor (TSN. after date. February 9. the court a quo rendered its decision dismissing the instant complaint. plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7. with interest at the rate of 16% per cent per annum. February 9. 7. hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments. Angel dela Cruz" as well as "the details of Mr. the text of the instrument(s) themselves manifest with clarity that they are payable. 8. 1982.000 & 00 CTS Pesos. 130-131). 9. On December 8.00 plus accrued interest and compounded interest therein at 16% per annum. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564). Therefore. the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5. Philippines SUCAT OFFICEP 4. . upon presentation and surrender of this certificate. Sometime in November. 90101 Metro Manila. Aranas. 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.time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate. nationalizing as follows: .000. 10. plaintiff filed the instant complaint. A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this recourse. Credit Manager of plaintiff Caltex (Phils. 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. the depositor. pp. February 9. The document further provides that the amount deposited shall be "repayable to said depositor" on the period indicated. 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 pre-terminate the same. praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1. pp. not to whoever purports to be the "bearer" but only to the specified person indicated therein. the appellee bank acknowledges its depositor 4 . 60-62). While it may be true that the word "bearer" appears rather boldly in the CTDs issued. 54-68). 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY. 3 On appeal. Inc. 1982. In view of the foregoing. respondent court affirmed the lower court's dismissal of the complaint. . (2) that petitioner did not become a holder in due course of the said certificates of deposit. 1982. the latter set-off and applied the time deposits in question to the payment of the matured loan (TSN.000. In effect. Philippine Currency. No copy of the requested documents was furnished herein defendant. repayable to said depositor 731 days.) Inc. 6. (Sgd. 1983 (Defendant's Exhibit 566).00 CERTIFICATE OF DEPOSIT Rate 16% Date of Maturity FEB. On November 26. After trial. 1987. Accordingly. 4 The instant petition is bereft of merit. 12. In April 1983. Mr. 23. Illegible) —————————— ——————————— AUTHORIZED SIGNATURES 5 Respondent court ruled that the CTDs in question are non-negotiable instruments.120. 11. 1984 FEB 22. 1987.. SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave.

not what the parties may have secretly intended as contradistinguished from what their words express. the amounts are to be repayable to the bearer of the documents or. 2031. is the depositor? It is the "bearer. otherwise known as the Negotiable Instruments Law.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. (c) Must be payable on demand. 9 In the construction of a bill or note. the depositor referred (sic) in these certificates states that it was Angel dela Cruz? witness: a Yes. your Honor. (d) Must be payable to order or to bearer. the CTDs are negotiable instruments. Witness? witness: a None. you are saying that per books of the bank. And who. Tiangco. testified in open court that the depositor reffered to in the CTDs is no other than Mr. It is noted that Mr. the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing. or at a fixed or determinable future time. Security Bank's Branch Manager way back in 1982. 6 We disagree with these findings and conclusions." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. whosoever may be the bearer at the time of presentment. from the face of the instrument itself. and (e) Where the instrument is addressed to a drawee. for that matter. and hereby hold that the CTDs in question are negotiable instruments. no other words are to be added to it or substituted in its stead. Section 1 Act No. if it can be legally ascertained. 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. Witness. Calida: q And no other person or entity or company. 8 xxx xxx xxx On this score. 5 . viz: (a) It must be in writing and signed by the maker or drawer. The CTDs in question undoubtedly meet the requirements of the law for negotiability. Angel de la Cruz. but what is the meaning of the words they have used. he must be named or otherwise indicated therein with reasonable certainty. that is. enumerates the requisites for an instrument to become negotiable. Timoteo P. Calida: q In other words Mr. Mr. according to the document. What the parties meant must be determined by what they said. Calida: q Mr. The documents provide that the amounts deposited shall be repayable to the depositor. your Honor. Atty. 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. xxx xxx xxx Atty. Rather. yet as they have constituted the writing to be the only outward and visible expression of their meaning. Witness. 7 xxx xxx xxx Atty. The duty of the court in such case is to ascertain. The parties' bone of contention is with regard to requisite (d) set forth above. 11 Contrary to what respondent court held. and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount. the intention of the parties is to control. (b) Must contain an unconditional promise or order to pay a sum certain in money.

must be indorsed. 18 Had it produced the receipt prayed for. Unfortunately for petitioner. In a letter dated November 26. instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD. intentionally and deliberately led another to believe a particular thing true.. If it was intended to secure the payment of money. The instrument proving the right pledged shall be delivered to the creditor. Philippine National Bank. a valid negotiation thereof for the true purpose and agreement between it and De la Cruz. if such truly was the fact. may also be pledged. although the CTDs are bearer instruments. . as defendant in the court below. in any litigation arising out of such declaration. mere delivery of the bearer CTDs would have sufficed. in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. However. Caltex Credit Manager. 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. Art. 16 If it were true that the CTDs were delivered as payment and not as security. the amounts deposited are repayable to whoever may be the bearer thereof. the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. delivered the CTDs amounting to P1. therefore. act. and to act upon such belief. should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer. These certificates of deposit were negotiated to us by Mr. must be contractually provided for. he cannot. if regarded by itself. .Q. an admission or representation is rendered conclusive upon the person making it. that petitioner. Under the Negotiable Instruments Law. regardless of what language was used or what the form of the transfer was. Jr. On the wordings of the documents. whom petitioner chose not to implead in this suit for reasons of its own. For." 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. petitioner now labors under the presumption that evidence willfully suppressed would be adverse if produced.120. who is in possession of it. although petitioner seeks to deflect this fact. Incorporeal rights. or the bearer thereof. 22 In the present case. J. 20 is apropos: . petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned. and if negotiable. as ultimately ascertained. the terms thereof and the subsequent disposition of such security. requires both delivery and indorsement. whenever a party has. and cannot be denied or disproved as against the person relying thereon. it could have proved. supra. This time. 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. moved for a bill of particularity therein 17 praying. when respondent bank. be required to aver with sufficient definiteness or particularity (a) the due date or dates of payment 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. 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. 2096. there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation. as plaintiff. or omission. it must be construed as a pledge. It has been said that a transfer of property by the debtor to a creditor. Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours. 6 . shall be governed by the Civil Code provisions on pledge of incorporeal rights. even if sufficient on its face to make an absolute conveyance. a negotiation for such purpose cannot be effected by mere delivery of the instrument since. Besides. that the CTDs were delivered as payment and not as security. 19 Under the foregoing circumstances. . necessarily. its protestations notwithstanding. petitioner's credit manager could have easily said so. . be permitted to falsify it. Accordingly. . 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. it is not a pledge. 14 A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. 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. Hence. the answer is in the negative. 12 The next query is whether petitioner can rightfully recover on the CTDs. for obvious reasons. evidenced by negotiable instruments. 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. we quote therefrom: The character of the transaction between the parties is to be determined by their intention. Here. 2095. . Thus. even though a transfer. 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. he would be a pledgee but the requirements therefor and the effects thereof. 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. wrote: ". in the event of non-payment of the principal obligation. appears to have been absolute. but if there was some other intention. Having opposed the motion. . act. The records reveal that Angel de la Cruz. not being provided for by the Negotiable Instruments Law. Adverting again to the Court's pronouncements in Lopez. by his own declaration. 24 which inceptively provide: Art.000.) 13 This admission is conclusive upon petitioner. among others. it could have with facility so expressed that fact in clear and categorical terms in the documents. et al.00 to petitioner without informing respondent bank thereof at any time. vs. Aranas. instead of using the words "to guarantee" in the letter aforequoted. Petitioner's insistence that the CTDs were negotiated to it begs the question.If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only. Under the doctrine of estoppel. this disquisition in Intergrated Realty Corporation. or omission. however. 15 In the law of evidence. 21 and a holder may be the payee or indorsee of a bill or note. 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. 1982 addressed to respondent Security Bank. et al. 23 As such holder of collateral security.

31 Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. (Emphasis ours. or the instrument is recorded in the Registry of Property in case the assignment involves real property. 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. the latter has definitely the better right over the CTDs in question. if accepted.Aside from the fact that the CTDs were only delivered but not indorsed. 33 Still. therefore. 6. the Civil Code specifically declares: Art. 26 On the other hand. Thus. even assuming their applicability to the CTDs in the case at bar. 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. no matter for what cause it may be. Finally. except such as may involve privileged or impeaching matters. unless it appears in a public instrument. even assuming arguendo that said issue of negligence was raised in the court below. which it invokes. of which respondent bank's supposed negligence is only one. petitioner. Necessarily. 29 The issues agreed upon by them for resolution in this case are: 1. may apply to the judge or court of competent jurisdiction. the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. interest or dividends due or about to become due. Respondent bank duly complied with this statutory requirement. Whether or not the parties can recover damages. 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.) 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. parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial. petitioner still cannot have the odds in its favor. An assignment of credit. Where the provision reads "may. with appropriate citation of some doctrinal authorities. assignee or lien holder of the CTDs. as well as in order to prevent the ownership of the instrument that a duplicate be issued him." this word shows that it is not 7 . 27 With regard to this other mode of transfer. if any. but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely. Hence. right or action shall produce no effect as against third persons. the foregoing enumeration does not include the issue of negligence on the part of respondent bank. The very first article cited by petitioner speaks for itself. 30 Questions raised on appeal must be within the issues framed by the parties and. Whether or not the CTDs as worded are negotiable instruments. consequently. asking that the principal. will reveal that said provisions. 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. 4. 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. As respondent court correctly observed. The dispossessed owner. 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"). are merely permissive and not mandatory. The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. 3. 1625. be not paid a third person. Art 548. to obviate the element of surprise. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein. issues not raised in the trial court cannot be raised for the first time on appeal. Contrarily. attorney's fees and litigation expenses from each other. 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. 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. 25 Consequently. Whether or not plaintiff is entitled to the proceeds of the CTDs. as between petitioner and respondent bank. petitioner's submission. 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. whether as purchaser. would render a pre-trial delimitation of issues a useless exercise. 5. 2. on the ground that petitioner failed to raised that issue in the lower court. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 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. the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. 28 On this matter.

Bengzon. with the other private respondents as its principal officers. GOLDEN SAVINGS & LOAN ASSOCIATION. 36 Moreover. CRUZ. G. operating in Calapan. an option in favor of the party liable thereon who. COURT OF APPEALS. not mandatory.37. opportunity. 1 8 . The facts. Narvasa. 37 Articles 548 to 558 of the Code of Commerce. are easily told. vs. SO ORDERED. is a commercial bank with branches throughout the Philippines and even abroad. and none establishes a mandatory precedent requirement therefor. 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. Golden Savings and Loan Association was. WHEREFORE. Mindoro. Angara. pruned of all non-essentials. The Metropolitan Bank and Trust Co. Agapito S. merely established.755. Narciso. Fajardo and Jaime M. Regala & Cruz for petitioner.228. turns on a simple question of negligence. INC. 34 The word "may" is usually permissive. No. at the time these events happened. In January 1979. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees..R. 88866 February 18. J. for some valid ground. Cabiles for respondent Golden Savings & Loan Association. Inc. Concepcion.. petitioner. 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. Abello. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. respondents. followed by Gomez as second indorser. Zarraga. Pecson & Bengson for Magno and Lucia Castillo. LUCIA CASTILLO. for all its seeming complexity. on the one hand. on the modified premises above set forth.mandatory but discretional. 35 It is an auxiliary verb indicating liberty. concur.. the petition is DENIED and the appealed decision is hereby AFFIRMED. JJ. Significantly. Cudala. on which petitioner seeks to anchor respondent bank's supposed negligence.J. on the other.: This case. C. 1991 METROPOLITAN BANK & TRUST COMPANY. Padilla and Nocon. and. as correctly analyzed by private respondent. MAGNO CASTILLO and GLORIA CASTILLO. permission and possibility. 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. may elect to refuse to issue a replacement of the instrument.

which forwarded them to the Bureau of Treasury for special clearing.167. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association. the lower court modified its decision thus: ACCORDINGLY. The last withdrawal was made on July 16.00 from the proceeds of the apparently cleared warrants. with such assurance. eventually collecting the total amount of P1. 2. The demand was rejected. 3. "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client.37 in favor of defendant Golden Savings and Loan Association. in the amount of P310. SO ORDERED. Inc.00. Metrobank is made to pay for warrants already dishonored. It relied on Metrobank to determine the validity of the warrants through its own services. to allow defendant Golden Savings and Loan Association.00. however. Under the lower court's decision. 1979. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association. Without such assurance. 1979." the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. Gomez was meanwhile not allowed to withdraw from his account.000.00. judgment is hereby rendered: 1. 6 the decision was affirmed. 2. She was told to wait. in fact. Mindoro. 5 After trial.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812. consequently. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. prompting Metrobank to file this petition for review on the following grounds: 1. From the above undisputed facts. who could therefore withdraw it any time and for any reason he saw fit. all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 of the sum of P1.754. Inc. Golden Savings had no clearing facilities of its own. 3. and thereafter. there was no reason not to allow the withdrawal. 1979. Directing the plaintiff to reverse its action of debiting Savings Account No. to withdraw the amount outstanding thereon before the debit. 1979. 9 . in the amount of P508. 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. Golden Savings subsequently allowed Gomez to make withdrawals from his own account. to make up the deficit in its account. it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.000. Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings.000. 1979. Inc. to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor. 2498 in the Metrobank branch in Calapan. 4 In turn. 4. On November 4. 1986.500. Inc. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19. The total withdrawal was P968. 1979. and demanded the refund by Golden Savings of the amount it had previously withdrawn. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments. Later. 2 More than two weeks after the deposits. the latter should bear the loss.000. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. The petition has no merit. however. (b) Until such time as Metrobank is actually paid. judgment was rendered in favor of Golden Savings. and defendant Spouses Magno Castillo and Lucia Castillo. 4. its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants. 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. the second on July 13. On appeal to the respondent court. which. Golden Savings would not have allowed the withdrawals.00. (a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized. 7 It was only when Metrobank gave the gosignal that Gomez was finally allowed by Golden Savings to withdraw them from his own account. and the third on July 16. Dismissing the complaint with costs against the plaintiff.00. 5.000.089. attorney's fees and expenses of litigation in the amount of P200. Accordingly. They were then sent for clearing by the branch office to the principal office of Metrobank. 1979. affirmed by respondent Court of Appeals.033. in the amount of P150. thereby perpetuating the fraud committed by Eduardo Gomez.00. On July 21. 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.000.On various dates between June 25 and July 16. It was. 3 The first withdrawal was made on July 9. filed a motion for reconsideration even as Metrobank filed its notice of appeal. Indeed.

But that is not all. the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers. but thrice — from the uncleared treasury warrants in the total amount of P968. 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. not twice. to wit. There was no reason why it should not have waited until the treasury warrants had been cleared. whether or not such item is returned.) According to Metrobank. The total withdrawal was in excess of its original balance before the treasury warrants were deposited. whether or not such item is returned. Such a condition. It "presumed" that the warrants had been cleared simply because of "the lapse of one week. or at a fixed or determinable future time." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo. as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once. It was Gomez who was entrusting the warrants.000. assuming no responsibility beyond care in selecting correspondents. Otherwise.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. (b) Must contain an unconditional promise or order to pay a sum certain in money. not of Gomez as payee or indorser. At any rate. There may have been no express clearance. as its Cashier. the forgery of the signatures of the general manager and the auditor of the drawer corporation. to gloss over its carelessness. The negligence of Metrobank has been sufficiently established. The following sections of the Negotiable Instruments Law. By contrast." Moreover. 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. To repeat for emphasis. without the consent of the depositor. . Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. Article 1909 of the Civil Code clearly provides that — Art. Doubt may be expressed about the binding force of the conditions. has not been established. and until such time as actual payment shall have come into possession of this bank. to wit. are pertinent: Sec. considering that they have apparently been imposed by the bank unilaterally. The amount involved was not trifling — more than one and a half million pesos (and this was 1979). Court of Appeals: 10 Forgery cannot be presumed (Siasat. the treasury warrants were subject to clearing. And as we said in MWSS v. unauthorized overdraft of any other reason. according to whether the agency was or was not for a compensation. (Emphasis supplied.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. 1. forgery. Under the circumstances. Clearly stamped on their face is the word "non-negotiable. 1909. It must be established by clear. This is not exactly true. signed the deposit slips. it would not have lost a single centavo by waiting. and (e) Where the instrument is addressed to a drawee. Any reason does not mean no reason at all. and this is of equal significance. which shall be judged 'with more or less rigor by the courts.. IAC. This also applies to checks ". et al. et al. v. On the contrary. Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Indeed. — An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer. it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make. There would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. On top of this. 139 SCRA 238). this explanation is unbelievably naive. 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. . despite the lack of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants. 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. 9 This was the finding of the lower courts which we see no reason to disturb. This also applies to checks drawn on local banks and bankers and their branches as well as on this bank. The conditions read as follows: Kindly note that in receiving items on deposit. especially the underscored parts. Yet. in signing the deposit slip. positive and convincing evidence. if interpreted in the way the petitioner suggests. 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. In fact. 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. and moreover. 10 . (c) Must be payable on demand. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. which only added to its belief that the treasury warrants had indeed been cleared. the supposed reason for the dishonor. — Form of negotiable instruments. A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. it could be argued that the depositor. 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. which are unpaid due to insufficiency of funds. not Golden Savings that was extending him a loan. is not binding for being arbitrary and unconscionable. This was not done in the present case. unauthorized overdraft or any other reason. Metrobank exhibited extraordinary carelessness. he must be named or otherwise indicated therein with reasonable certainty. We do not have to rule on this matter at this time. forgery. the Court feels that even if the deposit slip were considered a contract. there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. which are unpaid due to insufficiency of funds. the right is reserved to charge back to the depositor's account any amount previously credited. the bank obligates itself only as the depositor's collecting agent. 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. it is indicated that they are payable from a particular fund. — The agent is responsible not only for fraud. Fund 501. pending which the depositor could not withdraw its proceeds. (d) Must be payable to order or to bearer. but also for negligence." 8 For a bank with its long experience. And now.

concur. 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. Villanueva & Associates for Delta Motors Corporation. 3 last sentence and section [1(b)] of the Negotiable Instruments Law). This conclusion conforms to Abubakar vs. the challenged decision is AFFIRMED. vs." The petitioner lays heavy stress on Jai Alai Corporation v. 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. 20496 of one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank.00. Reyes. would mature on 13 March 1981." in accordance with Section 66 of the Negotiable Instruments Law. 12 but we feel this case is inapplicable to the present controversy. WHEREFORE. with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded as follows: 3.00 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. SO ORDERED.Sec. if any. 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. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank." No. issued the following documents to petitioner: (a) the Certificate of Confirmation of Sale. also on 9 February 1981. 11 . Gomez has in fact disappeared. which must bear the consequences of its own negligence. to withdraw the amount outstanding thereon. Metrobank cannot contend that by indorsing the warrants in general. is actually an Order for payment out of "a particular fund.589.1âwphi1 That case involved checks whereas this case involves treasury warrants. No. and it did not appear that he was authorized to indorse it. from which Gomez was allowed to withdraw P1. When promise is unconditional.000. But an order or promise to pay out of a particular fund is not unconditional. the placement. Metropolitan Bank & Trust Co. No similar negligence can be imputed to Golden Savings. after the debit.089. — 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. Debiting Savings Account No. the fact of forgery was proved in that case but not in the case before us. 89252 May 24. The total value of the 32 treasury warrants dishonored was P1.589.500. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for clearance. But this treasury warrant is not within the scope of the negotiable instrument law. However.00 before Golden Savings was notified of the dishonor. JJ. the document bearing on its face the words "payable from the appropriation for food administration. We find the challenged decision to be basically correct. Bank of the Philippine Islands. respondents. petitioner. Also.. But the balance of P586. Inc. let alone the fact that it has already been informed of the dishonor of the treasury warrants. 2731 for a term of 32 days at 17. Narvasa.. COURT OF APPEALS.: On 9 February 1981.0% per annum. 2498 in the sum of P586. Griño-Aquino and Medialdea. Philfinance.754. petitioner Raul Sesbreño made a money market placement in the amount of P300. free from defenses. Gancayco. HON. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. Salva. with a term of thirty-two (32) days.00 with the Philippine Underwriters Finance Corporation ("Philfinance").00 only and thereafter allowing defendant Golden Savings & Loan Association. Finally. 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. DELTA MOTORS CORPORATION AND PILIPINAS BANK. Cebu Branch.167. Calapan Branch. or (b) A statement of the transaction which gives rise to the instrument judgment." and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 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. Inc.R. "without recourse. 1993 RAUL SESBREÑO. G. Salazar & Associates for Pilipinas Bank. 3. Golden Savings assumed that they were "genuine and in all respects what they purport to be. J. FELICIANO. For one thing. 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.

Makati Branch.. and Insular Bank of Asia and America as drawee. was placed under the joint management of the Securities and exchange commission ("SEC") and the Central Bank. 2 again asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731.33 UNDERWRITERS FINANCE CORP.33. with the Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker. dated 3 July 1981 and 3 August 1981. Petitioner then examined the original of the DMC PN No. nor any other instrument in respect thereof. Philfinance did not provide the appropriate instructions.-G. to petitioner. 307. as has been supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance. 143-A issued in favor of Delta. On 2 April 1981. 16587 indicating the sale of DMC PN No. CV No. from the evidence on record. explaining that Philfinance. 2730) against Philfinance PN No. Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial satisfaction of DMC PN No. 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. denied any liability to petitioner on the promissory note. Elizabeth de Villa of private respondent Pilipinas. we have in our custody the following securities to you [sic] the extent herein indicated. 4 As petitioner had failed to collect his investment and interest thereon. Pilipinas delivered to the SEC DMC PN No.A.. dismissed the complaint and counterclaims for lack of merit and for lack of cause of action. with petitioner as payee. On 13 March 1981.300. against private respondents Delta and Pilipinas. the maturity date of petitioner's investment).933. with costs against petitioner. Petitioner later made similar demand letters. 5 The trial court. Pilipinas allegedly referred all of petitioner's demand letters to Philfinance for written instructions. Delta. in a decision dated 5 August 1987. 2731. 10805 issued by private respondent Pilipinas Bank ("Pilipinas"). and handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR No. FACE ISSUED REGISTERED AMOUNT NUMBER DATE VALUE BY HOLDER PAYEE 2731 4-6-81 2. In a Decision dated 21 March 1989. It reads as follows: PILIPINAS BANK Makati Stock Exchange Bldg. the Court of Appeals denied the appeal and held: 6 Be that as it may. which to date apparently remains in the custody of the SEC. Philfinance delivered to petitioner the DCR No.833. 10805 had remained unpaid and outstanding. on 18 June 1981. We further certify that these securities may be inspected by you or your duly authorized representative at any time during regular banking hours. as per Denominated Custodian Receipt ("DCR") No.533. 10805 dated 9 February 1981. that it had a face value of P2. in the total amount of P304. petitioner sought to encash the postdated checks issued by Philfinance. 2731. petitioner approached Ms. 15195. that it would mature on 6 April 1981." and that on face of the promissory note was stamped "NON NEGOTIABLE.833. it is Philfinance. and (c) post-dated checks payable on 13 March 1981 (i. nor any certificate of participation in respect thereof. In the meantime. Ayala Avenue. Branch 21. Makati. however.34 DMC PHIL. as payee thereof. However." Pilipinas did not deliver the Note. had assigned to him said Note to the extent of P307. and that he in effect was asking for the physical delivery of the underlying promissory note. Philfinance as drawer.e. SERIAL MAT. 2731 to petitioner. and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. to petitioner. Pilipinas never released DMC PN No. with the notation that the said security was in custodianship of Pilipinas Bank.33.(b) the Certificate of securities Delivery Receipt No.300. Philfinance. As correctly observed by the trial court: 12 .933. 2731 and found: that the security had been issued on 10 April 1980. he filed on 28 September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City. 2731 (along with DMC PN No. if there is anyone that appears liable for the travails of plaintiff-appellant. the checks were dishonored for having been drawn against insufficient funds. 2731.33. Metro Manila DENOMINATED CUSTODIAN RECEIPT This confirms that as a duly Custodian Bank. On 26 March 1981.R. and upon instruction of PHILIPPINE UNDERWRITES FINANCE CORPORATION. Petitioner appealed to respondent Court of Appeals in C.

hence. of course. since Philfinance has not been impleaded in this case. Delta as debtor-maker of the Note. The Court of Appeals said on this point: Nor could plaintiff-appellant have acquired any right over DMC PN No. 30. therefore. id. the Court resolved to give due course to the petition and required the parties to file their respective memoranda. A person not a holder cannot sue on the instrument in his own name and cannot demand or receive payment (Section 51. obviously. 2731 as the same is "non-negotiable" as stamped on its face (Exhibit "6"). 143-A. (p. Sr. 7 Petitioner reiterates the assignment of errors he directed at the trial court decision. or by delivery alone where the negotiable instrument is in bearer form. secondly. together with its earnings.33. Actually. neither the trial court nor the Court of Appeals acquired jurisdiction over the person of Philfinance. also be assigned or transferred. is solely and legally obligated to return the investment of plaintiff. 2731. this Petition for Review on Certiorari. 2731) which Philfinance sold "without recourse" to petitioner. instead of being negotiated. but it may be assigned or transferred. 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. however. 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. 2731 in view of the provisions stipulated in DCR No. to the extent of P304. absent an express prohibition against assignment or transfer written in the face of the instrument: 13 . the relationship of petitioner in respect of Pilipinas. Hence.533. and (3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid. 143-A issued to Delta as payee. Philfinance. and (iii) in refusing to pierce the veil of corporate entity between Philfinance. 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. 11 We consider Delta's arguments seriatim. I. however. (2) that the assignment of DMC PN No.This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 8 There are at least two (2) sets of relationships which we need to address: firstly. 10805 issued in favor r of petitioner. 11. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are. (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN No. Negotiable Instruments Law). A negotiable instrument may. A non-negotiable instrument may. Petitioner moved for reconsideration of the above Decision. there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance. After consideration of the allegations contained and issues raised in the pleadings. finding no reversible error in the decision appealed from. Ricardo Silverio. Firstly. 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. in part to him by assignment and that as a result of such transfer. 2731 was non-negotiable but contends that the Note had been validly transferred. if not against its instructions. 2731 against Philfinance PN No. in particular. 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. 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. We consider first the relationship between petitioner and Delta. Cost against plaintiffappellant. the relationship of petitioner vis-a-vis Delta. Delta. consequently.) 9 Petitioner admits that DMC PN No. petitioner took the Note subject to the defenses available to Delta. not necessary for present purposes to deal with this third relationship. was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance. and to answer all the damages plaintiff has suffered incident thereto. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery. except to the extent it necessarily impinges upon or intersects the first and second relationships. considering that the three (3) entities belong to the "Silverio Group of Companies" under the leadership of Mr. disputes petitioner's contention and argues: (1) that DMC PN No. However. It is. Unfortunately for plaintiff. 2731 by Philfinance was without Delta's consent. without success. not be negotiated. Decision) WHEREFORE. the same is hereby affirmed in toto. Philfinance was not impleaded as one of the defendants in this case at bar. the offsetting of DMC PN No. of course. this Court is without jurisdiction to pronounce judgement against it. different. and private respondents Delta and Pilipinas.

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)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation
which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
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.
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, 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 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 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 money market transactions. In Perez v. Court of Appeals, 17 the Court,
speaking through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith "the
money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a middle manor a dealer in the open market." It involves "commercial
papers" which are instruments "evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or
in any manner conveyed to another person or entity, with or without recourse". The fundamental function of the money market
device in its operation is to match and bring 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 mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial
paper in the money market necessarily knows in advance that it would be expenditiously transacted and transferred to any
investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial
paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It has
been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically required by Presidential

14

Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit of a borrower in the
commercial paper market. 18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to
note that at the time Philfinance sold part of its rights under DMC PN No. 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. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts 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;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to
the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter
of Agreement" with Philfinance, where Delta acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the "co-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 P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have
ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the
extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 1981, 19 that is, after the maturity not only of
the money market placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is
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 equities — i.e., the defenses — which the debtor could have set up against
the original assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides that:
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 assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of
debts previous to the cession, but not of subsequent ones.
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 creditor shall be released from the
obligation." In Sison v. Yap-Tico, 21 the Court explained that:
[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 has acquired a title by transfer
to demand payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9 February 1981. He could have notified Delta
as soon as his money market placement matured on 13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had
yet to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the
Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified
Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that

15

Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by private
respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas became solidarily liable with
Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully assigned to you —. 23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33
nor any assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas
that:
(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;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981), holding that Note on
behalf and for the benefit of petitioner, at least to the extent it had been assigned to petitioner by payee Philfinance; 24
(3) petitioner may inspect the Note either "personally or by authorized representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a participation therein to the
extent of P307,933.33) "should this Denominated Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days
after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an obligor under the terms of DMC PN
No. 2731 assigned to petitioner, either upon maturity thereof or any other time. We note that both in his complaint and in his testimony before the trial
court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No. 2731. 25 Accordingly,
petitioner's theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him by Philfinance,
appears to be a new theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas
cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the obligation
requires solidarity," The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not
pointed to us to any law which imposed such liability upon Pilipinas nor has 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
Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under the terms of the DCR. To the contrary,
we find, after prolonged analysis and deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as custodian or depositary bank. The
depositor was initially Philfinance; the obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the custodianship or
depository agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement was
established as an integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a 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 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 by them are effectively taken out of the pocket, as it were, of the
vendors and placed safely beyond their reach, that 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 presented case, of the
beneficiary) of the contract, even though a term for such return may have been established in 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-beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any party that 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 is not related either in terms of equity ownership or management control to the borrower of the funds, or the
commercial paper dealer, is normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). 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 between the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble has
erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner first demanded physical delivery
thereof on 2 April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported to
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 Sesbreño. The ostensible term written into the DCR (i.e., "should this [DCR] remain outstanding in your
favor thirty [30] days after its maturity") was not a defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly,

16

17 . Prima facie. it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate corporate entities.. As so modified. plus legal interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981. is of no moment for present purposes. that private respondent Pilipinas must respond to petitioner for damages sustained by arising out of its breach of duty. in principle.. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner. jurisdiction over the person of Philfinance was never acquired either by the trial court nor by the respondent Court of Appeals. concur. such term runs counter to the very purpose of the custodianship or depositary agreement as an integral part of a money market transaction. JJ. We conclude. and thirdly. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were administered and managed for the benefit of one. but has been able only to cite the presence of a common Director — Mr. Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.33. therefore. 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. respectively. Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of P304.R.-G. Petitioner asks us to pierce their separate corporate entities. Sr. to the extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. The conclusion we have reached is. sitting on the Board of Directors of all three (3) companies. of course. CV No. Petitioner similarly did not seek to implead Philfinance in the Petition before us.533. plus legal interest of six percent (6%) per annum containing from 14 March 1981. Secondly. Romero and Melo. the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by compensation. Bidin.such term was never brought to the attention of petitioner Sesbreño at the time the money market placement with Philfinance was made.533. There is simply not enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner.. the portion of the DMC PN No. secondly. 15195 dated 21 march 1989 and 17 July 1989. without prejudice to such right of reimbursement as Pilipinas may have vis-a-vis Philfinance.33. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited. In the first place. Indeed. Davide. Ricardo Silverio. 28 WHEREFORE. Jr. the damages suffered by petitioner consisted of P304. The third principal contention of petitioner — that Philfinance and private respondents Delta and Pilipinas should be treated as one corporate entity — need not detain us for long. it is inconsistent with the provisions of Article 1988 of the Civil Code noted above.A. as already noted. the Decision and Resolution of the Court of Appeals in C. are hereby MODIFIED and SET ASIDE. SO ORDERED. III. for all the foregoing. No pronouncement as to costs.

B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products. The facts of this case. J. M. 1978.000. dismissing Firestone's complaint for damages. In January 1978. [D]efendant is a banking corporation. plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. In turn. It operates under a certificate of authority issued by the Central Bank of the Philippines. Said defendant had as one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). 15. No. vs.R. Branch 113 in Civil Case No. 113236 March 5. . adopted by the CA and based on findings by the trial court. On the following dates Fojas-Arca purchased Firestone products on credit (Exh. All of them were honored and paid by the defendant.896. CV No. 1993 of the Court of Appeals in CA-G.00. 1978 42127 P1. which affirmed the judgment 2 of the Regional Trial Court of Pasay City.198. 2001 FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES.00 18 . 1978 42129 880. K) and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant.R. 1978 up to May 15. AMOUNT June 15. petitioner. COURT OF APPEALS and LUZON DEVELOPMENT BANK. plaintiff extended to Fojas-Arca other purchases on credit of its products. These are supplied by the defendant to Fojas-Arca.000. On January 14. Relying on such confidence and belief and as a direct consequence thereof.190. J.: This petition assails the decision 1 dated December 29.80 July 15. In payment of these purchases. accepts savings and time deposits. I. PQ-7854-P. are as follows: .G.00 Aug. Fojas-Arca purchased on credit Firestone products from plaintiff with a total amount of P4. . 29546. Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. these were deposited by the plaintiff with its current account with the Citibank. 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. respondents. Fojas-Arca maintaining a special savings account with the defendant. 1978 42128 940. the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. Pursuant to the aforesaid Agreement. to wit: DATE WITHDRAWAL SLIP NO.092. QUISUMBING. and among its activities.

contrary to petitioner's assertions. It was at this point that the bone of contention arose. The appellate court also found that the special withdrawal slips in question were not purposely given the appearance of checks. respectively. 1978 for P880.500. and thus should not have been mistaken for checks.' As a consequence. plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence. thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from the defendant. docketed as Civil Case No. on December 14. On this basis.500. Citibank then debited the amount of these withdrawal slips from petitioner's account. and whether or not the deposit is sufficient to cover the withdrawal. Branch 113. And due to defendant's refusal to pay plaintiff's claim. On December 14. [in] which defendant is not involved. 19 .000. for to do so would have been a violation of the law on the secrecy of bank deposits. In summation. It could not expect these slips to be treated as checks by other entities. id). On September 25. respondent bank notified the depositor to present the passbook whenever it received a collection note from another bank. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence regarding the dishonor. causing the alleged pecuniary damage subject of petitioner's cause of action. the truth being that when the special withdrawal slips were received by defendant. 1978. 29546. inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only. or in failing to give fair and timely advice of the dishonor. pp..092. plaintiff was induced to continue extending to FojasArca further purchase on credit of its products as per agreement (Exh. respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. 42128 dated July 15. and whether or not the deposit level in the passbook concurred with the savings ledger.092. 42127 and 42129 dated June 15. defendant categorically stated that plaintiff has no cause of action against it (pp.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.3 Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City. the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. 1993. the Court of Appeals promulgated its assailed decision. we note that petitioner admits that the withdrawal slips in question were non-negotiable. in the amount of P981. 42130 in the amount of P981. then presented the slips for payment to respondent bank. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. Lastly.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. 1978. It denied the appeal and affirmed the judgment of the trial court.Sep. Vehemently.00 was honored and paid by the defendant in October 1978. the instant petition. and that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. defendant asserted.8 The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by petitioner. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Petitioner appealed the decision to the Court of Appeals. 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 depositor's passbook thereby giving the impression that the withdrawal slips are instruments payable upon presentment. Citibank should have known that withdrawal slips were not negotiable instruments. due to its allegedly belated notice of non-payment of the subject withdrawal slips. the appellate court ruled that the respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips.078. it was denied by defendant that the special withdrawal slips were honored and treated as if it were checks. 1-3. it only verified whether or not the signatures therein were authentic.10 Petitioner itself concedes this point.198. Dec. the Citibank debited plaintiff's account for the total sum of P2.11 Thus. was dismissed together with the counterclaim of defendant.500. whereby the latter purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. It averred that respondent Luzon Development Bank was liable for damages under Article 2176 5 in relation to Articles 196 and 207 of the Civil Code. According to the appellate court.80 representing the aggregate amount of the above-two special withdrawal slips. 1978 and August 15. Under such situation. were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. 9 Hence.00 plaintiff's belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded. Petitioner in turn deposited these withdrawal slips with Citibank. Citibank informed petitioner that special withdrawal slips Nos. 1978. alleging the following assignment of error: 25. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client. 1978 for P1. 42127 dated June 15. 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. However. that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. At the outset.80 and No. On December 29. as it had done in respect of the previous special withdrawal slips. 15. 42129 dated August 15. of the two intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code. The latter credited the same to petitioner's current account. Hence. 1979. As noted by the CA. The initial transaction in this case was between petitioner and Fojas-Arca. Payment or notice of dishonor from respondent bank could not be expected immediately. belying petitioner's claim that respondent bank was negligent in not requiring a passbook under the subject transaction. 1978. Out of these four (4) withdrawal slips only withdrawal slip No. 2) giving the special withdrawal slips the general appearance of checks. 368-370. Controverting the foregoing asseverations of plaintiff. counsel of plaintiff served a written demand upon the defendant for the satisfaction of the damages suffered by it. plaintiff was informed by Citibank that special withdrawal slips No. plaintiff has been constrained to file this complaint. in contrast to the situation involving checks. "B"). 1978 42130 981. 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. and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal slips.

with the knowledge that respondent Luzon Development Bank. CV No. automatically credited petitioner's current account with the amount of the subject withdrawal slips. JJ . No. it appears that Citibank. Jr. 76788 January 22. whether such account consists only of a few hundred pesos or of millions of pesos. Jr. Labaguis.14 In the ordinary and usual course of banking operations. Citibank — and petitioner as account-holder — must bear the risks attendant to the acceptance of these instruments.In the case at bar. 1980 allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice. FERNAN.20 as evidenced by a promissory note. 1990 JUANITA SALAS.. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. Arsenio C. SO ORDERED. the petition is DENIED and the decision of the Court of Appeals in CA-G. 00757 entitled "Filinvest Finance & Leasing Corporation v. thus: 20 . Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake. which fact she discovered when the vehicle figured in an accident on 9 May 1980. 1982. Mendoza. CV No. for petitioner. But having erroneously accepted them as such. A bank is under obligation to treat the accounts of its depositors with meticulous care. certificate of registration and deed of chattel mortgage. 5915 for a sum of money against petitioner before the Regional Trial Court of San Fernando. Costs against petitioner. it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION. as petitioner admits.R. Petitioner defaulted in her installments beginning May 21. Records disclose that on February 6. Buena and De Leon.R. Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58. Bellosillo. vs. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which financed the purchase. Pampanga. G. respondents. 12 The withdrawal slips in question lacked this character. the trial court held. WHEREFORE. the date of the deposit. 5915. HON.138. Pampanga in Civil Case No." It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips.J.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C. Salas". 29546 is AFFIRMED. the name of the depositor or current account holder. Angara & Associates for private respondent. or the latter's agent or representative. concur. 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. which modified the decision of the Regional Trial Court of San Fernando. and the amount of the deposit either in cash or in check. Villalon. a collection suit between the same parties.. who indicates therein the current account number to which the deposit is to be credited.A. C. current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor.-G. 1980. This failure to pay prompted private respondent to initiate Civil Case No. petitioner. It presumed that the withdrawal slips were "good.R. In its decision dated September 10. then merely waited for the same to be honored and paid by respondent bank.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.15 The withdrawal slips deposited with petitioner's current account with Citibank were not checks. Loyola. had honored and paid the previous withdrawal slips.

as opined by the appellate court.R. 2.138. Admissions made by the parties in the pleadings. 02922. bad faith and misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed against VMS. Petitioner's liability on the promissory note.30 representing the difference between the agreed consideration of P49. under the foregoing factual milieu.000. When an action or defense is founded upon a written instrument. 21 . 80 Phil. Aug. petitioner assigns twelve (12) errors which focus on the alleged fraud. A perusal of the evidence shows that the amount of P58.WHEREFORE. In the petition before us. The counterclaim of defendant is dismissed. She contends that it is not necessary. the appealed decision is hereby modified ordering the defendant to pay the plaintiff the sum of P54. or admissions contained in a pleading are conclusive as against the pleader. 32 Phil. With costs to defendant. Imputing fraud. 1980) or in the total sum of P3. She cites as authority the decision therein where the court originally ordered petitioner to pay the remaining balance of the motor vehicle installments in the amount of P31. 5 Private respondent in its comment. A party cannot subsequently take a position contradictory of. 2916-0. the Court of Appeals rendered its assailed decision. Amparo. with the same court ordering defendant VMS instead to return to petitioner the sum of P17. she is therefore liable to pay the remaining balance of P54.70 allegedly evidenced by a receipt. bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner. or in the course of the trial or other proceedings.000. Rohde and McMillian. the due execution and genuineness of which she never denied under oath is. Said decision was however reversed later on.20 stated in the promissory note is the amount assumed by the plaintiff in financing the purchase of defendant's motor vehicle from the Violago Motor Sales Corp. specifically denied them.908. 1986. judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P28. On October 27. do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake (Sec. 8.644. The decision is AFFIRMED in all other respects. defendant's account became delinquent only beginning May. The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses of the petitioner against private respondent. the pertinent portion of which is quoted hereunder: The allegations.855. no contract ever existed between her and VMS and therefore none had been assigned in favor of private respondent. considering the foregoing. 1 Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals. bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud. 1980 until full payment. With costs against defendant. 1980 until the said sum is fully paid. Revised Rules of Court. L-23023. Rule 129.00 as shown in the sales invoice and petitioner's initial downpayment of P17. 31. 227). the monthly amortization of winch is Pl. the present recourse. WHEREFORE. Sta.855.614. Hibbered vs. Branch LXXII. docketed as AC-G. Revised Rules of Court. prays for the dismissal of the petition and counters that the issues raised and the allegations adduced therein are a mere rehash of those presented and already passed upon in the court below.. or inconsistent with his pleadings (Cunanan vs.908. the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party.90. to implead VMS as a party to the case before it can be made to answer for damages because VMS was earlier sued by her for "breach of contract with damages" before the Regional Trial Court of Olongapo City.229. We see no cogent reason to disturb the challenged decision.40 with interest thereon at the rate of 14% from October 2. Considering that the defendant was able to pay twice (as admitted by the plaintiff. upon an appeal by VMS.414. 3 Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable here. as inevitable as it is clearly established. copied in or attached to the corresponding pleading as provided in the preceding section. under oath. Parenthetically. 24 SCRA 1018). and the further amount of P1. 1968.95 for 36 months. and sets forth what he claims to be the facts (Sec.70. Maliwat. Ana vs. and that the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending determination in the appellate court. 2 Petitioner's motion for reconsideration was denied. hence. said decision is still pending consideration by the First Civil Case Division of the Court of Appeals. and in view of all the foregoing. Rule 8. No. 476). the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the contract.30 at l4% per annum from October 2.30 at 14% per annum from October 2. docketed as Civil Case No. 1980 until full payment.00 as attorney's fees. statements.

having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21. [c] it is payable at a fixed or determinable future time which is "P1. 11. or order and as such. must be payable to "order" or "bearer"".20 San Fernando. BALTAZAR Cash Manager 8 A careful study of the questioned promissory note shows that it is a negotiable instrument. Philippines Feb.614. Without the words "or order or "to the order of". in installments of the amounts following and at the dates hereinafter set forth. it was held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available to the assignor may be raised. 1980 thru and inclusive of February 21. 21. 198________ provided that interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid. the basis of private respondent's claim against petitioner is a promissory note which bears all the earmarks of negotiability.138.20. 9 It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation 10 and it is an indorsement of the entire instrument. 7 In the case at bar.138. Such being the situation in the above-cited case. the situation is different. The pertinent portion of the note reads: PROMISSORY NOTE (MONTHLY) P58. P_________ monthly for ______ months due and payable on the ______ day of each month starting _____198__ thru and inclusive of _____. v. where the assignee merely steps into the shoes of. Among others. [b] it contains an unconditional promise to pay the amount of P58. 1983. the instrument is payable only to the person designated therein and is therefore non-negotiable. 1980 For value received.614. at its office in San Fernando. however. 6 this Court had the occasion to clearly distinguish between a negotiable and a non-negotiable instrument. to be payable.The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear. but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. the said principal sum. Under Section 8 of the Negotiable Instruments Law. promise to pay Violago Motor Sales Corporation or order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same.20) Philippine currency. [e] the drawee is named or indicated with certainty. the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY (P58.95 monthly for "36" months due and payable on the 21st day of each month starting March 21. to wit: P1. Indubitably. 1980 thru and inclusive of Feb. the assignor-vendor. 11 22 . is open to all defenses available against and can enforce payment only to the same extent as. without need of notice or demand. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument. IFC Leasing and Acceptance Corp. the instrument in order to be considered negotiable must contain the so-called "words of negotiability — i. which amount includes interest at 14% per annum based on the diminishing balance. Pampanga." [d] it is payable to Violago Motor Sales Corporation.138. in the case of Consolidated Plywood Industries Inc.. 1983. xxx xxx xxx Maker.e. Pampanga. Co-Maker: (SIGNED) JUANITA SALAS _________________ Address: ____________________ ____________________ WITNESSES SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE TAN # TAN # PAY TO THE ORDER OF FILINVEST FINANCE AND LEASING CORPORATION VIOLAGO MOTOR SALES CORPORATION BY: (SIGNED) GENEVEVA V. Recently. I/We jointly and severally. there are only two ways by which an instrument may be made payable to order..

and may enforce payment of the instrument for the full amount thereof. [c] it took the same in good faith and for value.Under the circumstances. the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. 14 IN VIEW OF THE FOREGOING. 12 Accordingly. SO ORDERED. and [d] when it was negotiated to Filinvest. Gutierrez. and without notice that it had previously been dishonored. No. Almario and Laurel for petitioner. Bidin and Cortés. hence. where the VMS was never impleaded as a party. this matter cannot be passed upon in the case before us. 23 . petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. concur.. Indeed. the assailed decision is hereby AFFIRMED. respondent corporation holds the instrument free from any defect of title of prior parties. JJ.R. THE COURT OF APPEALS. to denial of due process. 13 This being so. improper and unconstitutional. Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her. Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case. and free from defenses available to prior parties among themselves. G. L-2516 September 25. She should have impleaded Violago Motor Sales. Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent. there is nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. petitioner. To even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question would amount. we reach a similar opinion as did respondent court when it held: We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. having taken the instrument under the following conditions: [a] it is complete and regular upon its face. Sabido. respondent. there appears to be no question that Filinvest is a holder in due course. [b] it became the holder thereof before it was overdue.. Hence. With costs against petitioner. vs. Jr. Laurel. 1950 ANG TEK LIAN. Feliciano.

(Tex. p. 732. the sum of P4.BENGZON. Permanent Edition. Moody (1916). Permanent Edition. that in view of this request and relying upon appellant's assurance that he had sufficient funds in the blank to meet Exhibit A. Where a check is in the ordinary form. November 16. but could not withdraw it from the bank. so that no indorsement is required." But cases there are too. When. 1946. Paco. Fernandez (59 Phil. a check drawn payable to the order of "cash" is a check payable to bearer. . and because they used to borrow money from each other. It appears that. until he was summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection therewith. and without informing the payee of such circumstances". it will be protected in paying a bearer check. E. subsection 2 of the Revised Penal Code. . 11. to have done so fully aware of the risk he was running thereby. Vol. (Michie on Banks and Banking. (b) loss of the check by the rightful owner. therefore." (Brief for the appellant. Pittsburgh Pipe & Supply Co. however. 343. The drawee bank need not obtain any indorsement of the check. the check Exhibits A upon the China Banking Corporation for the sum of P4. by every rational consideration. The Court of Appeals affirmed the verdict. 146 Misc. the next business day. Article 315. where no such requirement had been made . he (the offended party ) accepted the check (Exhibit A) from the appellant. in so accepting the check as it was drawn. (a) forgery of drawer's signature. p. 494. 615). . Y. that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian. the balance of the deposit of Ang Tek Lian on both dates being P335 only. said complainant delivered to him..) Of course. He delivered it to Lee Hua Hong in exchange for money which the latter handed in act.. knowing he had no funds therefor. A check payable to bearer is authority for payment to holder. 537. It depends upon the circumstances of each transaction. sec. 818. 17 Ga.. App. but may pay it to the person presenting it without any indorsement." the following line of reasoning is advanced in support of the argument: . appellant could not be located any-where. must be considered. App. but it was dishonored for insufficiency of funds. punishes swindling committed "By post dating a check. the defendant is not guilty of the offense charged. it being then already closed. it must be stated that. and it would incur no liability to the drawer in thus acting. etc. De Beck Plate Glass Co. (2d). Banks and Banking. (1907).000 represented by the check. even before the war.. and the bank may pay it to the person presenting it for payment without the drawer's indorsement. and is not negligent in falling to do so.. . the check was presented by Lee Hua Hong to the drawee bank for payment. Manila. We believe that under this provision of law Ang Tek Lian was properly held liable. the word cash "does not purport to be the name of any person". 1946. Cook & Son vs. . as explained in People vs. appellant went to his (complainant's) office. Y. Ang Tek Lian drew on Saturday. Consequently. vs. 5. he did so with full knowledge that it would be dishonored upon presentment. 831. 54 Misc. 1946. Civ. that the indorsement of the drawer — or of some other person known to it — be obtained. 1939). 24 . . for its protection. .. In that sense. and hence the instrument is payable to bearer. See also H.: For having issued a rubber check.. Vol. S. S. The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16. In this connection. . 839.) . that despite repeated efforts to notify him that the check had been dishonored by the bank. Banks and Banking. 87 S. Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. 713. Where a check is made payable to the order of "cash". J. 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.) We are not aware of the uniformity of such practice. the only question of law for decision is whether under the facts found. it has the right to demand identification and /or assurance against possible complications. 262 N. Instances have undoubtedly occurred wherein the Bank required the indorsement of the drawer before honoring a check payable to "cash. it will pay the instrument without further question. 9 [d]. — for instance. 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. Based on the proposition that "by uniform practice of all banks in the Philippines a check so drawn is invariably dishonored." Inasmuch as the findings of fact of the Court of Appeals are final. estafa had been accomplished. or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the bank. (Zollmann. The bank may therefore require.000 in cash. and is payable to bearer. National City Bank of New York (1933). 6. It is argued. if the bank is not sure of the bearer's identity or financial solvency. or any part thereof. 393. 135 S." 1 Morse. See Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for suspecting any irregularity. . p. W. Under the Negotiable Instruments Law (sec. Bacal vs. payable to the order of "cash". and that appellant has not paid as yet the amount of the check. the appellant could not be said to have acted fraudulently because the complainant. Cleary vs. A check payable to the order of cash is a bearer instrument. to which it is presented for payment. need not have the holder identified. On November 18. But where the Bank is satisfied of the identity and /or the economic standing of the bearer who tenders the check for collection. (c) raising of the amount payable. a bank.000. or the funds deposited by him in the bank were not sufficient to cover the amount of the check. . and appellant owns a hotel and restaurant known as the North Bay Hotel. Massachusetts Bonding & Insurance Co. 465. estafa is committed by issuing either a postdated check or an ordinary check to accomplish the deceit. paragraph (d). on the same date. at 1217 Herran.. 104 N. "no matter what facts unknown to it may have occurred prior to the presentment.

C. there being no question as to the correctness of the penalty imposed on the appellant. p. Paras. it is entirely reasonable for the bank to insist that holder give satisfactory proof of his identity. Pablo. 25 .Although a bank is entitled to pay the amount of a bearer check without further inquiry. Tuason. and conclusive. I. . it is significant. concur.. Moran. J. and Reyes. Wherefore. Ozaeta. JJ. the writ of certiorari is denied and the decision of the Court of Appeals is hereby affirmed. (Paton's Digest.. .) Anyway. that the form of the check Exhibit A was totally unconnected with its dishonor. with costs. Vol. 1089. . The Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds — not because the drawer's indorsement was lacking.

Santayana for Mary Cheng Uy.000. The essential elements are: (1) legal right of the plaintiff. until and unless the check is delivered to the payee or his representative. and (2) To enforce payment of two checks executed by Sima Wei.000. payable to petitioner. in the alternative or otherwise. the name of the payee. The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants. represented by its Legal Liquidator. instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation.02.00. 1983 with interest at 32% per annum. for the amount of P550. the mere fact that he has done these does not give rise to any liability on his part. the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat. on two causes of action: (1) To enforce payment of the balance of P1. inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter.G. that the transaction was legal and regular. leaving a balance of P1. CAMPOS. 1986. Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation. Samson Tung. of the Producers Bank. A negotiable instrument. ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES.820.. Monsod. SIMA WEI and/or LEE KIAN HUAT.000. RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS. 1993 DEVELOPMENT BANK OF RIZAL. bearing respectively the serial numbers 384934. Castelo for Sima Wei. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation. However. J. to pay the balance due on the promissory note. JR. Henry A. On November 18. assigning the following as the alleged errors of the Court of Appeals: 1 (1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN. Branch Manager of the Balintawak branch of Producers Bank. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance. the payee and the drawee bank.450. A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. SAMSON TUNG. MARY CHENG UY. President of Plastic Corporation. Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines.00 on or before June 24. engaging to pay the petitioner Bank or order the amount of P1. Eduardo G.02 on a promissory note executed by respondent Sima Wei on June 9. Rafael S. 85419 March 9.: On July 6. Hence. The trial court granted the defendants' Motions to Dismiss. The Court of Appeals affirmed this decision. (2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13. at the Balintawak branch. Sima Wei made partial payments on the note. defendants-respondents.032. Caloocan City. Tamargo & Associates for Producers Bank. Except for Lee Kian Huat. and (3) an act or omission of the defendant in violation of said legal right.00 and 384935. * to which the petitioner Bank. 1983. Cheng Uy. Just as a deed to a piece of land must be delivered in order to convey title to the grantee. and drawn against the China Banking Corporation. filed this Petition for Review by Certiorari. The antecedent facts of this case are as follows: In consideration for a loan extended by petitioner Bank to respondent Sima Wei. so 26 . petitioner filed the complaint as aforestated. 1983.R. these checks came into the possession of respondent Lee Kian Huat. is not only a written evidence of a contract right but is also a species of property. Mary Cheng Uy. For reasons not shown. of which a check is. Yngson & Associates for petitioner.032. plaintiff-petitioner. (2) correlative obligation of the defendant.450. 2 The normal parties to a check are the drawer. for the amount of P500. No. vs. defendants filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. relying on the assurance of respondent Samson Tung. the latter executed and delivered to the former a promissory note. who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation. the amount payable and the drawer's signature.

including Sima Wei..J. insofar as the other respondents are concerned. founded on said checks. 6 None of these exceptions were alleged by respondent Sima Wei. these checks were never delivered to petitioner Bank. unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause. in the alternative or otherwise. actual or constructive. the former did not acquire any right or interest therein and cannot therefore assert any cause of action. sued respondent Sima Wei on the promissory note. 3 Delivery of an instrument means transfer of possession. as this would in effect deprive the other party of his day in court. Petitioner Bank has therefore no cause of action against said respondents. On the first cause of action. whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for. . Section 16 of the Negotiable Instruments Law. provides in part: Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. In the original complaint. Therefore. . on the two checks. if the allegations in the complaint are found to be true. Thus. in the alternative or otherwise. concur. On appeal from the orders of dismissal of the Regional Trial Court. without admitting. We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of delivery. It therefore has no cause of action against the respondents. However. from one person to another. JJ.must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict — a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. in order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any amount under the promissory note allegedly signed by her. anything which the respondents may have done with respect to said checks could not have prejudiced petitioner Bank. and the alternative defendants. In the light of the foregoing. it is Sima Wei. consistent with this decision. 27 . Thus. The allegations of the petitioner in the original complaint show that the two (2) China Bank checks. 5 Notwithstanding the above. And even granting. .. Padilla. numbered 384934 and 384935. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. that there was delivery to petitioner Bank. who would have a cause of action against her co-respondents. the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. petitioner Bank. Narvasa. it never owned them (the checks) nor did it acquire any interest therein. were not delivered to the payee. If at all. as plaintiff. the case is REMANDED to the trial court for a trial on the merits. petitioner Bank has a right of action against her for the balance due thereon. Moreover. the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. It is well-settled that a party cannot change his theory on appeal. as We have earlier explained. the drawer. Rule 3 of the Rules of Court. the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. Regalado and Nocon. Since petitioner Bank never received the checks on which it based its action against said respondents. there can be no liability on the instrument. It had no right or interest in the checks which could have been violated by said respondents. petitioner Bank has no privity with them. With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13. it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. the petitioner herein. SO ORDERED. such delivery must be intended to give effect to the instrument. Without the delivery of said checks to petitioner-payee. C. which governs checks. 4 Without the initial delivery of the instrument from the drawer to the payee.

Upon motion of the defendant on July 25. Mamerto de la Cruz. in Civil Case No. As an added security for the payment of the amounts advanced to Encal Press and PhotoEngraving. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering the period from August 28. ARUEGO. 8 Aruego received a copy of the complaint together with the summons on December 2. b) In the case of a bill of exchange. Whereupon. the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. March 12." the printer." a periodical published by the defendant. First Division. 3 he was allowed by the Court of Appeals to file one consolidated record on appeal of CA-G. 1959. Thus. 1960. Nos. 1981 THE PHILIPPINE BANK OF COMMERCE. 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs.R. 1950 to March 14. and that he believed that he was signing only as an accommodation party.00 with daily interest thereon from November 17. 13 On March 7. 1960. 27940-R. copy of which was received by the defendant on December 24. 2 These two appeals of the defendant were docketed as CA-G.G. 4 In a resolution promulgated on March 1. NO. respectively. the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving). 7 The sum sought to be recovered represents the cost of the printing of "World Current Events.R. for every printing of the "World Current Events. the issues had not yet been joined.: The defendant.R. FERNANDEZ. the court denied defendant's motion for extension. said draft being sent later to the defendant for acceptance. collected the cost of printing by drawing a draft against the plaintiff. the defendant filed a motion to postpone the trial of the case on the ground that there having been no answer as yet. 15 On the same date. the defendant filed his answer to the complaint interposing the following defenses: That he signed the document upon which the plaintiff sues in his capacity as President of the Philippine Education Foundation. Aruego. vs. 11 The complaint was dismissed in an order dated December 22.R. 16 28 . acting upon the motion for reconsideration filed by the plaintiff. 42066 denying his motion to set aside the order declaring him in default. 14 A copy of the order setting aside the order of dismissal was received by the defendant on March 11. the trial court set aside its order dismissing the complaint and set the case for hearing on March 15. the Philippine Bank of Commerce instituted against Jose M. 1959. 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila. On the following day. 5 On December 1. Branch XIII. the defendant filed a motion to dismiss the complaint on December 17. 27734-R and CAG. NO. Jose M. J. L-25836-37 January 31. 27734-R and CA-G. 1966. the Court of Appeals. 1959. that his liability is only secondary. certified the consolidated appeal to the Supreme Court on the ground that only questions of law are involved. the defendant drawee is an accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. JOSE M. plaintiff-appellee.000. 42066 for the recovery of the total sum of about P35. without knowledge or consent of the defendant drawee. Aruego Civil Case No. 1 and from the order of said court in the same case denying his motion to set aside the judgment rendered after he was declared in default. like those involved in the case at bar.R. 1960 at 8:00 in the morning. 12 On January 13. 1951. 27940-R. 1959 on the ground that the complaint states no cause of action because: a) When the various bills of exchange were presented to the defendant as drawee for acceptance. appealed to the Court of Appeals from the order of the Court of First Instance of Manila. the plaintiff filed a motion for reconsideration. 1959 defendant filed an urgent motion for extension of time to plead. 1959. and set the hearing on December 16. NO. 1960. 10 At the hearing. 1959. 9 On December 14. 1960. NO. To facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. defendant-appellant. Encal Press and Photo Engraving.

his appeal bond. 1960 the defendant filed a notice of appeal from the order dated March 25. the defendant filed a motion for reconsideration of the trial court's order dismissing his appeal. 22 On May 19. 27734-R. the defendant immediately filed his answer on the following day. inadvertence. the trial court issued an order setting aside the order of dismissal.R. 24 On May 21. the defendant must not only show that his failure to answer was due to fraud. March 11. 1960. the defendant filed his answer to the complaint. an appeal bond in the amount of P60. 1960. especially because the order of the court dated March 7. (2) Appeal from the order denying his motion to set aside the judgment by default docketed as CA-G. at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that he has a good and substantial defense. 1960. he must show to the court that he has a meritorious defense. The defendant does not have a good and substantial defense. 1961 denying his motion to set aside the order declaring him in default. accident. 1960.On March 15. 1960 the trial court declared the defendant in default. The failure then of the defendant to file his answer on the last day for pleading is excusable. 1960 denying his motion to set aside the order of default. 1960. the lower court dismissed defendant's appeal from the order dated March 25. 1960. 17 On March 19. Defendant Aruego's defenses consist of the following: 29 . the defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order of default docketed as CA-G. 27 Upon opposition of the plaintiff filed on June 3. he has failed to show that he has a meritorious defense. 31 It has been held that to entitle a party to relief from a judgment taken against him through his mistake. on May 20. 1960 the defendant filed a motion to set aside the order of default alleging that although the order of the court dated March 7. defendant was one day late. 29 On June 20. II THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION. Moreover. 21 On May 9. 1960.00. the trial court reconsidered its previous order dismissing the appeal and approved the defendant's record on appeal. 1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the deputy sheriff. mistake or excusable negligence but also that he has a meritorious defense. the last day for filing his answer.R. The following day. 1960. the defendant filed his notice of appeal from the order of the court denying his motion to set aside the judgment by default. The defendant's record on appeal was approved by the trial court on June 25. 1960. 25 On May 30. 1960. and his record on appeal.35 representing the total amount of his obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the complaint as of November 15. 1960. 1960.000. He contends that by filing his answer on March 12. Attached to the motion are the affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7. It was therefore impossible for him to have filed his answer on that same day because the courts then held office only up to 5:00 o'clock in the afternoon. and that on the following day. informing the defendant that the record on appeal filed ed by the defendant was forwarded to the Clerk of Court of Appeals. in order to set aside the order of default. 18 The defendant learned of the order declaring him in default on March 21. 1960 at 5:00 in the afternoon. 1960. 1960. 1960. 20 On May 6. that on December 22. III THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 1960. The defendant also alleged that he has a good and substantial defense. 1960 the lower court dismissed the complaint. 27940-R. 26 On June 1. that on January 23. 30 Thus. On March 22. 28 the trial court denied the defendant's motion to set aside the judgment by default in an order of June 11. 1960. NO. The order setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. 1960. the defendant received a copy of a notice from the Clerk of Court dated May 26. opposed the defendant's motion for reconsideration of the order dismissing appeal. the plaintiff filed a motion for reconsideration and on March 7. that on December 17. 1960 on March 11. 1960. 1960.444. acting upon the motion for reconsideration. the defendant-appellant assigned the following errors: I THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT. while the defendant successfully proved that his failure to answer was due to excusable negligence. In his brief. 1960. it could not have been reasonably expected of the defendant to file his answer on the last day of the reglementary period. the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of P35. surprise or excusable neglect. The plaintiff filed his opposition to the approval of defendant's record on appeal on May 13. Aruego filed a motion to dismiss. NO. the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should have filed his answer on March 11. 1960. 23 The plaintiff. However. The record discloses that Aruego received a copy of the complaint together with the summons on December 2. 1960. and his record on appeal. 19 The trial court denied the defendant's motion on March 25. March 12. 1960. 1960 was received on March 11. 1960. 32 In other words. 1960 was brought to the attention of counsel only in the early hours of March 12. 1957 and the sum of P10.00 as attorney's fees. May 14. that a copy of the order was received by the defendant on March 11. within office hours. 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating the same ground previously advanced by him in his motion for relief from the order of default.

without pronouncement as to costs. the accommodation party is in effect a surety for the latter. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved. although these documents are labelled bills of exchange. 35 In lending his name to the accommodated party. so that in effect. b) The defendant signed these bills of exchange not as principal obligor. 42066 of the Court of First Instance of Manila denying the petition for relief from the judgment rendered in said case is hereby affirmed. that paper is considered a bill of exchange." An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company. legally they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the face value thereof. Guerrero and Melencio-Herrera JJ. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. the order appealed from in Civil Case No. Thus. The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance. without disclosing his principal. Under the Negotiable Instruments Law. Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity. signed by the person giving it. 37 WHEREFORE. publisher of "World Current Events and Decision Law Journal. This contention is also without merit. but not in the determination of whether a commercial paper is a bill of exchange or not. payment for the supposed bills of exchange were made before acceptance. as the then President of the Philippine Education Foundation Company.. It is evident then that the defendant's appeal can not prosper. a drawee is primarily liable. Such person is liable on the instrument to a holder for value. but the mere addition of words describing him as an agent or as filing a representative character. in the case in question. 36 As long as a commercial paper conforms with the definition of a bill of exchange. To grant the defendant's prayer will result in a new trial which will serve no purpose and will just waste the time of the courts as well as of the parties because the defense is nil or ineffective. The reason for this statement is that unlike real bills of exchange. drawer. Aruego is personally liable for the drafts he accepted. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal. In doing so. The defendant also contends that he signed the drafts only as an accommodation party and as such. He lends his name to enable the accommodated party to obtain credit or to raise money.a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity. notwithstanding such holder. drawer of the said bills of exchange in favor of the plaintiff bank. to add to the security of said plaintiff bank. Makasiar. but as accommodation or additional party obligor. An accommodation party is one who has signed the instrument as maker." printed by Encal Press and Photo-Engraving. This is also without merit. at the time of the taking of the instrument knew him to be only an accommodation party. he is not liable on the instrument if he was duly authorized. 30 . 33 The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president. should be made liable only after a showing that the drawer is incapable of paying. he became primarily and personally liable for the drafts. In the instant case. requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. without receiving value therefor and for the purpose of lending his name to some other person. with the defendant as only additional security of the same. the defendant signed as a drawee/acceptor. concur. indorser. SO ORDERED. he should not have signed as an acceptor/drawee. if the defendant who is a lawyer. does not exempt him from personal liability. Under the Negotiable Instrument Law. Teehankee (Chairman). where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee. a bill of exchange is an unconditional order in writting addressed by one person to another.

AFRDC and the GSIS for the collection of the unpaid balance under the Land Development and Construction Contract in the amount of P515. Ong (Ong). which was embodied in a Memorandum Agreement executed by HCCC and AFRDC on July 21. No.493. respondents. vs. AFRDC executed a Deed of Assignment in favor of HCCC to enable the latter to collect payments directly from the GSIS.000. Bulacan. and private respondent Herby Commercial & Construction Corporation (HCCC). Francisco Realty & Development Corporation (AFRDC).89 for completed and delivered housing units and land development. financed by the Government Service Insurance System (GSIS).00 from which checks would be issued and co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz). HCCC filed a complaint 3 with the Regional Trial Court of Quezon City against Francisco. the parties stipulated that HCCC had turned over 83 housing units which have been accepted and paid for by the GSIS. ONG.000. of which petitioner Adalia Francisco (Francisco) is the president. 1999 ADALIA FRANCISCO. HCCC agreed to undertake the construction of 35 housing units and the development of 35 hectares of land. COURT OF APPEALS.: Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals affirming the decision 2 rendered by Branch 168 of the Regional Trial Court of Pasig in Civil Case No. that is. 116320 November 29. To facilitate payment.91 which the former agreed would be paid out of the proceeds from the 40 housing units still to be turned over by HCCC or from any amount due to HCCC from the GSIS. HERBY COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C. the trial court dismissed the case upon the filing by the parties of a joint motion to dismiss. HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS. incomplete land development and 5% retention. Under the contract. The GSIS acknowledged that it still owed HCCC P520. the parties eventually arrived at an amicable settlement of their differences. 35231 in favor of private respondents.G.R. It was also provided that HCCC was indebted to AFRDC in the amount of P180. 31 . pursuant to a housing project of AFRDC at San Jose del Monte. The payment of HCCC for its services was on a turn-key basis. Furthermore. the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of Asia & America (IBAA) in the amount of P4. J. 1978.234. Under the agreement. 1977 by A.177. The controversy before this Court finds its origins in a Land Development and Construction Contract which was entered into on June 23. On February 10. petitioner. GONZAGA-REYES. However. Consequently.50 representing incomplete construction of housing units. which amount will be discharged when the defects and deficiencies are finally completed by HCCC. 1978. represented by its President and General Manager private respondent Jaime C.

the latter is ordered to reimburse the former for the sums that the Bank shall pay to the plaintiff on the forged checks including the interests paid thereon.475. Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI). With regards to the Memorandum Agreement entered into between AFRDC and HCCC in Civil Case No. the defendants are ordered to pay the costs.000. charging Francisco with estafa thru falsification of commercial documents. which dismissal was affirmed by the Minister of Justice in a resolution issued on June 5. However. after an examination of the records of the GSIS. Ong discovered that Diaz and Francisco had executed and signed seven checks 4. Upon inquiry with Diaz. without his knowledge or consent. On November 21. premises considered. judgment is hereby rendered in favor of the plaintiffs and against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA FRANCISCO. Also. reasoning that it was unbelievable that HCCC was experiencing financial difficulties so as to compel it to obtain the loans from AFRDC in view of the fact that the GSIS had issued checks in favor of HCCC at about the same time that the alleged advances were made. and for damages. According to Francisco.000. moral damages to plaintiff Jaime Ong in the sum of P50. litigation expenses of P5. The present case was brought by private respondents on November 19. Francisco denied having forged Ong's signature on the checks. With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. (Exhibit 3). On June 7. Francisco then indorsed the checks for a second time by signing her name at the back of the checks and deposited the checks in her IBAA savings account. without prejudice to the right of the latter to pursue its claims against Francisco. however. exemplary damages of P50. The respondent Court of Appeals erred in holding that Petitioner falsified the signature of private respondent ONG on the checks in question without any authority therefor which is patently contradictory to the unrebutted pleading and evidence that petitioner was expressly authorized by respondent HERBY thru ONG to collect all receivables of HERBY from GSIS to pay the loans extended to them. 32 . the absence of the signature of a co-signatory in the corporate checks of HCCC and the deposit of the checks on a second indorsement in the savings account of Francisco. she agreed to grant HCCC the loans in the total amount of P585. Such conclusion was based mainly on conjectures. claiming that Ong himself indorsed the seven checks in behalf of HCCC and delivered the same to Francisco in payment of the loans extended by Francisco to HCCC.Sometime in 1979. when in truth she was lending HCCC its own money. 1981. The trial court stated that it was plausible that Francisco concealed the fact of issuance of the checks from private respondents in order to make it appear as if she were accommodating private respondents.00. until private respondents acquired knowledge of Francisco's misdeeds in 1979. Francisco forged the signature of Ong. hence this petition for review on certiorari filed by petitioner. Q-24628. Further.000.475. Ong.000. 1979 against Francisco and IBAA for the recovery of P370. wherein HCCC acknowledged receipt of the amount of P370.00 plus interest thereon at the rate of 12% per annum from the date of the filing of the complaint until the full amount is paid. 1979. Ong filed complaints with the office of the city fiscal of Quezon City. After trial on the merits. 1992. Instead. the dispositive portion of which provides — WHEREFORE. IBAA and HCCC entered into a Compromise Agreement which was approved by the trial court. surmises and speculation contrary to the unrebutted pleadings and evidence presented by petitioner.00 and covered by eighteen promissory notes in order to obviate the risk of the non-completion of the project. that fact having been effectively concealed by Francisco.00. Assistant City Fiscal Ramon M.00 in full satisfaction of its claims against IBAA. Adalia Francisco. who was ordered to reimburse the IBAA for any sums it shall have to pay to private respondents. drawn against the IBAA and payable to HCCC for completed and delivered work under the contract. assigning the following errors to the appealed decision — 1. IBAA credited Francisco's account with the amount of the checks and the latter withdrew the amount so credited.00. the Court of Appeals affirmed the trial court's ruling.00. claims that these checks were never delivered to HCCC. On June 29.00. 2. 5 Both Francisco and IBAA appealed the trial court's decision. of various dates and amounts. 1989. The respondent Court of Appeals erred in concluding that private respondents did not owe Petitioner the sum covered by the Promissory Notes Exh. IBAA's motion for reconsideration and petition for review on certiorari filed with this Court were also similarly denied. the trial court held that the same did not make any mention of the forged checks since private respondents were as of yet unaware of their existence. As a means of repayment. attorney's fees. the court ruled that there were no loans extended. at the dorsal portion of the said checks to make it appear that HCCC had indorsed the checks.475. but the Court of Appeals dismissed IBAA's appeal for its failure to file its brief within the 45day extension granted by the appellate court.000. IBAA was held liable to private respondents for having honored the checks despite such obvious irregularities as the lack of initials to validate the alterations made on the check. 2-2-A-2-P (FRANCISCO). expenses of litigation and costs. the trial court held that Francisco had indeed forged the signature of Ong to make it appear that he had indorsed the checks. Ong allegedly issued a Certification authorizing Francisco to collect HCCC's receivables from the GSIS. the trial court rendered its decision in favor of private respondents. and attorney's fees of P50. Ong learned that the GSIS gave Francisco custody of the checks since she promised that she would deliver the same to HCCC. dismissed the complaints. the trial court allowed IBAA recourse against Francisco. Gerona gave credence to Francisco's claims and accordingly. to jointly and severally pay the plaintiffs the amount of P370. representing the total value of the seven checks.

00. When an obligation is breached. The respondent Court of Appeals erred in affirming the decision of the lower court and dismissing the appeal.000. a loan or forbearance of money. exemplary damages are imposed by way of example or correction for the public good. The actual base for the computation of legal interest shall. to be computed from the date of the filing of the complaint since the amount of damages was alleged in the complaint. Court of Appeals 19 and in Keng Hua Paper Products Co. we uphold the lower courts' finding that the subject matter of the present case. is breached. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. where the demand is established with reasonable certainty. Francisco deprived HCCC of the money due it from the GSIS pursuant to the Land Development and Construction Contract. The forgery was satisfactorily established in the trial court upon the strength of the findings of the NBI handwriting expert.475. 6 The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the seven checks.. Francisco deposited said checks in her savings account with IBAA.00. As observed by the trial court. surmise and speculation contrary to the unrebutted evidence presented by petitioners. 12 Petitioner's alternative defense must similarly fail. and the award of P5. when so signing. When the judgment of the court awarding a sum of money becomes final and executory. acknowledged having received the checks intended for HCCC. Court of Appeals. vs. provided it is supported by substantial evidence on record. When an obligation. The grant of exemplary damages justifies the award of attorney's fees in the amount of P50. Court of Appeals. we affirm respondent court's award of compensatory damages in the amount of P370.475. This is in accordance with the doctrine enunciated in Eastern Shipping Lines. 13 An agent. 18 Philippine Airlines. Every person who. this interim period being deemed to be by then an equivalent to a forbearance of credit.. deserve to be respected and affirmed by the Supreme Court. Q-24628.. i. but with a modification as to the interest rate which shall be six percent (6%) per annum. 7 We also note that Francisco had custody of the checks. Instead of signing Ong's name. authorized to sign Ong's name on the checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS.3. Inc. shall indemnify the latter for the same. Thus.00. temperate. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 1169. the rate of legal interest. finding that Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that. 8 by which she. not constituting a loan or forbearance of money. wilfully or negligently causes damage to another. Inc.000. 11 as it is in the case at bench. Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. he may indorse in such terms as to negative personal liability.. 21 33 .00 for litigation expenses. the Certification cannot be used by Francisco to validate her act of forgery.e.00. Under Article 2229 of the Civil Code. the interest due shall itself earn legal interest from the time it is judicially demanded. the rate of interest shall be 12% per annum to be computed from default. whether the case falls under paragraph 1 or paragraph 2. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). 14 Even assuming that Francisco was authorized by HCCC to sign Ong's name. including the questioned checks. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. No interest. Francisco did not indorse the instrument in accordance with law.e. Well-entrenched is the rule that findings of trial courts which are factual in nature.475. 15 Due to her forgery of Ong's signature which enabled her to deposit the checks in her own account. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. shall be twelve percent (12%) per annum from such finality until its satisfaction. should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal. be on the amount finally adjudged. fair and reasonable. 16 however.000. 17 which was reiterated in Philippine National Bank vs. Accordingly. This contradicts Francisco's claims that the checks were issued to Ong who delivered them to Francisco already indorsed. 9 As regards the forgery. in any event. That respondent Court of Appeals erred in holding that the seven checks in question were not taken up in the liquidation and reconciliation of all outstanding account between AFRDC and HERBY as acknowledged by the parties in Memorandum Agreement (Exh. in effect. et al. i. there is nothing in the records to rebut the NBI's findings. specifically the seven checks. Inc. 10 Other than petitioner's self-serving denials. the amounts represented by said checks could not have been included in the Memorandum Agreement executed in 1978 because private respondents only discovered Francisco's acts of forgery in 1979. It is an inference made which is manifestly mistaken. 5) is a pure conjecture. The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity. in any case. as proven by the check vouchers bearing her uncontested signature. vs. Considering petitioner's fraudulent act. Furthermore. aside from there being absolutely no mention of the checks in the said agreement. Thus. however. vs. above. 3. 2. We also sustain the award of exemplary damages in the amount of P50. contrary to law. we concur with the lower courts'. liquidated or compensatory damages. we hold that an award of P50. after indorsing the checks for a second time by signing her name at the back of the checks. the interest due should be that which may have been stipulated in writing. and it consists in the payment of a sum of money.00 would be adequate. in addition to the moral. especially when affirmed by the Court of Appeals. the rate of interest shall be twelve percent (12%) per annum from the time the judgment in this case becomes final and executory until its satisfaction and the basis for the computation of this twelve percent (12%) rate of interest shall be the amount of P370.000. drawn by GSIS and AFRDC. was not included in the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No. in the total amount of P370. 20 which provides that — 1. otherwise he shall be held personally liable. Petitioner claims that she was.00 and payable to HCCC. In this connection. Court of Appeals. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of six percent (6%) per annum. dated between October to November 1977. In the absence of stipulation. 4. The lower courts found that Francisco was able to easily conceal from private respondents even the fact of the issuance of the checks since she was a co-signatory thereof. still.

upholding the February 16. 1979. we AFFIRM the respondent court's decision promulgated on June 29.000. J. v. No.: 34 . G. SO ORDERED. Petitioner. the interest rate shall be twelve percent (12%) per annum from the time the judgment in this case becomes final and executory and until such amount is fully paid. Panganiban and Purisima. moral damages may be granted upon proof of physical suffering. No pronouncement as to costs. embarrassment. CASTRO. August 6. moral shock. Bausa. wounded feelings. fright. Aviado & Aranda for Respondent. 1988 decision of the trial court in favor of private respondents. besmirched reputation. mental anguish.475. which interest rate shall be computed from the time of the filing of the complaint on November 19.The appellate court's award of P50. The basis for computation of the six percent and twelve percent rates of interest shall be the amount of P370.00 in moral damages is warranted. JJ. concur. JAI-ALAI CORPORATION OF THE PHILIPPINES. 1975. L-29432. 22 Ong testitified that he suffered sleepless nights.. Ampil & Suarez for Petitioner. Vitug. social humiliation and similar injury.R. Under Article 2217 of the Civil Code. Melo. 23 WHEREFORE. with the modification that the interest upon the actual damages awarded shall be at six percent (6%) per annum. humiliation and anxiety upon discovering that the checks due his company were forged by petitioner and that petitioner had filed baseless criminal complaints against him before the fiscal's office of Quezon City which disrupted HCCC's business operations. Respondent. However. 1992. BANK OF THE PHILIPPINE ISLAND.00. serious anxiety.

70 21 4/27/59 B-335072 P2210. which the petitioner. and as well by the Court of Appeals. Hence. order:chanrob1es virtual 1aw library 5/14/59 1860160 P 500. Ramon Sarthou."cralaw virtua1aw library About the latter part of July 1959.00 23 5/6/59 B-364775 250. whether the latter is entitled to damages. the nature of the relationship created at that stage was one of agency.82 20 5/4/59 B-364764 250. and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila.58. as collecting bank.030. 1959. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service Inc. the drawers and the drawee-banks of the said checks about the forgeries. were. 34042-R dated June 25. In due time.000 payable to the order of the Mariano Olondriz y Cia. or order:chanrob1es virtual 1aw library Date Check Exhibit Deposited Number Amount Number 4/2/59 B-352680 P500. Inc. demanded reimbursement to their respective accounts from the draweebanks. the present recourse. It is our view nonetheless that no creditor-debtor relationship was created between the parties.8025cralaw:red 4. upon receipt of the latter of Inter-Island Gas dated August 31.ph "Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for deposit. Drawn by the Roxas Manufacturing.00 18 4/20/59 A-156907 372. had a balance of only P128." were forgeries. or bearer:chanrob1es virtual 1aw library 5/18/59 VN430188 P940.94 22 3. called up the petitioner’s cashier. When the petitioner deposited the checks with the respondent. In our opinion. Inc. upon deposit. after netting out the value of the checks P8. upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service. 1959 the current account of the petitioner. Ramirez. in payment of certain shares of stock. Inc.R. in current funds or solvent credits. the bank was to collect from the drawees of the checks the corresponding proceeds. since the same had already been paid by the drawee-banks and received in due course by the respondent. When the draweebanks returned the checks to the respondent. regardless of whether or not the item itself can be returned.030. 1959. temporarily credited to the petitioner’s account in accordance with the clause printed on the deposit slips issued by the respondent and which reads:jgc:chanrobles.00 27 All the foregoing checks. The respondent. Inc.A. Drawn by the Enrique Cortiz & Co. 1959 to May 18. The particulars of these checks are as follows:chanrob1es virtual 1aw library 1.This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for review of the decision of the Court of Appeals in C. dishonored by the respondent as its records showed that as of October 8. Manuel Garcia. which in turn demanded from the respondent. representing the total value of the checks with the forged indorsements. however. 35 . Inc. shall have been actually received by the Bank and the latter reserves to itself the right to charge back the item to the account of its depositor. The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila. 1 The respondent’s cashier. had not been properly credited to the petitioner’s account. is provisional only. on appeal. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner’s account. that is. Meanwhile. and(c) On the assumption that the respondent had improperly debited the petitioner’s current account. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the Inter-Island Gas Service. From April 2.257. debited the petitioner’s current account and forwarded to the latter the checks containing the forged indorsements. Santiago Amplayo and Vicenta Mucor (who were merely authorized to deposit checks issued payable to the said company) as well as the rubber stamp impression thereon reading "Inter-Island Gas Service. and advised the latter that in view of the circumstances he would debit the value of the checks against the petitioner’s account as soon as they were returned by the respective drawee-banks. the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers. so that following the rule in Gullas v. the latter paid their value which the former in turn paid to the Inter-Island Gas. for its part. 1959 the petitioner drew against its current account with the respondent a check for P135.58 were deposited by the petitioner in its current account with the respondent bank.00 26 5/18/59 1860660 P 500. On October 8. however.65.-G. the Inter-Island Gas advised the petitioner. a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games. These three issues interlock and will be resolved jointly. the respondent. at any time before that event.030. the drawers of the checks. refused to accept..58) with the forged indorsements. the return of the amounts they had paid on account thereof. having been notified of the forgeries. after Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter-bank clearing. which were acquired by the petitioner from one Antonio J. or bearer:chanrob1es virtual 1aw library 4/13/59 B-335063 P 2108.00 24 2. ten checks with a total face value of P8.com. which was however dismissed by the trial court after due trial. the respondent acted within legal bounds when it debited the petitioner’s account. until such time as the proceeds thereof. 1968 in favor of the Bank of the Philippine Islands (hereinafter referred to as the respondent). Philippine National Bank 2 it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner’s funds to make payments not authorized by the latter. The check was.32 19 4/24/59 A-156924 397. The issues posed by the petitioner in the instant petition may be briefly stated as follows:chanrob1es virtual 1aw library (a) Whether the respondent had the right to debit the petitioner’s current account in the amount corresponding to the total value of the checks in question after more than three months had elapsed from the date their value was credited to the petitioner’s account:(b) Whether the respondent is estopped from claiming that the amount of P8. upon the Philippine National Bank and payable to the Inter-Island Gas Service.

v. . the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. of which the Court takes due cognizance. exculpate the petitioner from liability with respect to them. "Every person negotiating an instrument by delivery . 25 and 27. Inc. No." said the Court." which. Indeed. J." Considering that the petitioner indorsed the said checks when it deposited them with the respondent. This conclusion applied similarly to exh." and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be. Hongkong & Shanghai Bank. That two of the crossed checks." at any time before "current funds or solvent credits shall have been actually received by the Bank. the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected. are bearer instruments would not. MAURICIA T. . The record shows that the respondent had acted promptly after being informed that the indorsements on the checks were forged. It could not have escaped the attention of the petitioner that the payee of all the checks was a corporation — the Inter-Island Gas Service. Any person taking checks made payable to a corporation. grossly recreant in accepting the checks in question from Ramirez. in contemplation of law. the judgment of the Court of Appeals is affirmed. Co. — was the payee thereof and Ramirez delivered the said checks to the petitioner ostensibly on the strength of the payee’s cashiers’ indorsements. for plaintiff-appellee. yet. Julio Baldonado for defendant-appellant.. a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery. and must abide by the consequences if the agent who indorses the same is without authority. the obligation to return it arises."cralaw virtua1aw library Since under the foregoing provision. would be the Respondent. the petitioner cashed these checks to a mere individual who was admittedly a habitue at its jaialai games without making any inquiry as to his authority to exchange checks belonging to the payee-corporation. therefore. namely." would not materially affect the conclusion we have reached. the indorsements on the checks had been forged prior to their delivery to the petitioner. the petitioner is deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all respects what it purports to be." Under that same section this warranty "extends in favor of no holder other than the immediate transferee. Jr. no valid payment of money made by the drawee-banks to the respondent on account of the questioned checks. for." "It was its duty to know. or to enforce payment thereof against any party thereto. under Section 67 of the Negotiable Instruments Law. JJ. ACCORDINGLY. can be acquired through or under such signature. moreover. 1975 REPUBLIC BANK. Moreover. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged signature. At all events. Esguerra. therefore. in our view. which may only be deposited. The respondent which relied upon the petitioner’s warranty should not be held liable for the resulting loss. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. defendant-appellant. 21 and 25. as its collecting agent. Inc. and. the payments made by the drawee-banks to the respondent on account of the said checks were ineffective." There was. plaintiff-appellee. In legal contemplation. "that [the payee’s] endorsement was genuine before cashing the check. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment.. upon the facts of record. . does so at his peril. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. National 6 the Court made the pronouncement that. Yet. which can act only by agents. EBRADA. vs. The fact that they are bearer checks and at the same time crossed checks should have aroused the petitioner’s suspicion as to the title of Ramirez over them and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner). it is wholly inoperative. had to reimburse to the drawee-banks." The petitioner must in turn shoulder the loss of the amounts which the respondent. and no right to retain the instrument. Muñoz Palma and Martin.Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 — "When a signature is forged or made without the authority of the person whose signature it purports to be. That stipulation prescribes that there must be an actual receipt by the bank of current funds or solvent credits. 36 . In Insular Drug Co. exhs. as a collecting bank which indorsed the checks to the drawee-banks for clearing. We do not consider material for the purposes of the case at bar that more than three months had elapsed since the proceeds of the checks in question were collected by the Respondent. the respondent cannot he expected to know or ascertain the genuineness of all prior indorsements on the said checks. in the case at bar. should be liable to the latter for reimbursement. it appearing on their face that a corporate entity — the Inter Island Gas Service. or to give a discharge therefor. for under Section 65 of the Negotiable Instrument Law. Makasiar. concur. 5 the Court ruled that it is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. ". Under article 2154 of the New Civil Code "If something is received when there is no right to demand it and it was unduly delivered through mistake. v. 21. as found by the court a quo and by the appellate court. warrants (a) That the instrument is genuine and in all respects what it purports to be. it stands to reason.R. 4 In Great Eastern Life Ins. having received the checks merely for collection and deposit. but not encashed. such being the case. Teehankee. that the respondent. L-40796 July 31. exhs. The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the right to charge back the item to the account of its depositor. the checks not having been properly and legitimately converted into cash. namely.. but as we have earlier indicated the transfer by the drawee-banks of funds to the respondent on account of the checks in question was ineffectual because made under the mistaken and valid assumption that the indorsements of the payee thereon were genuine. 22 which is an uncrossed bearer instrument. having itself indorsed them to the respondent in accordance with the rules and practices of commercial banks. at petitioner’s cost. "Where a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser." The petitioner was. is on leave. Sabino de Leon." (underscoring supplied) It must be noted further that three of the checks in question are crossed checks. G. the petitioner negligently accepted them for cash. .

She also alleged that the plaintiff Bank has no cause of action against her. 1966 a Fourth-Party complaint against Justina Tinio. 1963 defendant Mauricia T. but said defendant refused to do so. That they admit their respective capacities to sue and be sued. 1 Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the aforesaid check by the payee. 4. who in turn handed the said amount to the fourth-party defendant JUSTINA TINIO on the same date. Manila. 1966 defendant Ebrada filed a Third-Party complaint against Adelaida Dominguez who. Adelaida Dominguez. 3 Plaintiff Bank was then requested by the Bureau of Treasury to refund the amount of P1.08 at the main office of the plaintiff Republic Bank at Escolta. The check was issued by the Bureau of Treasury. Manila. and for Fourth-Party plaintiff against Fourth-Party defendant. that it is in estoppel. EBRADA. EBRADA by the Third-Party defendant and Fourth-Party plaintiff ADELAIDA DOMINGUEZ. as evidenced by the receipt signed by her which will be marked as Exhibit "1-Dominguez". encashed Back Pay Check No. plaintiff Bank made verbal and formal demands upon defendant Ebrada to account for the sum of P1.246. the trial court rendered a decision. the dispositive portion of which reads as follows: 37 . On July 11. On March 21. in this order: 1) MARTIN LORENZO. J. 1967.246.246. So plaintiff Bank sued defendant Ebrada before the City Court of Manila. EBRADA was affixed on said check on February 27. for Third-Party plaintiff against Third-Party defendant. Ebrada. defendant. and drawn on the Republic Bank.08. Philippines. plaintiff herein. filed on September 14. 6. 1963 for P1. 2. Third-Party defendant and Fourth-Party plaintiff and unto this Honorable Court most respectfully submit the following: PARTIAL STIPULATION OF FACTS 1. LORENZO." On or about February 27.246. defendant Ebrada took an appeal to the Court of First Instance of Manila where the parties submitted a partial stipulation of facts as follows: COME NOW the undersigned counsel for the plaintiff. in the sum of P1. 1966. has acquired her rights from a holder in due course and therefore entitled to the proceeds thereof. 5.246. 3. and 7.08. 1952. 69288. BP-508060. 508060 dated January 15. and 4) MAURICIA T. entitled "Republic Bank vs. "Martin Lorenzo" was a forgery 2 since the latter had allegedly died as of July 14.MARTIN. 1963 the Treasury of the Philippines issued its Check No. 5 About the same day. 1963 when she encashed it with the plaintiff Bank. From the judgment of the City Court. in turn. payable to the order of one MARTIN LORENZO. 1969. she immediately turned over the said amount to the third-party defendant and fourth-party plaintiff ADELAIDA DOMINGUEZ.08. EBRADA received the cash proceeds of said check in the sum of P1. July 11. That the signature of defendant MAURICIA T. That on January 15. defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses alleged that she was a holder in due course of the check in question. which check will be marked as Exhibit "A" for the plaintiff. Mauricia T. Based on the foregoing stipulation of facts and the documentary evidence presented. That immediately after defendant MAURICIA T. That the aforementioned check was delivered to the defendant MAURICIA T. June 6. That the back side of aforementioned check bears the following signatures. 3) DELIA DOMINGUEZ.08 from the plaintiff Bank. Justina Tinio. the City Court of Manila rendered judgment for the plaintiff Bank against defendant Ebrada. or so negligent as not to be entitled to recover anything from her. 2) RAMON R. Branch XXIII in Civil Case No. 4 To recover what it had refunded to the Bureau of Treasury. That the parties hereto reserve the right to present evidence on any other fact not covered by the foregoing stipulations. Ebrada. for the purpose of encashment.: Appeal on a question of law of the decision of the Court of First Instance of Manila. or at the very least.

the third indorser. Likewise it is admitted that defendant-appellant was the last indorser of the said check.W. it was discovered that the signature of the payee was forged? Can the drawee bank recover from the one who encashed the check? In the case of State v. it can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. SO ORDERED. the Court renders judgment ordering the defendant Mauricia T. it is wholly inoperative. 1966. In her appeal. have been detected and the fraud defeated. should be considered valid and enforceable. (b) That the instrument is at the time of his indorsement valid and subsisting. 197. with interest at the legal rate from the filing of the complaint on June 16. can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. it was held that it is only the negotiation based on the forged or unauthorized signature which is inoperative. barring any claim of forgery. the forgery would in all probability. or to give a discharge thereof against any party thereto. 590. Lorenzo. But does this mean that the existence of one forged signature therein will render void all the other negotiations of the check with respect to the other parties whose signature are genuine? In the case of Beam vs. The right of Mauricia T. may recover the money paid from such negligent purchasers. Ebrada. This means that the negotiation of the check in question from Martin Lorenzo. It turned out. and no right to retain the instruments. 113 N. Martin Lorenzo was a forgery because he was already dead 7 almost 11 years before the check in question was issued by the Bureau of Treasury. Bank. Lorenzo to Adelaida Dominguez. for under Section 65 of the Negotiable Instruments Law: 6 Every person negotiating an instrument by delivery or by qualified indorsement.WHEREFORE. In such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery. it was held that the drawee of a check can recover from the holder the money paid to him on a forged instrument. yet if the encasher of the check had performed his duty. The reason for allowing the drawee bank to recover from the encasher is: 38 . to Ramon R. From the stipulation of facts it is admitted that the check in question was delivered to defendant-appellant by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on said check when she cashed it with the plaintiff Bank. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has paid the forged check. The right of the estate of Dominguez to file the fourth-party complaint against Justina Tinio is also reserved. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. the second indorser. 196. 135 Iowa 670. without actual negligence on his part. should be declared of no affect. It is clear from the provision that where the signature on a negotiable instrument if forged. but the negotiation of the aforesaid check from Ramon R. warranty not extending only to holders in due course. Broadway Mut. Farrel. plus the costs in both instances against Mauricia T. Ebrada to file whatever claim she may have against Adelaida Dominguez in connection with this case is hereby reserved. What happens then. (b). (b) That she has good title to it. after the drawee bank has paid the amount of the check to the holder thereof. Under action 23 of the Negotiable Instruments Law (Act 2031): When a signature is forged or made without the authority of the person whose signature it purports to be. that the signature of the original payee of the check. Ebrada to pay the plaintiff the amount of ONE THOUSAND TWO FORTY-SIX 08/100 (P1. and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery. however. until fully paid. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine. and (c) of the next preceding sections. As such indorser. if. the original payee. she was supposed to have warranted that she has good title to said check.W. xxx xxx xxx and under Section 65 of the same Act: Every indorser who indorses without qualification warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a). defendant-appellant presses that the lower court erred: IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF THE SUBJECT CHECK AFTER FINDING THAT THE DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11-½ YEARS AND THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK. where a check has several indorsements on it. the negotiation of the check is without force or effect.246.08). Applying this principle to the case before Us. 282 S. warrants: (a) That the instrument is genuine and in all respects what it purports to be.

in the case before Us. IN VIEW OF THE FOREGOING. As reasoned out above. drawer. or misplaced confidence was the sole cause of the loss. If he is deceived he has suffered a loss of his cash or goods through his own mistake. 9 The Great Eastern Life Insurance Company drew its check for P2000.Every one with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. Such a person is liable on the instrument to a holder for value. Although the defendant-appellant to whom the plaintiff Bank paid the check was not proven to be the author of the supposed forgery.00 on the Hongkong and Shanghai Banking Corporation payable to the order of Lazaro Melicor. yet as last indorser of the check. SO ORDERED. or indorser. With the foregoing doctrine We are to concede that the plaintiff Bank should suffer the loss when it paid the amount of the check in question to defendantappellant. she acted as an accommodation party in the check for which she is also liable under Section 29 of the Negotiable Instruments Law (Act 2031). In our jurisdiction We have a case of similar import. concur.An accommodation party is one who has signed the instrument as maker. the Philippine National Bank indorsed the cheek to the Hongkong and Shanghai Banking Corporation which paid it and charged the amount of the check to the insurance company. Maasin fraudulently obtained the check and forged the signature of Melicor. the defendant-appellant. upon receiving the check in question from Adelaida Dominguez.246. The Court held that the Hongkong and Shanghai Banking Corporation was liable to the insurance company for the amount of the check and that the Philippine National Bank was in turn liable to the Hongkong and Shanghai Banking Corporation. she has warranted that she has good title to it 10 even if in fact she did not have it because the payee of the check was already dead 11 years before the check was issued. M. He accepts it only because he has proof that it is genuine. and its only remedy is against the person to whom it paid the money. His own credulity or recklessness. Said the Court: Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check. Why should he be permitted to shift the loss due to his own fault in assuming the risk. C. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. who has forged the signature of the payee. the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant. On the next day. the loss falls upon the bank who cashed the check.J. Makasiar and Esguerra. and then personally indorsed and presented the check to the Philippine National Bank where the amount of the check was placed to his (Maasin's) credit. without receiving value therefor. as an indorser. and where the bank pays the amount of the check to a third person.08 from the plaintiff Bank. upon the drawee. notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. 39 . and for the purpose of lending his name to some other person. Castro. simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented? 8 Similarly.. JJ. A certain E. or because he has sufficient confidence in the honesty and financial responsibility of the person who vouches for it. defendant-appellant immediately turned over said amount to Adelaida Dominguez (Third-Party defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her from liability because by doing so. in all probability the forgery would have been detected and the fraud defeated. thus: . it is the duty of the bank to know that the check was duly indorsed by the original payee. The fact that immediately after receiving title cash proceeds of the check in question in the amount of P1. but it has the remedy to recover from the latter the amount it paid to her. had she performed the duty of ascertaining the genuineness of the check. Makalintal. acceptor.

59582 4-8-69 Galauran 7.09 5-6-69 & Pilar 16. The background facts which led to the filing of the instant petition are summarized in the decision of the respondent Court of Appeals: Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and controlled corporation created under Republic Act No. petitioner. 6234 as the successor-in. Branch XL. 6. 59547 3-31-69 Pangilinan 195. Africa.000. 59548 3-31-69 Natividad 2. the MWSS used personalized checks in drawing from this account. 010-500281. 6.00 Unreleased Enterprises 4. 59564 4-2-69 Ind.00 Unreleased Bulletin 14. Among the several accounts of NWSA with PNB is NWSA Account No. The Philippine National Bank (PNB for short).R. Juan J.interest of the defunct NWSA.187. San Juan..60 4-16 69 Engineering 7.583. 381-777 and which is presently allocated No. 59580 4-8-69 Phil.G.88 4-23-69 Rosario 5. Their respective specimen signatures were submitted by the MWSS to and on file with the PNB.391.00 4-11 69 40 .00 4-11-69 Santos 13. L-62943 July 14. Gonzales & San Agustin Law Offices for respondent PCIB. 59558 4-2-69 The Evening 112.00 4-22-69 Marsan 11. issued and released by NWSA. 59568 4-7-69 Roberto 800. vs. Diaz and Cesar T. 59546 8-21-69 Deogracias P 3. and its acting General Manager Victor L. Herald 100. Caloocan City. is the depository bank of MWSS and its predecessor-in-interest NWSA. Daily 95.: This petition for review asks us to set aside the October 29. No. as well as the defendant's counterclaim. April and May 1969.59 5-6-69 & Sons 6.06 4-18 69 Int. 6 were those of MWSS treasurer Jose Sanchez.00 5-12 69 Chronicle 17.00 4-22-69 12. and dismissed the plaintiff's complaint.239.729. processed.848. By special arrangement with the PNB. 10. now Intermediate Appellate Court which reversed the decision of the Court of First Instance of Manila. the third party complaint. These checks were printed for MWSS by its printer. twenty-three (23) checks were prepared. JR. The authorized signature for said Account No. During the months of March.00 Unreleased News 8. Insp.86 4-23 69 Rosario 3. 59570 4-7-69 Paz Andres 200. to wit: Check No.00 5-9-69 15. 59574 4-8-69 Florentino 100. 1982 decision of the respondent Court of Appeals. 59578 4-8-69 Mla. F. Recio. all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. Basa for respondent PNB. 59544 3-27-69 Progressive 18. 9. Date Payee Amount Date Paid By PNB 1. 59554 4-1-69 Gascom 6. 59552 4-1-69 Villarama 987. its auditor Pedro Aguilar. on the other hand. located at 1775 Rizal Extension. J.057. 1986 METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM. otherwise known as Account No. Mesina Enterprises. COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK. 594. 59549 3-31-69 Natividad 3.79 4-2-69 Estrella 2. 59588 4-8-69 Treago 21.20 4-18 69 Const. respondents. Inc. GUTIERREZ. 59581 4-8-69 Manila 110.

Thru the Central Bank Clearing.401. and Arturo Sison Pl.903. NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 21.429. including the genuineness of the signatures of authorized NWSA signing officers and there was nothing on its face that could have aroused any suspicion as to its genuineness and due execution and.59595 4-28-69 Arturo Sison 190.59580 4-8-69 Arturo Sison 160.00 5-21-69 --------------P3. 1969.00 4-29-69 13.000. PNB contended among others.00 4-29-69 Mendoza 14. At the time of their presentation to PNB these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed.00 5-16-69 Mendoza 22.59577 4-14-69 Antonio 260.59578 4-10-69 Antonio 93.950.00 5-8-69 18.59594 4-18-69 Arturo Sison 280.33.450. 88950. PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they failed to ascertain the Identity of the payees and their title to the checks which were deposited in the respective new accounts of the payees with them. xxx xxx xxx On February 6.790. 59544 3-16-69 Antonio 38.457.000.800.610. 59552 3-24-69 Arturo Sison 63. April and May 1969.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks. "In view of the refusal of PNB to credit back to Account No.59570 4-1-69 Arturo Sison 64.00 4-17-69 7.400.00 5-5-69 16. 59544 3-26-69 Arturo Sison 98.00 4-18-69 Torres 23.00 as of May 23.00 MWSS filed the instant complaint on November 10.59589 4-18-69 Arturo Sison 122.903.257. On June 11. -------------------P 320. 59548 3-11-69 Raul Dizon 104. 59564 3-31-69 Arturo Sison 180.457.900.92 as of June 30.903. 6. 59546 3-6-69 Raul Dizon P 84.398.000. April and May 1969. that NWSA was guilty of negligence which was the proximate cause of the loss. The respective balances in their current account with the PBC and/or PCIB stood as follows: Raul Dizon P3. 59549 3-20-69 Arturo Sison 48. The dispositive portion of the decision reads: 41 .000. 59589 4-10-69 Deogracias 1. 59601 4-16-69 Justino 20. twenty-three (23) checks bearing the same numbers as the aforementioned NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account No.00 5-2-69 15.000.49 4-16 69 Estrella 20.550.00 5-19-69 23. 4.940.000.59574 4-2-69 Arturo Sison 148.26 During the same months of March.000.457.580.00 as of April 30.840. to wit: Check Date Payee Amount Date Paid No.00 4-16-69 6. Arturo Sison and Antonio Mendoza were all fictitious persons.78 4-29 69 22. Antonio Mendoza P18.00 4-1-69 3. 59594 4-14-69 Philam Ac.00 4-23-69 10.59588 4-16-69 Arturo Sison 176. these checks were presented for payment by PBC and PCIB to the defendant PNB.000.00 5-12-69 19.00 4-11-69 Santiago 19.636. and paid.5-69 11. 59547 3-14-69 Arturo Sison 56.03 4-29 69 cident Inc.00 3-16-69 2. 59558 3-28-69 Arturo Sison 114.00 4-21-69 8. 59577 4-8-69 Esla 9. Issued By PNB 1.845. 6.59581 4-8-69 Antonio 176.59582 4-10-69 Arturo Sison 155. April and May 1969.903. 1972 before the Court of First Instance of Manila and docketed thereat as Civil Case No.00 4-11-69 4.903.274. 59595 4-14-69 Neris Phil.59568 4-2-69 Arturo Sison 134. 1969.490.00 5-14-69 20. 59587 4-8-69 Delfin 120. Arturo Sison and Antonio Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March.00 The foregoing checks were deposited by the payees Raul Dizon.000.00 4. the Court of First Instance of Manila rendered judgment in favor of the MWSS.00 5-6-69 Mendoza 17.00 4-15-69 5. 6 the said total sum of P3. 1969.00 5-20-69 Inc.' Subsequent investigation however. also in the months of March.00 5-15-69 21. that the checks in question were regular on its face in all respects.455.59587 4-16-69 Arturo Sison 300. In its answer. conducted by the NBI showed that Raul Dizon.00 4-22-69 Mendoza 9. of the total sum of P3.Tunnel 18. 1976.00 4-28-69 12.182. 1969.59601 4-18-69 Arturo Sison 400.

1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay in the reconciliation of 42 . for lack of evidence. 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief Auditor of the petitioner. A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated January 3. II. (4) the Memorandum of Mr. and if it pays a forged check it must be considered as making the payment out of its obligation funds. hereby renders judgment in favor of the third party defendants Philippine Bank of Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party Complaint. That the Philippine National Bank then endorsed the chock and forwarded it to the Shanghai Bank by whom it was paid. Bank of the P. that the checks in question were not printed by his printing press. The petitioner now raises the following assignments of errors for the grant of this petition: I. On the contrary. AND THE CHECKS SPURIOUS. 59 Phil. It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks. the Court. The petitioner states that granting that Section 24 of the Negotiable Instruments Law is applicable. The appellate court applied Section 24 of the Negotiable Instruments Law which provides: Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value. (Great Eastern Life Ins. No pronouncement as to costs. Juan Dino. 1983. 6. The petitioner submits that the above provision does not apply to the facts of the instant case because the questioned checks were not those of the MWSS and neither were they drawn by its authorized signatories. and placed the money to the credit of Maasim. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY FORGED.WHEREFORE. A bank is bound to know the signatures of its customers. 43 Phil. v. 6. the findings of the National Bureau of Investigation in its Report dated November 2. Co. THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW. There is no express and categorical finding in these documents that the twenty-three (23) questioned checks were indeed signed by persons other than the authorized MWSS signatories. (2) the NBI Report of November 21. It was its legal duty to know that Malicor's endorsement was genuine before cashing the check. III.457. I.903. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED. C-74891. 1970.00) to plaintiff's Account No. Hongkong & Shanghai Bank. and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. 1974. SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE. (3) the NBI Chemistry Report No. under Section 23 of the Negotiable Instruments Law they are not a charge against plaintiff nor are the checks of any value to the defendant. 010-50030-3. the respondent court reversed the decision of the Court of First Instance of Manila and rendered judgment in favor of the respondent Philippine National Bank. We have carefully reviewed the documents cited by the petitioner. (San Carlos Milling Co. Faustino Mesina. Mr. As earlier stated. 59) It is admitted that the Philippine National Bank cashed the check upon a forged signature. the Court hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3. On the THIRD PARTY COMPLAINT. Jr. on the COMPLAINT by a clear preponderance of evidence and in accordance with Section 23 of the Negotiable Instruments Law. to wit: (1) the NBI Report of November 2. xxx xxx xxx The signatures to the checks being forged. who was the forger. with legal interest thereon computed from the date of the filing of the complaint and until as restored in the said Account No. The petitioner contends that since the signatures of the checks were forgeries. The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forged signature. otherwise known as Account No. the same creates only a prima facie presumption which was overcome by the following documents. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING IdENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER. 678). The counterclaims of the third party defendants are likewise dismissed for lack of evidence. Its remedy is against Maasim to whom it paid the money. and (6) the admission of the respondent bank's witness. the respondent drawee bank must bear the loss under the rulings of this Court.. v. (5) the admission of the respondent bank's counsel in open court that the National Bureau of Investigation found the signature on the twenty-three (23) checks in question to be forgeries.

and convincing evidence. (3) The petitioner failed to provide any control regarding the paper used in the printing of said checks. because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been negotiated. the cashier of the petitioner whose signatures were allegedly forged was unable to ten the difference between the allegedly forged signature and his own genuine signature. however. 59) and Great Eastern Life Ins. After intent comparison. 10 SCRA 8) The records show that at the time the twenty-three (23) checks were prepared. (4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting. EFFECT OF. check vouchers. or to give a discharge therefor. The cases of San Carlos Milling Co. Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and the alleged forgeries. instead of the official PNB Commercial blank checks. Jr. A. Villatuya. or to enforce payment thereof against any party thereto can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. FORGED SIGNATURE. VP Maramag requested me to see him in his office at the Cashier's Dept. Lechuga. Tolentino. In the exercise of this special privilege. therefore. Likewise. Executive VicePresident of the petitioner dated June 9.. negotiated. 1974 of the National Bureau of Investigation does not declare or prove that the signatures appearing on the questioned checks are forgeries. Assistant Chief Accountant of the drawee Philippine National Bank to Mr. The NBI Chemistry Report No. v. To everybody there present namely VIP Maramag. The memorandum of Mr. specific instructions relative to the safekeeping and disposition of excess forms. Buhain. one of those under question. Upon my arrival I observed the NAWASA officials questioning the issue of the NAWASA checks appearing in their own list. Equitable Banking Corporation. where Messrs. 159-1074 dated November 21. the allegations of forgery were not clearly established during trial. It must be established by clear. In fact 3 checks. the checks were taken from our file. xxx xxx xxx Moreover. and encashed.bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. (2) The petitioner failed to retrieve from its printer all spoiled check forms. Asst. On the other hand. and safety papers. Asst. the petitioner failed to provide the needed security measures. to wit: (1) The petitioner failed to give its printer. Co. Intermediate Appellate Court. the questioned Documents Report No. The report merely mentions the alleged differences in the type face. he pointed on the questioned check as bearing his correct signature. and printing characteristics appearing in the standard or submitted models and the questioned typewritings. positive. AVP. (See Republic v. Cashier Tejada and Messrs. This gross negligence of the petitioner is very evident from the sworn statement dated June 19. were presented to the NAWASA treasurer for verification but he could not point out which was his genuine signature. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. Indeed. Sanchez. the MWSS officials admitted that these checks could easily be passed on as genuine.When the signature is forged or made without authority of the person whose signature it purports to be. Lopez and L. and no right to retain the instrument. E. That there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted facts. et al. the petitioner was using its own personalized checks.. Forgery cannot be presumed (Siasat. T. v. Jose M. v. et al. et al. It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. xerox copy attached. no one was able to point out any difference on the signatures of the NAWASA officials appearing on the checks compared to their official signatures on file. Bank of the Philippine Islands.. At about 12:00 o'clock on June 6. and (5) The petitioner failed to send a representative to the printing office during the printing of said checks. Mesina Enterprises. checkwriting. the twenty-three (23) checks in question could have been presented to the petitioner's signatories without their knowing that they were bogus checks. both C/A bookkeepers. For verification purposes. the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which provides that: SEC. Ltd. and print used by its printer in the printing of its checks and of the inks and pens used in signing the same. no. A. the owner of the printing press which printed the petitioner's personalized checks: 43 . treasurer of NAWASA and Romeo Oliva of the same office were present. 23. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those cases were either clearly established or admitted while in the instant case. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons. C-74-891 merely describes the inks and pens used in writing the alleged forged signatures. cheek writing. This was not done in the present case. Hongkong and Shanghai Bank (43 Phil. 1969 cites an instance where even the concerned NWSA officials could not ten the differences between the genuine checks and the alleged forged checks. 139 SCRA 238). (59 Phil. it is wholly inoperative. 1969 of Faustino Mesina. Cashier Castelo. the two abovementioned NAWASA officials. 1969.

sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check xxx xxx xxx 15. a paper dealer with store located at Juan Luna. Q: Were all these check vouchers printed by you submitted to NAWASA? A: Not all. sir. sir. Binondo. I cannot determine the proportion of the excess and spoiled because the final act of perforating these check vouchers has not yet been done and spoilage can only be determined after this final act of printing. 16. Because we have to make reservations or allowances for spoilage. 33. xxx xxx xxx 20. 44 . Q: Out of these vouchers printed by you. 29. xxx xxx xxx 24. how many sheets were actually spoiled? A: I cannot approximate. But there are spoilage in the process of printing and perforating. sir. Q: What do you intend to do with these excess printed check vouchers? A: I intend to use them for future orders from the xxx xxx xxx 32. Manila. in the garbage can. Q: Where did you buy this Hammermill Safety check paper? A: From Tan Chiong. 25. Q: What did you do with these spoilages? A: Spoiled printed materials are usually thrown out. I was not instructed. (In front of the Metropolitan Bank).xxx xxx xxx 7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority (NAWASA)? A: Yes. Q: Were you given any ingtruction by the NAWASA in connection with the printing of these check vouchers? A: There is none. Q: In the process of printing the check vouchers ordered by the NAWASA. sir. sir. sir. Q: What did you do with these excess check vouchers? A: I keep it under lock and key in my firing cabinet. Q: Were you not instructed by the NAWASA authorities to bum these excess check vouchers? A: No. 26. how many were spoiled and how many were the excess printed check vouchers? A: Approximately four hundred (400) sheets. No instruction whatsoever was given to me. Q: Were you not advised as to what kind of paper would be used in the check vouchers? A: Only as per sample. xxx xxx xxx 28.

See also Leather Manufacturers' Bank v. in its report submitted to their General manager underscored this laxity of records control. the fraudulent encashments of the first checks should have been discovered. however. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with the petitioner's records. As a consequence. Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the failure of the petitioner to reconcile the bank statements with its own records. If the depositor has filled out his check stubs properly. Deer Island Fish and Oyster Co. We observed also that there is some laxity and loose control in the printing of NAWASA cheeks. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA bank accounts." When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation. 106 Va. Q: During the period of printing after the days work. 56 SE 152. Mr. where some persons enter my office because they are following up their checks. 146 So. Emiliano Zaporteza. a comparison between them and the cancelled checks will reveal any forged check not taken from his checkbook. This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National Bureau of Investigation in its report dated November 2. Campos and Campos. pp. This negligence was. Pantig. 1970: 58. 7 LRA. Had the NAWASA representative come to the PNB early for the statements and had the bank been advised promptly of the reported bogus check. We gathered from MESINA ENTERPRISES. the proximate cause of the failure to discover the fraud.. First Nat. Bank of Richmond v. Generally my order is not to allow anybody to enter my office. The petitioner's own Fact Finding Committee. totalling P2. the negotiation of practically all of the remaining checks on May. the name of the payee and the amount thereof. 116 [1933]).34. and further frauds prevented. he was unreasonably delayed in taking prompt deliveries of the said bank statements and credit and debit memos. 6 S. these persons may have been authorized by Mr. 657 [1886]. Ct. Mr. Zaporteza failed to reconcile the bank statements with the petitioner's records. he should also fill out the check stub to which the check is usually attached. Morgan. sir. xxx xxx xxx 39. Most of the people entering 45 . Only authorized persons are allowed to enter my office. Richmond Electric Co. v. The records show that the petitioner requested the respondent drawee bank to discontinue the practice of mailing the bank statements. his check stubs and other pertinent records within a reasonable time. 117 US 96. the printing firm that undertook the printing of the check vouchers of NAWASA that NAWASA had no representative at the printing press during the process of the printing and no particular security measure instructions adopted to safeguard the interest of the government in connection with printing of this accountable form. together with all the cancelled checks which have been cashed by their respective holders. 267-268). 1969. and to report any errors without unreasonable delay. When a person opens a checking account with a bank. 1971. Bank of Biloxi. It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail.00 could have been prevented. Ongtengco (Cashier No. If Mr. Each time he issues a check. will contain the number of the check. The drawer would therefore have a complete record of the checks he issues. 162. Maybe. we just leave the mold attached to the machine and the other finished or unfinished work check vouchers are left in the rack so that the work could be continued the following day. If his negligence should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on such check. Thus. he is given blank checks which he may fill out and use whenever he wishes. This stub. what measures do you undertake to safeguard the mold and other paraphernalia used in the printing of these particular orders of NAWASA? A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the guarding. he cannot later complain should the bank refuse to recredit his account with the amount of such check. 166 Miss. It is the custom of banks to send to its depositors a monthly statement of the status of their accounts. (First Nat.224. his cancelled checks. VI of the Treasury Department at the NAWASA) is quite open to any person known to him or his staff members and that the check writer is merely on top of his table. The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. therefore. NS 744 [1907]. but instead to deliver the same to a certain Mr. Ongtengco could only state that: A. Notes and Selected Cases on Negotiable Instruments Law. It is the duty of a depositor to carefully examine the bank's statement.736. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of these check vouchers? A: None. 347. There are some cases. if properly kept. The National Bureau of Investigation Report dated November 2. Zaporteza however. It observed that the "office of Mr. For reasons known only to Mr. x x x. 1970 is even more explicit. Thus— xxx xxx xxx 60. the date of its issue.

the petitioner claims that it was the negligence of the respondent Philippine National Bank that was the proximate cause of the loss. the respondent Bank had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. Rest assured that even though that everybody will get hurt. Ongtengco. Auditing Department. it should be noted. to pay its amount to Augusto Lim. No. In other words. not only to believe that the check was genuine and good in every respect. There is a place for the check write which is also under lock and key. As pointed earlier in this report. Signatures of drawers should be properly scrutinized and compared with those we have on file. To protect the interest of the bank. The petitioner relies on our ruling in Philippine National Bank v. The texture of the paper used and the printing of the checks should be compared with the sample we have on file with the Cashier's Dept. Thus. the PNB was the primary or proximate cause of the loss. The records show that the respondent drawee bank. it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. I am not aware of it but it only takes us a couple of minutes to process the checks. As a reminder please be guided with the following: 1. 3. I win do my best not to allow unauthorized persons to enter my office. And there are cases wherein every information about the checks may be obtained from the Accounting Department. an outsider without information from the inside can not possibly pinpoint which of NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. aside from the fact that these fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks. After being apprised of all the shortcomings in your office. but. I do not want to embarrass Mr. and by actually paying its amount to the PCIB.my office are changing checks as allowed by the Resolution of the Board of Directors of the NAWASA and the Treasurer. xxx xxx xxx Q. Q. 5. by thereby indicating that the PNB had found nothing wrong with the check and would honor the same. and. 1966 reads in part: SUBJECT: ACTIVITIES OF FORGERY SYNDICATE From reliable information we have gathered that personalized checks of current account depositors are now the target of the forgery syndicate. 2. From the answers that you have given to us we observed that actually there is laxity and poor control on your part with regards to the preparations of check payments inasmuch as you allow unauthorized persons to follow up their vouchers inside your office which may leakout confidential informations or your books of account. the PNB induced the latter. Pantig admitting unauthorized persons in your office? A. Pantig. I will do it but unfortunately the persons who are allowed to enter my office are my co-employees and persons who have connections with our higher ups and I can not possibly antagonize them. considering the petitioner's gross negligence. Checks bearing several indorsements should be given a special attention. sir. Most of the people following up checks are employees of the NAWASA. hence. Is it not possible inasmuch as your office is in charge of the posting of check payments in your books that leakage of payments to the banks came from your office? A. 1970 that the fraudulent encashment of the twenty-three (23)cheeks in question was an "inside job". No. xxx xxx xxx Q. The Memorandum of the Assistant Vice-President and Chief Accountant of the Philippine National Bank dated February 17. Why are you tolerating Mr. the National Bureau of Investigation concluded in its Report dated November 2. In fact. Relying on the foregoing statement of Mr. Is Mr. Alteration in amount both in figures and words should be carefully examined even if signed by the drawer. had taken the necessary measures in the detection of forged checks and the prevention of their fraudulent encashment. Time and again the Treasurer has been calling our attention not to allow interested persons to hand carry their voucher checks and we are trying our best and if I can do it to follow the instructions to the letter. sir. you are hereby enjoined to be more careful in examining said checks especially those coming from the clearing. Even if the twenty-three (23) checks in question are considered forgeries. While knowledge as to such facts may be obtained through the possession of a NAWASA check of current issue. was dishonored for insufficiency of funds. mails and window transactions. None of these checks. by not returning the cheek to the PCIB. Court of Appeals (25 SCRA 693) that. Pantig authorized to allow unauthorized persons to enter your office? A. The argument has no merit. . . Was the authority given by the Board of Directors and the approval by the Treasurer for employees. or the Office of the General Manager. Q. Nonetheless. and your attention is also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers. 46 . The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept. 6. The check writer was never placed on my table. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big amounts should be brought to the attention of the drawer by telephone or any fastest means of communication for purposes of confirmation. ThusWe have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside connivance at NAWASA. Q. 4. long before the encashment of the twenty-three (23) checks in question. may not recover from the PCIB. and other persons to encash their checks carry with it their authority to enter your office? A. the serial numbers of these checks in question conform with the numbers in current use of NAWASA. also. as head of the Cashiers' Office of the Treasury Department what remedial measures do you intend to undertake? A.

We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private
printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to
safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the respondent Court of Appeals dated October
29, 1982 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur. Paras * , J., took no part.
G.R. No. 74917 January 20, 1988
BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY,
BRANCH XCII (92), respondents.

GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on March 24, 1986 in Civil Case No. Q46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the Philippine Clearing House Corporation after a
review of the Decision of the Board of Directors of the Philippine Clearing House Corporation (PCHC) in the case of Equitable Banking Corporation (EBC)
vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No. 84033.
The undisputed facts are as follows:
It appears that some time in March, April, May and August 1983, plaintiff through its Visa Card Department, drew six crossed
Manager's check (Exhibits "A" to "F", and herein referred to as Checks) having an aggregate amount of Forty Five Thousand Nine
Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member establishments of Visa Card. Subsequently,
the Checks were deposited with the defendant to the credit of its depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or lack of
endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House Corporation (PCHC).
Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the Checks and defendant's clearing account
was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that of the payees
were forged and/or unauthorized or otherwise belong to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for the purpose of
claiming reimbursement from the latter. However, defendant refused to accept such direct presentation and to reimburse the plaintiff
for the value of the Checks; hence, this case.
In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with interest at the
rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00 as well as the cost of the
suit.
In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented for Arbitration; and Atty.
Ceasar Querubin was designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the defendant
ordering the PCHC to debit the clearing account of the defendant, and to credit the clearing account of the plaintiff of the amount of
P45,982.23 with interest at the rate of 12% per annum from date of the complaint and Attorney's fee in the amount of P5,000.00. No
pronouncement as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of the said Arbiter in this wise:
In view of all the foregoing, the decision of the Arbiter is confirmed; and the Philippine Clearing House Corporation is hereby ordered
to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount of Forty Five Thousand Nine

47

Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per annum from date of the complaint, and the
Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.
Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due course a decision was rendered affirming in
toto the decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC?
4. What law should govern in resolving controversies of this nature?
5. Was the petitioner bank negligent and thus responsible for any undue payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and Regulations of PCHC cover and apply only to
checks that are genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the Articles of Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate service limited to
check processing and sorting by way of assisting member banks, entities in clearing checks and other clearing items as defined in
existing and in future Central Bank of the Philippines circulars, memoranda, circular letters, rules and regulations and policies in
pursuance to the provisions of Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:
xxx xxx xxx
The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of Section 1000 shall serve as
a basis for the clearing of checks, and the settlement of interbank balances ...
Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of incorporation of the PCHC, the
Central Bank and the Clearing House Rules stating that it is a negotiable instrument citing the definition of a "check" as basically a "bill of exchange" under
Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126 of game law. Petitioner alleges that with the cancellation of
the printed words "or bearer from the face of the check, it becomes non-negotiable so the PCHC has no jurisdiction over the case.
The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or nature of the
checks subject of its jurisdiction. The pertinent provisions quoted in petitioners memorandum simply refer to check(s). Where the law
does not distinguish, we shall not distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court categorically stated that there are four
kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the crossed check. The Court,
further elucidated, that while the Negotiable Instruments Law does not contain any provision on crossed checks, it is coon practice
in commercial and banking operations to issue checks of this character, obviously in accordance with Article 541 of the Code of
Commerce. Attention is likewise called to Section 185 of the Negotiable Instruments Law:
Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply
to a check
and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating or limiting his
own liability to the holder. Consequently, it appears that the use of the term "check" in the Articles of Incorporation of PCHC is to be
perceived as not limited to negotiable checks only, but to checks as is generally known in use in commercial or business
transactions.
Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of Directors that:
In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the
validity of "all prior endorsements." Thus, stamped at the back of the checks are the defendant's clear

48

warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. With. out
such warranty, plaintiff would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven
to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its
representation.
The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained
by the plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same
principle of estoppel effectively prevents the defendant from denying the existence of the Checks. (Pp. 1011
Decision; pp. 4344, Rollo)
We agree.
As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No doubt transactions on
non-negotiable checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was enunciated in Loc Cham v. Ocampo,
77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words and phrases in a statute should ordinarily be accorded
their natural and general significance. In other words, there should be no distinction in the application of a statute where none is
indicated.
There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where the law makes no
distinction. They should instead administer the law not as they think it ought to be but as they find it and without regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and business activities. It
cannot be conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be payable on
demand, because the contract between the banker and the customer is that the money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to its
jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in the Philippine
Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby manifests its agreement to
these Rules and Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be deemed its written
and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with section 4 of the
Republic Act No. 876, otherwise known as the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between them at
the time of the submission and which may be the subject of an action, or the parties of any contract may in such contract agree to
settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid and irrevocable, save
upon grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue between the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary
for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house
facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending
the same. (Emphasis supplied)
Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only to checks which are
negotiable instruments but also to non-negotiable instruments and that the PCHC has jurisdiction over this case even as the checks subject of this
litigation are admittedly non-negotiable.

49

Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped its guarantee on the back of the checks
and subsequently presented these checks for clearing and it was on the basis of these endorsements by the petitioner that the proceeds were credited in
its clearing account.
The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at
the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that
the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in
order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and
purposes treated the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior
endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this
guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite
posture by claiming that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point relevant to the issue when it stated the doctrine of estoppel is based upon
the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever any bank treats
the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can be no doubt said bank has considered
the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee
is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of
PNB vs. National City Bank. 6 In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid
the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. 7
A truism stated by this Court is that — "The doctrine of estoppel precludes a party from repudiating an obligation voluntarily assumed after having
accepted benefits therefrom. To countenance such repudiation would be contrary to equity and put premium on fraud or misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co. that:
Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the
drawers signature and his capacity to issue the instrument.
If a drawee bank pays a forged check which was previously accepted or certified by the said bank, it can not recover from a holder
who did not participate in the forgery and did not have actual notice thereof.
The payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62 of the Negotiable
Instruments Act. 9
The point that comes uppermost is whether the drawee bank was negligent in failing to discover the alteration or the forgery. Very akin to the case at bar is
one which involves a suit filed by the drawer of checks against the collecting bank and this came about in Farmers State Bank 10 where it was held:
A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank breaching its
implied warranty of the genuineness of the indorsements of the name of the payee by bringing about the presentation of the checks
(to the drawee bank) and collecting the amounts thereof, the right to enforce that cause of action was not destroyed by the
circumstance that another cause of action for the recovery of the amounts paid on the checks would have accrued in favor of the
appellee against another or to others than the bank if when the checks were paid they have been indorsed by the payee. (United
States vs. National Exchange Bank, 214 US, 302, 29 S CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84; Onondaga County Savings Bank
vs. United States (E.C.A.) 64 F 703)
Section 66 of the Negotiable Instruments ordains that:
Every indorser who indorsee without qualification, warrants to all subsequent holders in due course' (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties have capacity to contract;
and (d) that the instrument is at the time of his indorsement valid and subsisting. 11
It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville Bank 12 that: "the drawer owes no duty of
diligence to the collecting bank (one who had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably
discovering the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the drawee thereof." In this
case it was further held that:

50

The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. Twelfth Ward Bank. 204 N. United States Mortgage and Trust Col. neither can it claim any derivative title to them. Having Violated Its Warranty On Validity Of All Endorsements. Defendant does not have any title to the Checks. If a failure of consideration is sufficient to warrant a finding that a payee is not entitled to payment or must return payment already made. 51 . Payment shall be made to the person in whose favor the obligation has been constituted. 80) and the drawer owe to that bank no duty of vigilance (New York Produce Exchange Bank vs. 208 N. Section 2154 of the New Civil Code mandates that: Article 2154. To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a negative blow to the whole banking system of this country. Article 1240.Y. 101 N. If something is received when there is no right to demand it. III.R. and the drawer thus is neither a necessary nor a proper party to an action by the drawee bank against such bank. Collecting Bank Cannot Deny liability To Those Who Relied On Its Warranty In presenting the Checks for clearing and for payment. their successor-in-interest or any person authorized to receive payment are not valid.E. the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. A leading case on that subject is Morgan vs.S. or his successo-in-interest. stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains. Payments To Persons Other Than The Payees Are Not Valid And Give Rise To An Obligation To Return Amounts Received Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to receive payment payable for the Checks. Nassau Bank. The nullity of the underlying transactions does not diminish. It is quite true that depositors in banks are under the obligation of examining their passbooks and returned vouchers as a protection against the payment by the depository bank against forged checks. 462. It is contended that plaintiff should be held responsible for issuing the Checks notwithstanding that the underlying transactions were fictitious This contention has no basis in our jurisprudence. should be compelled to surrender the proceeds of the Checks received by it. who is neither the payee nor the person authorized by the payee. plaintiffs right to recover from the defendant.S.A. " Considering that neither the defendant's depositor nor the defendant is entitled to receive payments for the Checks. 218.Y. 1240. payments to persons other than payees named therein. L. 1915D. New Civil Code of the Philippines unequivocably provides that: "Art. which but for such negligence it would be bound to repay. Such nullity clearly emphasizes the obligation of the payees to return the proceeds of the Checks." Thus. and it was unduly delivered through mistake. 54) and no act of the collecting bank is induced by any act or representation or admission of the drawer (Seaboard National Bank vs. or any person authorized to receive it. Without such warranty. the defendant made an express guarantee on the validity of "all prior endorsements. 1914D. As the checks are not payable to defendant's depositor. payments to any of them give rise to an obligation to return the amounts received. Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank. Bank of America (supra) and it follows that negligence on the part of the drawer cannot create any liability from it to the collecting bank. Cas. 204 N. plaintiff would not have paid on the checks. 74. The court reproduces with approval the following disquisition of the PCHC in its decision — II.Y. the obligation to return it arises.The real and underlying reasons why negligence of the drawer constitutes no defense to the collecting bank are that there is no privity between the drawer and the collecting bank (Corn Exchange Bank vs. with more reason the defendant. 871 Amn. and negligence in the performance of that obligation may relieve that bank of liability for the repayment of amounts paid out on forged checks. but in fact strengthens.

and the defendant cannot now refuse liability for breach of warranty as a consequence of such forged endorsements. C... Depositor is defendant's client. CV No. concur.: From the adverse decision * of the Court of Appeals (CA-G. In addition. The damage that will result if judgment is not rendered for the plaintiff is irreparable. Whether the Checks have been issued for valuable considerations or not is of no serious moment to this case. 92244 February 9. the defendant is liable for any damage arising out of the falsity of its representation. appealed to this Court in a Petition for Review. These Checks have been made the subject of contracts of endorsement wherein the defendant made expressed warranties to induce payment by the drawer of the Checks. Narvasa.B. Camins for petitioner. paid on the Checks. the petition is DISMISSED for lack of merit without pronouncement as to costs. the risk of wrongful payment has to be assumed by the defendant. As the warranty has proven to be false and inaccurate. The defendant has falsely warranted in favor of plaintiff the validity of all endorsements and the genuineness of the cheeks in all respects what they purport to be. WHEREFORE. Having accepted the crossed checks from persons other than the payees.R. J. the Board of Directors finds no reason to reverse the decision of the Arbiter. relying upon an action or declaration of the defendant. Abello. on the issue of the right of the drawer to recover from the drawee bank who pays a check with a forged indorsement of the payee. petitioner filed a Complaint against the private respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the money value of eighty-two (82) checks charged against the petitioner's account with the respondent drawee Bank on the 52 . L. On the matter of the award of the interest and attorney's fees. JJ. debiting the same against the drawer's account. JR. The principle of estoppel effectively prevents the defendant from denying liability for any damages sustained by the plaintiff which. petitioner. Regals & Cruz for private respondent CAMPOS. and it is undenied that up to this time the defendant has failed to make such reimbursement. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks. The collecting bank has privity with the depositor who is the principal culprit in this case. Concepcion. petitioner.No amount of legal jargon can reverse the clear meaning of defendant's warranty.R. The defendant's failure to reimburse the plaintiff has constrained the plaintiff to regular the services of counsel in order to protect its interest notwithstanding that plaintiffs claim is plainly valid just and demandable. 16447). Cruz and Paras.J. No.. defendant's clear obligation is to reimburse plaintiff upon direct presentation of the checks. her address and her history. The defendant knows the depositor. Natividad Gempesaw. vs. the defendant is guilty of negligence. Angara. G. 1993 NATIVIDAD GEMPESAW. SO ORDERED. The records show that on January 23. Teehankee. The decision of the respondent court of 24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory. The same principle of estoppel effectively prevents the defendant from denying the existence of the Checks. 1985. THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS. respondents.

1984 in favor of Sophy Products in the amount of P11. (Exh.G. petitioner did not verify he correctness of the returned checks.47 (Exh.00 (Exh. OTHER THAN TO THE INTENDED PAYEES SPECIFIED IN THE CHECKS. The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. 1984 in the amount of P11. Ernest L. namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent. A-61) appellant's obligation was only P1. 1984 in favor of Knotberry for P11. 2 Practically. the Court of Appeals in a decision rendered on February 22.00 (Exh. From the records. Although the respondent drawee Bank notified her of all checks presented to and paid by the bank. Petitioner maintains a checking account numbered 13-00038-1 with the Caloocan City Branch of the respondent drawee Bank. 7). III THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE RESPONDENT BANK TO RESTORE OR RECREDIT THE CHECKING ACCOUNT OF THE PETITIONER IN THE CALOOCAN CITY BRANCH BY THE VALUE OF THE EIGHTY-TWO (82) CHECKS WHICH IS IN THE AMOUNT OF P1. To facilitate payment of debts to her suppliers. (9) in Check No. . 651862 dated August 9. (8) in Check No. A-83).16 (Exh. 1984 for the amount of P11. Chief Accountant of respondent drawee Bank at the Buendia branch. 589019 dated March 17. petitioner draws checks against her checking account with the respondent bank as drawee. her obligation was only P1. 1) in Check No. A-62). following her usual practice stated above. IS THE DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS DEBITED.504. Petitioner admitted that she did not make any verification as to whether or not the checks were delivered to their respective payees.335. All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. B).00 (Exh.20 (Exh.672. (2) in Check No. Romero.89 WITH LEGAL INTEREST. affirmed the decision of the RTC on two grounds. Petitioner signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. To mention a few: .107.23 in favor of Kawsek Inc. 651863 dated August 11. the relevant facts are as follows: Petitioner Natividad O. 589092 dated April 7. without authority therefor. appellant's actual obligation to said payee was only P895. much less check if the payees actually received the checks in payment for the supplies she received. Whole Sale Mart.20 (Exh. Shopper's Mart and D. 3 Aside from the daily notice given to the petitioner by the respondent drawee Bank.ground that the payees' indorsements were forgeries. A-60). Alicia Galang. the latter's invoice was only P520. 1984 in favor of Grocer's International Food Corp. (5) in Check No. Gempesaw (petitioner) owns and operates four grocery stores located at Rizal Avenue Extension and at Second Avenue.677.672. 1984 in the amount of P11. a total of eighty-two (82) checks in favor of several suppliers.10 (Exh. After the bookkeeper prepared the checks. an employee for more than eight (8) years.33 (Exh. dated June 27. The Regional Trial Court. H-2). rendered a decision on November 17. the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss.60 (Exh. A-31) her actual obligation was only P677. attaching thereto all the cancelled checks she had issued and which were debited against her current account.041.520. (4) in Check No. the latter also furnished her with a monthly statement of her transactions. A-78). 621127. her obligation was only P1. the petitioner filed this petition under Rule 45 of the Rules of Court setting forth the following as the alleged errors of the respondent Court: 1 I THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE OF THE RESULTING INJURY TO THE DRAWEE BANK. A-66). Respondent drawee Bank correspondingly debited the amounts thereof against petitioner's checking account numbered 30-00038-1. in the amount of P11.041. D-2). Romero and Benito Lam. Sixty-three (63) out of the eighty-two (82) checks were deposited in 53 . 1990. 652282 issued on September 18. Most of the aforementioned checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices.16 (Exh. and honored by. A-34). C and C-1). who. AND THE DRAWER IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF AUTHORITY. . Branch CXXVIII of Caloocan City. together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Boon. In the course of her business operations covering a period of two years. all the checks issued and honored by the respondent drawee bank were crossed checks. G). the respondent drawee Bank. These checks were all presented by the indorsees as holders thereof to. It was only after the lapse of more two (2) years that petitioner found out about the fraudulent manipulations of her bookkeeper. Caloocan City.208.648. her obligation was only P504. Her customary practice of issuing checks in payment of her suppliers was as follows: the checks were prepared and filled up as to all material particulars by her trusted bookkeeper.107. 1987 dismissing the complaint as well as the respondent drawee Bank's counterclaim.335.G. Among these groceries are D. A-67) appellant's actual obligation to said payee was only P1. On appeal. petitioner issued. 1984 in favor of Malinta Exchange Mart for P11.00 in favor of the Yakult Philippines (Exh. 620450 dated May 10. I-1 and I-2). (3) in Check No. 62033 dated May 23.895. 589028 dated March 10. On March 5. accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. A-73). II THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND RULING THAT IT IS THE GROSS AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE SIGNATURE OF THE PAYEES AND THE WRONG AND/OR ILLEGAL PAYMENTS MADE TO PERSONS. 1984 in favor of Senson Enterprises in the amount of P11.606. which tried the case. the completed checks were submitted to the petitioner for her signature. (6) in Check No.00 in favor of Monde Denmark Biscuit (Exh. E and E-1).60 (Exh. Boon was a very close friend of Alfredo Y.00 (Exhs. 1990. her obligation was only P648.10 (Exhs.47 in favor of Marchem (Exh. (7) in Check No. 1984 for the amount of P11.

1985. a certain Ernest L. The payees are not parties to the case.e. it is the drawer. whose signature is genuine. Under the rules of the respondent drawee Bank. All the eighty-two (82) checks bearing the forged indorsements of the payees and the genuine second indorsements of Alfredo Y. he is precluded from using forgery as a basis for his claim for re-crediting of his account. the law makes an exception to these rules where a party is precluded from setting up forgery as a defense. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the eighty-two (82) checks to their respective payees. It covers also a forged indorsement. the forged signature of the payee or indorsee of a note or check. Instead of issuing the checks to the payees as named in the checks.208. the drawer is under duty promptly to report such fact to the drawee bank. there was no valid contract yet. Alicia Galang delivered them to the Chief Accountant of the Buendia branch of the respondent drawee Bank. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery. can be acquired through or under such signature. The checks were then indorsed for the second time with the names of Alfredo Y. not even by a holder in due course. The Branch Managers of the Ongpin and Elcaño branches accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. This difference in situations would determine the effect of the drawer's negligence with respect to forged indorsements. Ongpin and Elcaño branches of the same bank. check or stop the unauthorized acts of Ernest L. who instituted this action to recover from the drawee bank the money value of eighty-two (82) checks paid out by the drawee bank to holders of those checks where the indorsements of the payees were forged. 5 For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee. This is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The record fails to show the identity of the party who made the forged signatures. to the payee who takes it as a holder. but the respective payees admitted that they did not receive those checks and therefore never indorsed the same. and (2) where the indorsement was forged by an agent of the drawer. he cannot be made to pay because he never made the promise to pay. were 54 . petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the eighty-two (82) checks totalling P1. Her signing the checks made the negotiable instrument complete. i. the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. petitioner filed the complaint with the Regional Trial Court. Romero and Benito Lam. And said section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. and four (4) checks in his Savings Account No. How and by whom the forgeries were committed are not established on the record. there can be no valid and binding contract and no liability on the instrument. On January 23. particularly by the depositor's own employees. Rather. no one can gain title to the instrument through such forged indorsement. On November 7. Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery. it is wholly inoperative. Romero and Benito Lam in their respective branches. In the case at bar. 8 Without the initial delivery of the instrument from the drawer of the check to the payee. and were given to her for her signature.. he cannot be held liable thereon by anyone. all the deposit slips of the eighty-two (82) checks in question were initialed and/or approved for deposit by Ernest L. Prior to signing the checks.606. 00844-5 of Alfredo Y. Or where a person's signature as a drawer of a check is forged. Section 23 of the NIL provides: When a signature is forged or made without the authority of the person whose signature it purports to be. and no right to retain the instrument.89 for having been wrongfully charged against her account.Savings Account No.89. The rest of the checks were deposited in Account No. petitioner admitted that the checks were filled up and completed by her trusted employee. if a person's signature is forged as a maker of a promissory note. a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements. or to give a discharge therefor. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. is called issuance of the instrument. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. forgery is a real or absolute defense by the party whose signature is forged. Since his signature does not appear in the instrument. 1984. Since under said provision a forged signature is "wholly inoperative". As a matter of practical significance. The second indorsements were all genuine signatures of the alleged holders. Respondent drawee Bank refused to grant petitioner's demand. and were deposited in the latter's accounts as earlier noted. The total amount of P1. not one of them can acquire rights against parties prior to the forgery. Boon. 7 The first delivery of the instrument. The applicable law is the Negotiable Instruments Law 4 (heretofore referred to as the NIL). represented by eighty-two (82) checks. may accept a second indorsement on a check for deposit. 6 In other words. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement. It was established that the signatures of the payees as first indorsers were forged. Although rights may exist between and among parties subsequent to the forged indorsement. Boon. In the case at bar.208. complete in form. Under the aforecited provision. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name. or to enforce payment thereof against any party thereto. Romero at the respondent drawee Bank's Buendia branch. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. 3281-9 at its Ongpin branch. About thirty (30) of the payees whose names were specifically written on the checks testified that they did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs.606. problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer — for example a mail robbery. Alicia Galang. only a Branch Manager and no other official of the respondent drawee bank. Boon. However. Thus. 0443-4. The team of auditors from the main office of the respondent drawee Bank which conducted periodic inspection of the branches' operations failed to discover. the drawer loses his right against the drawee who has debited his account under a forged indorsement. under the name of Benito Lam at the Elcaño branch of the respondent drawee Bank. Romero and Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the credit of their respective savings accounts in the Buendia.

and did not compare them with the same invoices. Had this been done. sooner or later. Instead. In effect. Likewise had petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank in her issued checks. A different situation arises where the indorsement was forged by an employee or agent of the drawer. It will then be just a question of time until the fraud is discovered. If a check is stolen from the payee. Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. As a rule. Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. If she fails to take steps. this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. However. she would be estopped from recovering from the bank. Otherwise. at which she notified the respondent drawee bank. although she regularly received her bank statements. she would have easily discovered that in some checks. The doctrine in the case of Great Eastern Life Insurance Co. 36. she could have easily discovered the fraud being perpetrated by Alicia Galang. and in that event. the amounts did not tally with those appearing in the sales invoices. Furthermore. Thus. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash. or at least made random scrutiny of cancelled checks returned by respondent drawee Bank at the close of each month. 9 One thing is clear from the records — that the petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements.credited and paid out by respondent drawee Bank to Alfredo Y. it is hard to believe that petitioner did not know or realize that she was paying more than she should for the supplies she was actually getting. and could have reported the matter to the respondent drawee Bank. vs. she should not have signed those checks. to make an adequate investigation on the matter. Since the drawer was not negligent. would result in stopping the continuance of the fraudulent scheme. sooner or later. The crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account. When indorsement restrictive. Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. 10 Under Section 23 of the NIL. Had she noticed these discrepancies. This is specially true when the agent perpetrates a series of forgeries as in the case at bar. It is highly improbable that in a period of two years. cancelled checks. after knowledge has come to her that her funds seem to be disappearing or that there may be a leak in her business. some leak will show on the drawer's books. and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto. — An indorsement is restrictive which either 55 . A depositor may not sit idly by. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. and should have conducted an inquiry as to the reason for the irregular entries. check book stubs. Assuming that even one single complaint had been made. the discrepancies would have been discovered. It was not until two years after the bookkeeper commenced her fraudulent scheme that petitioner discovered that eighty-two (82) checks were wrongfully charged to her account. the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the drawer. and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices. she apparently did not carefully examine the same nor the check stubs and the returned checks. In the case at bar. Sec. neither does it invalidate the negotiation or transfer of the said check. not one of Petitioner's suppliers complained of non-payment. a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. Romero and Benito Lam. the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper. Petitioner argues that respondent drawee Bank should not have honored the checks because they were crossed checks. The drawer and the payee often time shave business relations of long standing. the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. the subsequent forgeries would not have been accomplished. The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument. On the other hand. she is now precluded from using the forgery to prevent the bank's debiting of her account. the check can only be deposited with the payee's bank which in turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. petitioner's negligence was the proximate cause of her loss. Had the petitioner examined her records more carefully. Caloocan branch. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. neither was the forging of the payee's indorsement due to the drawer's negligence. Under the NIL. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature. it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. The drawer was not found to be negligent in the handling of its business affairs and the theft of the check by a total stranger was not attributable to negligence of the drawer. considering the length of a period of two (2) years. as far as the respondent drawee Bank was concerned. and refrain from taking the steps that a careful and prudent businessman would take in such circumstances and if taken. and debited against petitioner's checking account No. the facts may establish her negligence. Hongkong & Shanghai Bank 11 is not applicable to the case at bar because in said case. With such discovery. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks. the possibility exists that the checks in question covered inexistent sales. or done with the active participation of the latter. The respondent drawee Bank then could have taken immediate steps to prevent further commission of such fraud. particularly the invoice receipts. petitioner would have been duty-bound. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks. since the record mentions nothing about such a complaint. The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. he has no similar duty as to forged indorsements. the drawee was duty-bound to restore to the drawer's account the amount theretofore paid under the check with a forged payee's indorsement because the drawee did not pay as ordered by the drawer. 13-000381. But even in such a case.

. petitioner is precluded from raising the defense of forgery by reason of her gross negligence. And although the case was brought before the court not on breach of contractual obligations. such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. she cannot point to the negligence of the respondent drawee Bank in the selection and supervision of its employees as being the cause of the loss because negligence is the proximate cause thereof and under Article 2179 of the Civil Code. C. the prohibition to transfer or negotiate must be written in express words at the back of the instrument. but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check. the case is hereby ordered REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner. so that any subsequent party may be forewarned that ceases to be negotiable. as far as the drawer-depositor is concerned. he incurs no liability on the check unless he accepts it. any case not provided for in the Act shall be governed by the provisions of existing legislation. but such liability may be regulated by the courts according to the circumstances. it is clear that under the NIL. Feliciano. respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 172 which provides: Responsibility arising from negligence in the performance of every kind of obligation is also demandable.J. concur. the fact that the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. With the foregoing provisions of the Civil Code being relied upon. Thus. respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of it. SO ORDERED. And in breaches of contract under Article 1173. negligence or delay. Regalado and Nocon. However. However. under Article 1170 of the same Code the respondent drawee Bank may be held liable for damages. if it were not actually guilty of fraud or negligence. . Under the laws of quasi-delict. Furthermore. Narvasa. due diligence on the part of the defendant is not a defense. of the time and of the place. Article 1173 provides — The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstance of the persons. But under Section 196 of the NIL. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee. Premises considered. There is no way We can allow it now to escape liability for such negligence. the fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her from recovering damages. the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser. it contravened the tenor of its obligation at the very least.. We hold that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence.. Surely. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. In the performance of its obligation. Thus. it is being made clear that the decision to hold the drawee bank liable is based on law and substantial justice and not on mere equity. or xxx xxx xxx In this kind of restrictive indorsement.(a) Prohibits further negotiation of the instrument. The article provides — Those who in the performance of their obligations are guilty of fraud. are liable for damages. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon. 56 . and those who in any manner contravene the tenor thereof. The reason why the decision dealt on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed by the respondent court. such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner. . the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. 12 Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them. PREMISES CONSIDERED. considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished. she may not be awarded damages. if not the utmost diligence. JJ. a chief accountant.

It turned out that Fausto Pangilinan. 17962). collected the questioned checks from the office of the Provincial Treasurer. vs. After forging the signature of Dr. 1996 PHILIPPINE NATIONAL BANK. the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. 8 57 . On February 19. 1978. xxxxxxxxxxxxxxxxxxxxx G. Tarlac" or "The Chief. 107612 January 31. Concepcion Emergency Hospital. 7 He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. Associated Bank v. 2 The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital. who bears the loss." Jesus David. No. the drawer. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.R. the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. 1996 ASSOCIATED BANK. 1981. PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK.00 and dated February 10. respondents. with the Associated Bank acting as collecting bank. However. 3 Pangilinan sought to encash the first check 4 with Associated Bank. PNB. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank. DECISION ROMERO. Fausto Pangilinan. No. The last check negotiated by Pangilinan was for f8. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. Philippine National Bank v." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. PROVINCE OF TARLAC.000. the manager denied having given Pangilinan preferential treatment on this account. In January 1981.300. respondents. No. HON.000. 1978. CV No. 107612 January 31. HONORABLE COURT OF APPEALS. J. and ASSOCIATED BANK.: Where thirty checks bearing forged endorsements are paid.G. the drawee bank or the collecting bank? This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v. Concepcion. who was the administrative officer and cashier of payee hospital until his retirement on February 28. Pangilinan followed the same procedure for the second check. al. the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. 1981.R.R. 107382/G. the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. the Provincial Treasurer learned that 30 checks amounting to P203. petitioner." (CA-G. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. vs. Tarlac.00 and dated April 20. 1 The facts of the case are as follows: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited.00 were encashed by one Fausto Pangilinan. Concepcion.R. Adena Canlas who was chief of the payee hospital. After the checks were examined. No. While he admitted that his wife and Pangilinan's wife are first cousins. COURT OF APPEALS. 5 as well as for twenty-eight other checks of various amounts and on various dates. petitioner. in the amount of P5. et. 6 All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK. He claimed to be assisting or helping the hospital follow up the release of the checks and had official receipts.

1981. 15 The PCHC Rules are merely contractual stipulations among and between member-banks. 1988.00) Pesos with legal interests thereon from March 20. Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. otherwise. impleaded Associated Bank as third-party defendant. 16 Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question. xxx xxx xxx The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. 10 As both banks resisted payment. Hence these consolidated petitions which seek a reversal of respondent appellate court's decision. According to petitioner bank. the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and administrative officer. in turn. In stamping the guarantee (for all prior indorsements). bears the loss. the same are hereby ordered dismissed for lack of merit. 17 While both banks are innocent of the forgery. Next. First. which. the PNB manager demanded reimbursement from the Associated Bank on May 15. 12 PNB and Associated Bank appealed to the Court of Appeals. SO ORDERED. PNB also maintains its innocence and alleges that as between two innocent persons. 9 In turn. the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter.. It likewise contends that PNB. the Province of Tarlac brought suit against PNB which. argues that the order of liability should be totally reversed. on the other hand. in fact. On the third-party complaint. 2. it merely followed a mandatory requirement for clearing and had no choice but to place the stamp of guarantee. the checks were order instruments. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital) indorsements which are forgeries. in this case the Province of Tarlac. with the drawee bank (PNB) solely and ultimately bearing the loss. They were properly issued and bear the genuine signatures of the drawer. 3. 58 . Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No. judgment is hereby rendered: 1. As such. being an administrative regulation issued pursuant to law. the Province of Tarlac. 580. the one whose act was the cause of the loss. On the counterclaims on the complaint. PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. On the basic complaint. they cannot prevail over the aforesaid CB Circular. The bank will be in a "no-win" situation and will always bear the loss as against the drawee bank. third-party complaint and fourth-party complaint. PNB assigned two errors. it is now estopped from asserting the defense that Associated Bank guaranteed prior indorsements. 11 After trial on the merits.300. the drawee bank. in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB).300. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. there would be no clearing. is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank.On February 26. 1992. 4. On the fourth-party complaint. respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac to avoid circuity. 1981. the lower court rendered its decision on March 21. the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. the sum of Two Hundred Three Thousand Three Hundred (P203. in view of the foregoing. At the time of their indorsement. disposing as follows: WHEREFORE. 14 Associated Bank. 1981 until fully paid. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. has the force and effect of law. 13 Respondent court affirmed the trial court's decision in toto on September 30. ordering the latter to pay to the former. the collecting bank. The drawee bank allegedly has the primary duty to verify the genuineness of payee's indorsement before paying the check.00) Pesos with legal interest thereon from March 20. the bank contends that respondent court erred in exempting the Province of Tarlac from liability when. 1981 until fully paid. in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203.

then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. is such an indorser. The former will necessarily be liable to the latter for the checks bearing forged indorsements. the collecting bank is held liable. a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements. So even if the indorsement on the check deposited by the banks's client is forged. The drawer's instructions are reflected on the face and by the terms of the check. to the forger himself. only the person whose signature is forged can raise the defense of forgery against a holder in due course. are precluded from using this defense. if available. 30 More importantly. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. Where the instrument is payable to order at the time of the forgery. — When a signature is forged or made without authority of the person whose signature it purports to be. the drawer is precluded from asserting the forgery. the payee hospital) is essential to transfer title to the same instrument. of course. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank. 19 Thus. the collecting bank had no right to be paid by the drawee bank. that he has a good title to it. or to give a discharge therefor. 24 The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. and no right to retain the instrument. persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. the drawer can recover from the drawee bank. can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. 25 The risk of loss must perforce fall on the drawee bank. or to enforce payment thereof against any party thereto." Parties who warrant or admit the genuineness of the signature in question and those who. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss. such as the present petition. 18 Section 23 does not avoid the instrument but only the forged signature. However. Since a forged indorsement is inoperative. No drawee bank has a right to pay a forged check. is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. the drawee bank canseek reimbursement or a return of the amount it paid from the presentor bank or person. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and. hence. the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. 26 In cases involving a forged check. 27 In cases involving checks with forged indorsements. FORGED SIGNATURE. the chain of liability does not end with the drawee bank. When the drawee bank pays a person other than the payee. 20 In bearer instruments. the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). 28 In other words. where the drawer's signature is forged. or on the forger himself. 29 Theoretically. is under strict liability to pay the check to the order of the payee. The former must necessarily return the money paid by the latter because it was paid wrongfully. If it does. 22 An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be. it has no right to reimbursement from the drawer. if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature. all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. If the forgery is that of the payee's or holder's indorsement. 23. the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. and that the instrument is at the time of his indorsement valid and subsisting. When the holder's indorsement is forged. whether it be that of the drawer or the payee. known as the drawee bank. EFFECT OF. including the forged indorsement. Payment under a forged indorsement is not to the drawer's order. The loss falls on the party who took the check from the forger. Hence. the signature of its rightful holder (here." 23 He cannot interpose the defense that signatures prior to him are forged. it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer) account only for properly payable items. The bank on which a check is drawn. when the indorsement is a forgery. without prejudice to the latter proceeding against the forger. such as the checks in this case. The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. In this case. Indorsers.Section 23 of the Negotiable Instruments Law (NIL) provides: Sec. that all prior parties had capacity to contract. It 59 . the latter can demand reimbursement from the person who indorsed the check to it and so on. silence or negligence are estopped from setting up the defense of forgery. Since the drawee bank did not pay a holder or other person entitled to receive payment. 21 The checks involved in this case are order instruments. the signature of the payee or holder is unnecessary to pass title to the instrument. A forged signature. by their acts. it shall have to recredit the amount of the check to the account of the drawer. by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law. it is wholly inoperative. a forged indorsement does not operate as the payee's indorsement.

and that it is valid and subsisting at the time of his indorsement. it forfeits its right to reimbursement and will be made to bear the loss. Pangilinan and one went to Miss Juco? JOSE MERU: A Yes. thereby depriving said presentor of the right to recover from the forger. the drawee bank. the Treasurer's office was still releasing the checks to the retired cashier. Even if the latter bank was not negligent. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco. Moreover. However. 32 The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. After careful examination of the records. 1978). fraud or irregularity in the indorsement. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation from the hospital. If both drawee bank-PNB and drawer-Province of Tarlac were negligent.warrants that the instrument is genuine. As earlier stated. Fausto Pangilinan. it cannot escape liability and should also bear part of the loss. is it true that for a given month there were two releases of checks. his address and history because he is a client." 31 The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. The bank knows him. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. 1978. The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. of any indorsement. PNB. hold the forger. sir. ATTY. However. they released the checks to Pangilinan aside from Miss Juco. if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss. In addition. was no longer connected with the hospital. Jose Meru. the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. Hence. PNB can recover from the collecting bank. one went to Mr. If the drawee bank delays in informing the presentor of the forgery. it would still be liable to the drawee bank because of its indorsement. was able to present an official receipt to acknowledge these receipts and according to them since this is a government check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks. 60 . all the checks were issued and released after Pangilinan's retirement on February 28. 33 Applying these rules to the case at bench. the loss should be properly apportioned between them. cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. the former is deemed negligent and can no longer recover from the presentor. If PNB negligently delayed in informing Associated Bank of the forgery. the collecting bank is made liable because it is privy to the depositor who negotiated the check. having already retired from government service. therefore. in turn. It has taken a risk on his deposit. Because the indorsement is a forgery. the new cashier. as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the checks and besides according to them they were. Hence. like the rest. Hence. Associated Bank can. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter. the Provincial Treasurer. liable. The bank is also in a better position to detect forgery. With the exception of the first check (dated January 17. The drawee bank PNB also breached its duty to pay only according to the terms of the check. a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. thus depriving the latter of the opportunity to recover from the forger. share the burden of loss from the checks bearing a forged indorsement. testified:. 34 The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. MORGA: Q Now. After nearly three years. the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. then the drawee bank PNB can charge its account. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Pangilinan. the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. the Court finds that the Province of Tarlac was equally negligent and should. Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss Juco? A Well.

1981. 40 Central Bank Circular No. as mandated by the rule. Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. Province of Tarlac. 41 The trial court did not err in granting legal interest from March 20. PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. however. 35 six crossed checks with forged indorsements were deposited in the forger's account with the collecting bank and were later paid by four different drawee banks. the Court deems it wise to affirm the trial court's use of the legal interest rate. The Province of Tarlac returned the checks only on April 22. The interest rate shall be computed from the date of default. Associated Bank. by express contract. The trial court made PNB and Associated Bank liable with legal interest from March 20. thus excluding them from the coverage of CB Circular No. PNB did not commit negligent delay. however. If prompt notice is not given. it requested the Provincial Treasurer's office on March 31. Thereafter. must prevail over the PCHC rule. 1981. 38 Hence. or the date of judicial or extrajudicial demand. items bearing a forged endorsement shall be returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. A delay in informing the collecting bank (Associated Bank) of the forgery. the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. 416. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours. The Court found the collecting bank (Associated) to be negligent and held: The Bank should have first verified his right to endorse the crossed checks. the date of extrajudicial demand. After the Province of Tarlac informed PNB of the forgeries. not of Associated Bank. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Even if PNB cleared and paid the checks. Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it by clearing house rules. Circular No. it did not present evidence against Pangilinan and even presented him as its rebuttal witness. PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. 39 PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement. The contending banks herein. Two days later. the date of extrajudicial demand made by the Province of Tarlac on PNB. goods or credits in the absence of express stipulation. PNB necessarily had to inspect the checks and conduct its own investigation. It is here that Associated Bank's assignment of error concerning C. it could not have recovered the amounts paid on the questioned checks. 580. Under Section 4(c) of CB Circular No. Bank deposits are considered under the law as loans.B. while Associated Bank filed a fourth-party complaint against Fausto Pangilinan. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. which deprives it of the opportunity to go after the forger. . Associated Bank now argues that the aforementioned Central Bank Circular is applicable. The Court finds this contention unmeritorious. Here. Clearly then. 416 prescribes a twelve percent (12%) interest per annum for loans. 580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore. It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. it takes a risk on its depositor. Since PNB did not return the questioned checks within twenty-four hours. Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. for the current account opened by the Province of Tarlac with PNB was not given in evidence. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. is the entity with the duty to verify the genuineness of the payee's indorsement. In any event. are therefore not covered by PCHC Rules but by CB Circular No. Associated Bank received the checks from PNB.63 in it. The situation in the case at bench is analogous to the above case. There is no privity of contract between the drawer and the collecting bank. it can still recover from Associated Bank. 37 Had Associated Bank decided to debit Pangilinan's account. signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. A bank is not required to accept all the checks negotiated to it. or six percent (6%) per annum. 580 is an administrative regulation issued pursuant to law and as such. the actual interest rate. 1981. the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. is a clientor customer of the PNB. 1981 to return the checks for verification. 1981. . as the collecting bank. In addition. At this time. it cannot but remain liable. The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. When a check is deposited with the collecting bank. Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return rule. if any. In this case. which are both branches in Tarlac province. Next. current accounts are likewise interest-bearing. Hence. This is true even if the payee's Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. The Court finds nothing wrong with the mode of the award. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of convenience. forebearance of money. of which he was not the payee. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. It is only logical that this bank be held accountable for checks deposited by its customers. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's account. thus giving it notice of the forgeries. Pangilinan's account with Associated had only P24. Normally. Under the circumstances.In the case of Associated Bank v. and to deposit the proceeds of the checks to his own account. . 61 . the CB circular was applicable when the forgery of the checks was discovered in 1981. but several days later. 36 Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20. The drawer. for it was not the payee who deposited the checks with the collecting bank. 580. CA. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations.

Puno and Mendoza.300.000. No. MELENCIO-HERRERA. 1965. THE FIRST NATIONAL CITY BANK and THE COURT OF APPEALS. 1981 until the payment thereof.R. L-55079 November 19. Associated Bank. Perez & Assoc. concur. Branch VIII.R. the petition for review filed by the Philippine National Bank (G. Associated Bank shall pay fifty percent (50%) of P203.00 and costs. 1964 for P50. Reyna. The controversy arose from the following facts: On August 25.R. 1981 until payment is made. petitioner.00.000. with legal interest from March 20. Resales. including that of the chief of the payee hospital.. G. and to pay attorney's fees of P5.300. First National City Bank vs. for petitioner. respondent Province contributed to the loss amounting to P203. Metropolitan Bank. 7166 dated July 8.00 and shall be liable to the PNB for fifty (50%) percent thereof. J.00 to the Province of Tarlac. likewise.300.300. Regalado.00 to the Philippine National Bank. payable to CASH. with legal interest from March 20.: This is a Petition for Review on certiorari of the Decision of the Court of Appeals in CA-G. No. Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan). Earlier that day. 61488. SO ORDERED.00. which affirmed in toto the Decision of the Court of First Instance of Manila. to reimburse respondent First National City Bank the amount of P50. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.000. IN VIEW OF THE FOREGOING. Adena Canlas.The Court finds as reasonable. 57129-R entitled. 107382) is hereby DENIED. respondents. Dr. The collecting bank. the Province of Tarlac can only recover fifty percent (50%) of P203. No. Check No. Siguion. JJ. 1982 METROPOLITAN BANK and TRUST COMPANY.300. shall be liable to PNB for fifty (50%) percent of P203.R. In effect. vs. No. with legal rate of interest from June 25. Metropolitan Bank and Trust Company. drawn by Joaquin Cunanan & Company on First National City Bank (FNCB for brevity) was deposited with Metropolitan Bank and Trust Company (Metro Bank for short) by a certain Salvador Sales. 62 . having guaranteed the genuineness of all prior indorsements. in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier.fifty percent (50%-50%).00. Montecillo and Ongsiako for respondent PNCB. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan. the proportionate sharing of fifty percent . The decision of the trial court is MODIFIED. The petition for review filed by the Associated Bank (G.00 from PNB. ordering petitioner herein. The Philippine National Bank shall pay fifty percent (50%) of P203. in Civil Case No. 1964. 107612) is hereby PARTIALLY GRANTED.

1950 for the same is not controlling and is not applicable to the present case.R. together with the monthly statement of the company's account with FNCB. or nine (9) days later. he withdrew P32. Petitioner appealed said Decision to the Court of Appeals (CA-G. FNCB notified Metro Bank of the alteration by telephone. Private respondent paid petitioner through clearing the amount of P50. People's Bank and Trust Company (35 SCRA 140) for the same are controlling and apply four square to the present case. 9. On September 3. vs. 61488 against Metro Bank for recovery of the amount of P50. 1965 until fully paid. Equitable Banking Corporation (10 SCRA 8) and Hongkong & Shanghai Banking Corporation vs. 1 Metro Bank immediately sent the cash check to the Clearing House of the Central Bank with the following words stamped at the back of the check: Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements Guaranteed.00. as amended. 169 (March 30. promulgated on October 23. the Trial Court rendered its Decision ordering Metro Bank to reimburse FNCB the amount of P50. alleging: I The Respondent Court of Appeals erred in completely ignoring and disregarding the 24-hour clearing house rule provided for under Central Bank Circular No. 1975. Manila Polo Club.00. 1964.. FNCB returned cancelled Check No. was superimposed the word CASH. and Circular No. as amended. 1964). On August 26. Clearing Procedures. 57129-R). IV The Respondent Court of Appeals erred in not finding the private respondent guilty of operative negligence which is the proximate cause of the loss. FNCB wrote Metro Bank asking for reimbursement of the amount of P50. 1964. states: Section 4. On August 29. 2 The check was cleared the same day. The actual amount of P50. 9 (February 17. 1980. On August 28. FNCB filed in the Court of First Instance of Manila.00.00 with legal rate of interest from June 25.00 was raised to P50. September 4. and 2. 1962). which bank is liable for the payment of the altered check. On January 27. II The Respondent Court of Appeals erred in relying heavily on its decision in Gallaites. Then on August 31.00 from his current account.Sales had opened a current account with Metro Bank depositing P500. The 24-hour clearing house rule applies to the present case of the petitioner and the private respondent.000. 1964. so that FNCB reiterated its request on September 29. Metro Bank was adamant in its refusal. III The Respondent Court of Appeals erred in disregarding and in not applying the doctrines in the cases of Republic of the Philippines vs. the drawee bank (FNCB) or the collecting bank (Metro Bank)? The transaction occurred during the effectivity of Central Bank Circular No. Section 4 of said Circular. to pay attorney's fees of P5. respondent Appellate Court 3 affirmed in toto the judgment of the Trial Court.00 and closed his account with Metro Bank.000. Sales made his first withdrawal of P480. 1964. and Sales was credited with the said amount in his deposit with Metro Bank.000.000.00. although: 1. and costs. Petitioner came to this instance on appeal by Certiorari. That same day. 63 . The issue for resolution is. which was received by Metro Bank on the following day. No.920. he withdrew the balance of P17.000. the company notified FNCB that the check had been altered. The latter did not oblige. Civil Case No.00. 1964. confirming it the same day with a letter. et al. The material facts of the case are not disputed. 1964. On June 29. 7166 to drawer Joaquin Cunanan & Company. Branch VIII. 1965. RCA. 1964. and over the name of the payee.00. The 24-hour regulation of the Central Bank in clearing house operations is valid and banks are subject to and are bound by the same.00 in cash.100. 1949) as amended by Circular No. On September 10. 138 (January 30.000. etc.

the regularity and genuineness of the check deposit from Marcelo Mirasol. since both parties are part of our banking system. 61488 is hereby dismissed. clearing office **** In other words. Nothing in this section shall prevent the returned items from being settled by reinbursement to the bank. In this case. but was cleared by FNCB. Under the procedure prescribed. such an indorsement must be read together with the 24-hour regulation on clearing House Operations of the Central Bank. itself. negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. xxx xxx xxx The facts of this case fall within said Circular. 3805. The laxity of appellant in its dealing with customers. is misplaced not only because the factual milieu is not four square with this case but more so because it cannot prevail over the doctrine laid down by this Court in the Hongkong & Shanghai Bank case which is more in point and. took no part. therefore. institution or entity returning the items. hence. particularly in cases where the Identity of the person is new to them (as in the case at bar) and in the obvious carelessness of the appellant in handling checks which can easily be forged or altered boil down to one conclusion-negligence in the first order.hour period is over. on the following business day. Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements Guaranteed. as well as on "the general rule of law founded on equity and justice that a drawee or payor bank which in good faith pays the amount of materially altered check to the holder thereof is entitled to recover its payment from the said holder. All items cleared on a particular clearing shall be returned not later than 3:30 P. and Civil Case No. FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of the balance of P17. and both are subject to the regulations of the Central Bank. RCA.920. Jr. October 23. As held therein. Teehankee ** (Chairman). This being so. Relova and Gutierrez. Failure of FNCB. 6 made by Metro Bank is an unqualified representation that the endorsement on the check was that of the true payee. CA-G. concur. Metro Bank invokes this 24-hour regulation of the Central Bank as its defense. controlling: WHEREFORE. the challenged Decision of respondent Court of Appeals of August 29. even if he be an innocent holder. 10 SCRA 8 (1964).. Only upon being assured that the same is not unusual' did Metro Bank allow the withdrawal of the balance. Metro Bank can not be held liable for the payment of the altered check. they are bound by the 24-hour clearing house rule of the Central Bank.R. J.M. the liability on such an indorsement has ceased.. Once that 24.(c) Procedures for Returned Items Items which should be returned for any reason whatsoever shall be delivered to and received through the clearing Office in the special red envelopes and shall be considered and accounted as debits to the banks to which the items are returned. 1980 is hereby set aside. 1950. 4 The validity of the 24-hour clearing house regulation has been upheld by this Court in Republic vs. Department Officer of FNCB.00 by Salvador Sales. Metro Bank withheld payment and first verified. Moreover. 64 . supra. by stating: . because its (Metro Bank) attention was called by the fast movement of the account.. Plaintiff Bank has not made out a case for relief. In that connection... the check was not returned to Metro Bank in accordance with the 24-hour clearing house period.. ruled: . SO ORDERED. JJ. is very clear when it begins with words 'For clearance. the drawee bank receiving the check for clearing from the Central Bank Clearing House must return the check to the collecting bank within the 24-hour period if the check is defective for any reason. No. This negligence enabled a swindler to succeed in fraudulently encashing the chock in question thereby defrauding drawee bank (appellee) in the amount thereof. The indorsement. and that the amount thereon was the correct amount. but against the party responsible for the changing the name of the payee 5 and the amount on the face of the check. Reliance by respondent Court of Appeals. Vasquez. Costs against private respondent The First National City Bank. relies on the guarantee of all previous indorsements made by Metro Bank which guarantee had allegedly misled FNCB into believing that the check in question was regular and the payee's indorsements genuine. on its own ruling in Gallaites vs. But Plaintiff Bank insists that Defendant Bank is liable on its indorsement during clearing house operations. FNCB contends that the stamp reading. FNCB on the other hand. to call the attention of Metro Bank to the alteration of the check in question until after the lapse of nine days. 7 Consistent with this ruling. through its Assistant Cashier Federico Uy. Equitable Banking Corporation. this Court in the Hongkong & Shanghai Bank case. Its remedy lies not against Metro Bank. Plana.

Lourdes C. Siguion Reyna. 42725. April 22. 1991 REPUBLIC BANK. Montecillo & Ongsiako for private respondent Citibank.G. v.: 65 . Respondents. COURT OF APPEALS and FIRST NATIONAL CITY BANK. Dorado for Petitioner.R. No. J. GRIÑO-AQUINO. Petitioner.

whereupon the People’s Bank credited Changco with the amount of the check. 118 SCRA 537).M. by the 24-hour clearing house rule. It was mailed to the payee but fell into the hands of a certain Florentino Changco who erased the name of the payee. is protected.05. as drawee. as the collecting bank.608. On August 15. The check was indorsed and deposited on March 14. People’s Bank and Trust Company. made by People’s Bank and since such an indorsement carries with it a concomitant guarantee of genuineness. 1967 until fully paid. 1966. from liability to refund the amount paid by FNCB. . in one of the very cases relied upon by plaintiff. On April 8. For this purpose. 167 SCRA 188). Equitable Banking Corporation. This being so. v. But Plaintiff Bank insists that Defendant Bank is liable on its indorsement during clearing house operations. when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period. typed his own name. . the People’s Bank is liable to the Hongkong Shanghai Bank for alteration made in the name of payee.M. Roberto C. Believing the check was genuine."cralaw virtua1aw library The check was cleared by the drawee bank (Hongkong & Shanghai Bank). as amended.M."cralaw virtua1aw library The 24-hour clearing house rule is a valid rule applicable to commercial banks (Republic v. On April 19. The following decisions of this Court are also relevant and persuasive:chanrob1es virtual 1aw library In Hongkong & Shanghai Banking Corp. and relying on the guaranty and endorsement of Republic appearing on the back of the check. plus P2. . this Court held:jgc:chanrobles.05 was drawn by the Philippine Long Distance Telephone Company on the Hongkong & Shanghai Banking Corporation payable to the same bank. was absolved of any liability to the drawer (SMC). The Hongkong & Shanghai Bank sued to recover from the People’s Bank the sum of P14. At the following clearing. Thus: ‘It is a settled rule that a person who presents for payment checks such as are here 66 .’ In other words. mention is made of a principle on which defendant Bank could have acted without incurring the liability now sought to be imposed by plaintiff.com. No. 1966. It is true that when an endorsement is forged. that all cleared items must be returned not later than 3:00 P. drew a dividend Check No. that it was not guilty of negligence. December 22. provides:jgc:chanrobles. This regulation of the Central Bank as to 24 hours is challenged by Plaintiff Bank as being merely part of an ingenious device to facilitate banking transactions. found in CB Circular No.240 on the basis of the latter’s endorsement and guaranty. After the check had been delivered to Delgado. Delgado. the amount on its face was fraudulently and without authority of the drawer. thus. clearing office. that FNCB.240 to SMC. FNCB lost no time in recrediting P9. 1968. Roberto C.ph "Items which should be returned for any reason whatsoever shall be returned directly to the bank. shall be returned not later than 2:00 o’clock P. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation (Metropolitan Bank & Trust Co. The indorsement. institution or entity returning the items. the collecting bank or last endorser. the collecting bank is absolved from liability. Metropolitan Bank & Trust Co.M. the People’s Bank relies on the ‘24-hour’ regulation of the Central Bank that requires after a clearing. San Miguel Corporation (SMC for short). clearing office . institution or entity from which the item was received. Philippine currency. a stockholder. a guarantee of all prior indorsement. the alteration was discovered. which presented it to the drawee bank with the following indorsement:chanrobles law library "For clearance. And since the Hongkong Shanghai Bank only advised the People’s Bank as to the alteration on April 12. FNCB demanded that Republic refund the P9. 9) should be used. the lone issue is whether Republic. Plaintiff Bank has not made out a case for relief. v. 9. v. On May 19. All prior endorsements and or lack of endorsements guaranteed. Thus. Once that 24-hour period is over. the liability on such an indorsement has ceased. . bears the loss (Banco de Oro Savings & Mortgage Bank v. . 9. the original of the Receipt for Returned Checks shall be presented through the Clearing Office as a demand against the bank. institution or entity which returned the items and the triplicate copy should be retained by the bank.ph "The entire case of plaintiff is based on the indorsement that has been heretofore copied — namely. that it was the drawer’s (SMC’s) fault in drawing the check in such a way as to permit the insertion of numerals increasing the amount. FNCB had no right of recourse against Republic.M. as a general rule. supra).chanrobles virtual lawlibrary In this petition for review.000 without pronouncement as to costs (CA-G. as drawee of the SMC dividend check.M. on the same day and all items cleared at 3:00 o’clock P. 1966. SMC. as amended.R. First National City Bank. 1965 or 27 days after clearing. Affirming the decision of the trial court. The original and duplicate copies of said Receipt shall be given to the Bank. Changco thereafter withdrew the contents of his bank account. A month later. Delgado.. itself. Nothing in this section shall prevent the returned items from being settled by direct reimbursement to the bank. when the check was returned to PLDT.On January 25. 108854 for P240. The complaint was dismissed.com. of the following day. the Receipt for Returned Checks (Cash Form No. a check for P14.000 for attorney’s fees and costs of the suit. The Court of Appeals affirmed that decision. Later. 1966. claiming there was delay in giving it notice of the alteration. 1975). institution or entity whose item has been returned. and thereafter deposited the altered check in his account in the People’s Bank & Trust Co. 1966. 10 SCRA 8 [1964]."cralaw virtua1aw library "x x x "Moreover. Delgado had already withdrawn his account from Republic. The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. of the following business day except for items cleared on Saturday which may be returned not later than 8:30 A. People’s Bank & Trust Co. institution or entity whose demand is being returned. SMC notified FNCB of the material alteration in the amount of the check in question.608. shall be returned not later than 8:30 A. Republic endorsed the check to FNCB by stamping on the back of the check "all prior and/or lack of indorsement guaranteed" and presented it to FNCB for payment through the Central Bank Clearing House. as appellant. the trial court rendered judgment ordering Republic to pay P9. (35 SCRA 140). the People’s Bank claims that it is now too late to do so. is very clear when it begins with the words `For clearance.240 to FNCB with 6% interest per annum from February 27. Equitable Banking Corp.240. Be that what it may — as both Plaintiff as well as Defendant Banks are part of our banking system and both are subject to regulations of the Central Bank — they are both bound by such regulations. Republic accepted the check for deposit without ascertaining its genuineness and regularity. FNCB paid P9. First National City Bank. altered by increasing it from P240 to P9. such an indorsement must be read together with the 24-hour regulation on clearing House Operations of the Central Bank. On the other hand. but modified the award of attorney’s fees by reducing it to P1. of the following business day. 41691-R. on its account in the respondent First National City Bank ("FNCB" for brevity) in favor of J. The petition for review is meritorious and must be granted. By then. All items cleared at 11:00 o’clock A.240 to Republic through the Central Bank Clearing House on March 15. 1966 by Delgado in his account with the petitioner Republic Bank (hereafter "Republic"). Republic refused. FNCB informed Republic in writing of the alteration and the forgery of the endorsement of J.

involved guarantees the genuineness of the check, and the drawee bank need concern itself with nothing but the genuineness of the signature, and the
state of the account with it of the drawee.’ (Interstate Trust Co. v. United States National Bank, 185 Pac. 260 [1919]). If at all, then, whatever remedy the
plaintiff has would lie not against defendant Bank but as against the party responsible for changing the name of the payee. Its failure to call the attention of
defendant Bank as to such alteration until after the lapse of 27 days would, in the light of the above Central Bank circular, negate whatever right it might
have had against defendant Bank. . . ." (35 SCRA 140, 142-143; 145-146.)
In Metropolitan Bank & Trust Co. v. First National City Bank, Et. Al. (118 SCRA 537, 542) a check for P50, drawn by Joaquin Cunanan and Company on its
account at FNCB and payable to Manila Polo Club, was altered by changing the amount to P50,000 and the payee was changed to "Cash." It was
deposited by a certain Salvador Sales in his current account in the Metropolitan Bank which sent it to the clearing house. The check was cleared the same
day by FNCB which paid the amount of P50,000 to Metro Bank. Sales immediately withdrew the whole amount and closed his account. Nine (9) days
later, the alteration was discovered and FNCB sought to recover from Metro Bank what it had paid. The trial court and the Court of Appeals rendered
judgment for FNCB but this Court reversed it. We ruled:jgc:chanrobles.com.ph
"The validity of the 24-hour clearing house regulation has been upheld by this Court in Republic v. Equitable Banking Corporation, 10 SCRA 8 (1964). As
held therein, since both parties are part of our banking system, and both are subject to the regulations of the Central Bank, they are bound by the 24-hour
clearing house rule of the Central Bank.chanrobles.com.ph : virtual law library
"In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but was cleared by FNCB. Failure of FNCB,
therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of nine days, negates whatever right it might
have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but against the party responsible for
changing the name of the payee (Hongkong & Shanghai Banking Corp. v. People’s Bank & Trust Co., 35 SCRA 140) and the amount on the face of the
check." (p. 542.)
Every bank that issues checks for the use of its customers should know whether or not the drawer’s signature thereon is genuine, whether there are
sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations
thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer’s account, and it is supposed to be familiar with the
drawer’s signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless an alteration
is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check which would allow the fraudulent insertion of
additional numerals in the amount appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is
against the party responsible for the forgery or alteration (Hongkong & Shanghai Banking Corp. v. People’s Bank & Trust Co., 35 SCRA 140), otherwise, it
bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from the collecting bank
if the latter made payment after proper clearance from the drawee. As this Court pointed out in Philippine National Bank v. Quimpo, Et Al., 158 SCRA 582,
584:jgc:chanrobles.com.ph
"There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having the opportunity to
ascertain its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the
commercial law places upon it, and the result of its negligence must rest upon it."cralaw virtua1aw library
The Court of Appeals erred in laying upon Republic, instead of on FNCB the drawee bank, the burden of loss for the payment of the altered SMC check,
the fraudulent character of which FNCB failed to detect and warn Republic about, within the 24-hour clearing house rule. The Court of Appeals departed
from the ruling of this Court in an earlier PNB case, that:jgc:chanrobles.com.ph
"Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it
would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded. (Phil. National Bank v. National City Bank of
New York, 63 Phil. 711, 733.)"
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is hereby reversed and set aside, and another is entered absolving
the petitioner Republic Bank from liability to refund to the First National City Bank the sum of P9,240, which the latter paid on the check in question. No
costs.
SO ORDERED.
Narvasa, Gancayco and Medialdea, JJ., concur.
Cruz, J., took no part.

G.R. No. 121413

January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

G.R. No. 121479

January 29, 2001

67

FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.

G.R. No. 128604

January 29, 2001

FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine
Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to the Commissioner of
Internal Revenue, which were embezzled allegedly by an organized syndicate.1âwphi1.nêt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled
"Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the August 8, 1995
Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the Court of Appeals and its March 5, 1997 Resolution4 in CAG.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in toto the judgment of the trial
court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of
the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the
Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the third quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon
presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal
Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second
payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of 1977 and that said second
payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a checking
account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the Commissioner
of Internal Revenue was a crossed check in that, on its face were two parallel lines and written in between said lines was the phrase "Payee's
Account Only"; and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the Bureau of Internal Revenue issued
Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized agent bank of
Metrobanl, Alabang branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt No. 18747002, was deposited with
defendant IBAA, through its Ermita Branch. The latter accepted the check and sent it to the Central Clearing House for clearing on the samd
day, with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented
the check for payment to defendant Citibank on same date, December 19, 1977, and the latter paid the face value of the check in the amount
of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the check was
returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41 was not paid to the Commissioner
of Internal Revenue. Hence, in separate letters dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case
it will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then plaintiff shall hold the defendants liable for
reimbursement of the face value of the same. Both defendants denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff - supposed to be Exhibit "D", the
latter was officially informed, among others, that its check in the amount of P4, 746,114.41 was not paid to the government or its authorized
agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter.
Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue, the amount of P4,746,114.41,
representing payment of plaintiff's percentage tax for the third quarter of 1977.

68

As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its percentage
taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the latter as the
surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in due
course"; it merely relied on the clearing stamp of the depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of
indorsements guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's
Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867 was paid to defendant IBAA as
collecting bank, plaintiff was maintaining a checking account with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867
was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check because there was an error in
the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with two of its own
Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third
party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed the third-party complaint
against Godofredo Rivera because he could not be served with summons as the NBI declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting
January 20, 1983, the date when the original complaint was filed until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant Citibank for
whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding paragraph;
"3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-defendant against the
cross-claimant are dismissed, for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for review on certiorari to the Courts of
Appeals. On March 27, 1995, the appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41 representing the face value of
plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the date when the original
complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-defendant
against the cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a "Motion for Partial Reconsideration." Both motions
were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals contending that it merely
acted on the instruction of Ford and such casue of action had already prescribed.
PCIBank sets forth the following issues for consideration:

69

replaced this worthless check with FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover the 70 . SN-16508 in the amount of P6. to settle Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979. the Commissioner of the Bureau of Internal Revenue. 1978 in the amount of P5. 128604 The same sysndicate apparently embezzled the proceeds of checks intended.851. the said two BIR Revenue Tax Receipts were considered "fake and spurious". Sn-10597] for payment to the BIR. The facts as narrated by the Court of Appeals are as follows: Ford drew Citibank Check No. PCIBank is barred from raising issues of fact in the instant proceedings.706. Ford drew another Citibank Check No. PCI Bank is liable to petitioner Ford considering that: 1. The Regional Trial Court of Makati. 9 II. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than the payee named therein. P5. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. 8 In a counter move. Instead. As such. this time. On April 20." The checks never reached the payee. made its findings on the modus operandi of the syndicate.* In connivance with one Winston Dulay.73. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement guaranteed"). an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof.10 2. he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.851. which tried the case. it nevertheless found the petitioner liable to the said respondent for the full amount of the said check. Castro deposited a worthless Bank of America Check in exactly the same amount as the first FORD check (Exh. however. "A". is liable as collecting bank. 28645385 was issued for the said purpose. as follows: "A certain Mr. demanded for the said tax payments the corresponding periods above-mentioned.I. which were written the words "payable to the payee's account only. As correctly held by the trial court. the Commissioner of Internal Revenue.11 3. while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. The findings forced Ford to pay the BIR a new. Both checks were "crossed checks" and contain two diagonal lines on its upper corner between. As far as the BIR is concernced. After an initial deposit of P100. CIR. thus. A BIR Revenue Tax Receipt No. in a letter dated February 28. 121479. SN-10597 on July 19." 3. II. Respondent Citibank failed to observe its duty as banker with respect to the subject check. thus the same should not be considered by the Honorable Court.706. after finding that the petitioner acted on the check drawn by respondent Ford on the said respondent's instructions. fo delivering the same of the payee. appellant Ford presents the following propositions for consideration: I. representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. As drawee bank. This anomaly was confirmed by the NBI upon the initiative of the BIR. In G. as the drawer of the subject check and a depositor of respondent Citibank. No.00 to validate the account. respondent Citibank owes to petitioner Ford. 1980. No. 121479.R. and praying for the reinstatement in toto of the decision of the trial court which found both PCIBank and Citibank jointly and severally liable for the loss. questioning the same decision and resolution of the Court of Appeals. Branch 57. Respondent Citibank raises an issue for the first time on appeal. 'A' [Citibank Check No.311. Again a BIR Revenue Tax Receipt No. 4. Ford filed its petition docketed as G. 1979. Respondent Citibank is liable to petitioner Ford considering that: 1. Thus. A-1697160 was issued for the said purpose. Did the respondent court err when it did not find prescription in favor of the petitioner.R.13 II. Did the respondent court err when. 2. Region 4-B. Petitioner Ford's cause of action had not prescribed. No.12 4. there is no evidence of gross negligence on the part of petitioner Ford. the BIR. PCIBank's only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue. he prepared the plaintiff's check marked Ex.R. which was crossed and payable to "Payee's Account Only. G.591.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. Castro himself subsequently opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant Manager.37) while this worthless check was coursed through PCIB's main office enroute to the Central Bank for clearing.

000. disposing as follows: "WHEREFORE. endorse or negotiate in due course the subject checks. who gave the second check (Exh. due to its negligence. or any signature thereto. or for an illegal consideration. 1997. (8) ELEUTERIO JIMENEZ. It all boils down to thequestion of liability based on the degree of negligence among the parties concerned." Pursuant to this provision.311. liable for the value of the two checks while adsolving PCIBank from any liability. 71 . with 6% interest thereon from date of first written demand until full payment. have not been impleaded in the present case. plus P300. and the proceeds of the checks were not remitted to the payee. this petition. PCIB (on its counterclaim to crossclaim) the sum of P300. BIR Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's tax payments. The manner by which the said funds were distributed among them are traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what amounts they did so. we must resolve whether the injured party."15 Both Ford and Citibank appealed to the Court of Appeals which affirmed. 1988. DE LEON a customs broker who negotiated the initial contact between Bernabe. clearly liable for the loss or damage resulting to the plaintiff Ford as a consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. Citibank. (6) WINSTON DULAY. Castro drew various checks distributing the sahres of the other participating conspirators namely (1) CRISANTO BERNABE. III. Though their own negligence. who assisted Castro in switching the checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account. Branch 57. to return the money which it admits having received. (3) JUAN VASTILLO who assisted de Leon in the initial arrangements. (7) ALEXIS MARINDO. held drawee-bank. Regional Trial Court of Makati. SO ORDERED. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and employees. or when he negotiates it in breach of faith or under such circumstances as amount to a fraud. it is liable. under Article 2154 of the Civil Code. SN-16508] which was subsequently pilfered by Alexis Marindo. The same method was again utilized by the syndicate in profiting from Exh. or other unlawful means. Rivera's Assistant at FORD. Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two checks. and to pay the defendant. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking insitution. but the title of the person negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful means. FORD's accountant who passed on the first check (Exhibit "A") to Castro. and pay the costs. If the principal could prove that there was no negligence in the performance of his duties. Exhibit 'A' was cleared by defendant CITIBANK. II. bearing ing mind that its employees.replacement.163. Assuming arguedo that defedant PCIBank did not accept. and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD check Exhibit 'A'.706.00 as attorney's fees and costs of litigation. the decision of the trial court. As a result. by fraud. are now fugitives from justice. 16 The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue? Or has Ford's cause of action already prescribed? Note that in these cases. Rivera's Assistant at FORD. or fore and fear. were among the members of the syndicate. in toto. As to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL).73 and P6. and which was credited to it its Central bank account. is guilty of the "imputed contributory negligence" that would defeat its claim for reimbursement. the checks were drawn against the drawee bank. even if temporarily. alowed the commission of the crime. the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. (2) RODOLFO R.851. 580 series of 1977. Godofredo Rivera and Alexis Marindo. (4) GODOFREDO RIVERA. (5) REMERTO CASTRO. with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check Numbers SN-10597 and 16508 for P5.000. "B") to Castro. Hence. but like the aforementioned participants in the conspiracy. namely the embezzlers belonging to a syndicate. 'B' [Citibank Check No. judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of P12."14 On December 9.298. Ford. PCIB's Assistant Manager at its Meralco Branch.The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. The person negotiating the checks must have gone beyond the authority given by his principal. Defendant PCIBank was. the mastermind who formulated the method for the embezzlement. he may set up the personal defense to escape liability and recover from other parties who. From this 'Reynaldo Reyes' account. FORD's Godofredo Rivera and PCIB's Remberto Castro. which provides: "When title defective -. PCIB's pro-manager at San Andres who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch. we note that the direct perpetrators of the offense. escaped liability for the embezzlement of millions of pesos.73 respectively. it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that: I. They have.00 attorney's fees and expenses litigation.591. IV. duress. Foremost.10 prayed for in its complaint. In this case. It was established that instead of paying the checks to the CIR. Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated March 5. for the settlement of the approprite quarterly percentage taxes of Ford.

And. The neglect of PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No. specifically." and was presented to Citibank for payment. Thereafter PCIBank. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. we have to scrutinize. to divert the proceeds of the checks.18 The general rule is that if the master is injured by the negligence of a third person and by the concuring contributory negligence of his own servant or agent. one of whom must suffer the consequences of a breach of trust. asuming.21 This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. for which he is liable. PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent schemes and the transactions. PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. instead of remitting the proceeds to the CIR. Furthermore. Both were crossed checks. Rivera to negotiate the checks. the law imputes to the master the act of the servant. Given these circumstances. in the natural and continuous sequence. SN-10597 and 16508.R. the negligence or wrongful conduct is the negligence or wrongful conduct of the master. intervening cause produces the injury and without the result would not have occurred. These checks were apparently turned around by Ford's emploees. it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. These circumstances were not checked by other officers of the company including its comptroller or internal auditor. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the plaintiff is not a client of the defendant IBAA. as between two innocent persons. in our view. Thus. was the proximate cause of the loss or damage. Ford contends the Godofredo rivera was not authorized to make any representation in its behalf. in the absence of some circumstance raising estoppel against the drawer. Ford denies any negligence in the performance of its duties. PCIBank failed to verify the authority of Mr. the trial courts found variations between the negotiation of Citibank Check No. to wit: "xxx. their actions were not the proximate cause of encashing the checks payable to the CIR. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could have prompted PCIBank to validate the same. AS defined. PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed. G. proximate cause is that which. it should not be considered by this Court. unbroken by any efficient. Godofredo Rivera. the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent. Since a master may be held for his servant's wrongful act. As to the preparation of Citibank Checks Nos. the latter's negligence is imputed to his superior and will defeat the superior's action against the third person. For its part. On this point. With respect to the negligence of PCIBank in the payment of the three checks involved. inasmuch as it only discovered the syndicate's activities through the information given by the payee of the checks after an unreasonable period of time. SN-04867. which claimed to be a depository/collecting bank of BIR." 72 . SN-04867.20 It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate. The Board of Directors of Ford. As an agent of BIR. who were acting on their own personal capacity. could not be characterized as the proximate cause of the injury to the parties. it has the responsibility to make sure that the check in question is deposited in Payee's account only. Since the questioned crossed check was deposited with IBAA [now PCIBank]. and if that act is negligent or wrongful and proximately results in injury to a third person. does notentitle the bank toshift the loss to the drawerpayor. Nos. SN-04867 was deposited at PCIBank through its Ermita Branch. by his act of negligence. and/or Alexis Marindo.Citibank points out that Ford allowed its very own employee. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. to negotiate the checks to his co-conspirators. separately. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees. 121413 and 121479 Citibank Check No. PCIBank's share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these checks. showed lack of care and prudence required in the circumstances. SN-04867 was duly authorized. his assistant. Ford's General Ledger Accountant.19 Accordingly. citing the case of Gempesaw vs. it was established that these checks were made payable to the CIR. As to the subsequent run-around of unds of Citibank Check Nos. we need to determine whether or not the action of Godofredo Rivera. did not confirm the request of Godofredo Rivera to recall Citibank Check No. of course that the contributory negligence was the proximate cause of the injury of which complaint is made. On record. xxx xxx xxx As agent of the BIR (the payee of the check). the drawee bank was still ordered to pay damages. Court of Appeals. Therefore. Furthermore. we note. the one who made it possible. SN-10597 and 16508.17 Ford argues that even if there was a finding therein that the drawer was negligent. if any. must bear the loss. It avers that there was no evidence presented before the trial court showing lack of diligence on the part of Ford. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and stated that. prepared two of its Manager's checks and enabled the syndicate to encash the same. It was coursed through the ordinary banking transaction. who by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank. defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to the defendant. instead of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee. instead of using it to pay the BIR. separately. The degree of Ford's negligence. CIR. As aptly stated by the trial court.

however. or making inquiries with regard to them. the crossing of the check with the phrase "Payee's Account Only. receives money to satisfy an evidence of indebetedness lodged with his bank for collection. Thus. Equitable Banking Corporation. an Assistant Manager of PCIBank's Meralco Branch. he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check. stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Otherwise stated.' No amount of legal jargon can reverse the clear meaning of defendant's warranty. Therefore. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had. satisfied itself of the authenticity of the negotiation of the checks. Thus. it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only." Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment. Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank." Thus. who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes. Thus. The latter may recover from the holder the money paid on the check. there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. plaintiff would not have paid on the checks. Thus. the diversion can be justified only by proof of authority from the drawer. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. that of principal and agent. Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no other option but to pay it. and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit. Without such warranty. The trial court held. a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. one who encashed a check which had been forged or diverted and in turn received payment thereon from the drawee. without requiring proof as to the identity of persons presenting it.R. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. in the absence of an argreement to the contrary. For this reason. SN-04867.23 Even considering arguendo. The pro-manager of San Andres Branch of PCIBank.It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is. is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. by the usual proper investigation. cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. As the warranty has proven to be false and inaccurate. No. Citibank had no other option but to pay it. SN 10597 and 16508. banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether or not it is genuine. And if the one cashing the check through indifference or othe circumstance assists the forger in committing the fraud. As a general rule.24 we ruled: "Anent petitioner's liability on said instruments. or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check. 128604 The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508.30 73 . the defendant made an express guarantee on the validity of "all prior endorsements. because PCIBank did not actually receive nor hold the two Ford checks at all. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. we conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. In this case. in his official capacity. this court is in full accord with the ruling of the PCHC's Board of Directors that: 'In presenting the checks for clearing and for payment.29 And if an officer or employee of a bank. it had the responsibility to make sure that the check in questions is deposited in Payee's account only. which claimed to be a depository/collecting bank of the BIR. Castro. it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed". a bank which cashes a check drawn upon another bank. This Court is convinced that the switching operation (involving the checks while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the syndicate in their own personl. we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had particiapted.26 Having established that the collecting bank's negligence is the proximate cause of the loss. Indeed. the bank is liable for his misappropriation of such sum. thus: "Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement."25 Lastly. covert and private capacity and done without the knowledge of the defendant PCIBank…"27 In this case. Since the questione dcrossed check was deposited with PCIBank. 28 A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. nor will t be permitted to shirk its responsibility for such frauds. still such diversion must be properly authorized by the payor. even though no benefit may accrue to the bank therefrom. G. The PCIBank Ptromanager. that the diversion of the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed.22 A bank which receives such paper for collection is the agent of the payee or holder." is a warning that the check should be deposited only in the account of the CIR. the defendant is liable for any damage arising out of the falsity of its representation. Remberto Castro. received Citibank Check Numbers SN-10597 and 16508. In Banco de Oro Savings and Mortgage Bank vs. He passed the checks to a co-conspirator.

34 A bank's liability as obligor is not merely vicarious but primary. the contributory negligence of the plaintiff shall reduce the damages that he may recover.38 On the issue of prescription. Citibank had indeed failed to perform what was incumbent upon it. we conclude that Ford's cause of action to recover the amount of Citibank Check No. Had this been duly examined. 74 . we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos.41. (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12. Thus. Section 531 of Central Bank Circular No. the bank is under obligation to treat the accounts of its depositors with meticulous care. which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account. the Decision and Resolution of the Court of Appeals in CA-G. but such liability may be regulated by the courts. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. considering that Citibank (1) has no knowledge of any informity in the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA). as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter.746. the switching of the worthless checks to Citibank Check Nos. For this reason. the cause of action for the recovery of the proceeds of Citibank Check No.081.36 By the very nature of their work the degree of responsibility. Time and again. Citing Section 6232 of the Negotiable Instruments Law.R. The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties.10) on a fifty-fifty ratio.R.298. thus. No. from the date when the original complaint was filed until said amount is fully paid. The fact that the drawee bank did not discover the irregularity seasonably. and each bank is ORDERED to pay Ford Philippines Inc.35 Banks handle daily transactions involving millions of pesos. Ford argues that by accepting the instrument. As provided in Article 1172 of the Civil Code of the Philippines.Moreover. 1984.A. Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508.42 WHEREFORE. Citibank failed to notice and verify the absence of the clearing stamps. the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance. However. if not the highest." As ruled by the Court of Appeals. id declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount P4. according to the circumstances. always having in mind the fiduciary nature of their relationship. 37 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. with six percent (6%) interest thereon.39 and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing. SN 04867 would normally be a month after December 19. In its defense. invoking the doctrine of comparative negligence. when Citibank paid the face value of the check in the amount of P4. 41 hence.746. Applying the same rule. we also find thet Ford is not completely blameless in its failure to detect the fraud. the CIR. For its part. P6.114.nêt Costs against Philippine Commercial International Bank and Citibank N.649. which in this case is PCIBank.05. in our view. barely six years had lapsed. SN 10597 AND 16508. degree of diligence. which is to ensure that the amount of the checks should be paid only to its designated payee. (the CIR). we agree with the respondent court's ruling. Series of 1977 provides that any theft affecting items in transit for clearing. Finally. because of the contractual relationship existing between the two.33 Thus. statements of account. Citibank claims the genuineness and due execution of said checks. PCIBank. shall be for the account of sending bank. Citibank failed to establish that its payment of Ford's checjs were made in due course and legally in order. wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. Citibank. 10597 and 16508 would have been discovered in time. Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof. know formerly as Insular Bank of Asia and America. SN 10597 and 16508 do not bear any initials. from the date the complaint was filed until full payment of said amount. 1977 but the relief was sought only in 1983. or seven years thereafter.114. Thus. 580. care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. On this score. 25017 are AFFIRMED. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. consitutes negligence in carrying out the bank's duty to its depositors. Since the original complaint for the cause of action was filed on January 20.1âwphi1.163. the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor (normally a month thereafter). the assailed Decision and Resolution of the Court of Appeals in CA-G. considering the fact that here the check was crossed with annotation "Payees Account Only. considering that the alleged negligent act took place prior to December 19. The point is that as a business affected with public interest and because of the nature of its functions. it has the obligation to honor and pay the same. CV No. responsibility for negligence does not lie on PCIBank's shoulders alone. we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount umportance such that the appropriate standard of diligence must be very high. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss. and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein. respondibility arising from negligence in the performance of every kind of obligation is also demandable. and that it will pay only to the payee.41. PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably. In quasi-delicts. as correctly pointed out by Ford. 1977.40 Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues. serves to mitigate the banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. The statute of limitations begins to run when the bank gives the depositor notice of the payment. Failure on the part of the depositor to examine its passbook. which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. SN 04867 was seasonably filed within the period provided by law. But in this case.

vs. 2002 RAMON K. Mendoza. COURT OF APPEALS. respondents. De Leon. G. HON. concur. 139130 November 27. Bellosillo.. No. ILUSORIO.R. petitioner. Buena.SO ORDERED. 75 . Jr. JJ. and THE MANILA BANKING CORPORATION.

CV No.: This petition for review seeks to reverse the decision1 promulgated on January 28. 1981. Defendant’s counterclaim is likewise DISMISSED for lack of sufficient basis. They testified that it is the bank’s standard operating procedure that whenever a check is presented for encashment or clearing. in a letter dated March 25. his credit cards and his checkbook with blank checks. and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Ramon K. ESTEBAN the attending verifier when she personally encashed the above-mentioned checks at our said office.6 At the trial.4 Mr. however. After evaluating the evidence on both sides.… That the same were personally encashed by KATHERINE E. also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioner’s statement that his signatures in the checks were forged. with an aggregate amount of P119. ESTEBAN. J. RAMON K. xxx That the aforementioned checks were among those issued by Manilabank in favor of its client MR. in the light of the foregoing considerations and established facts. the Manila Banking Corporation.DECISION QUISUMBING. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks further alleged to have not authorized the issuance and encashment of the same. affirming the decision of the then Court of First Instance of Rizal. As he was then running about 20 corporations. Hence. The appellate court held that petitioner’s own negligence was the proximate cause of his loss. The facts as summarized by the Court of Appeals are as follows: Petitioner is a prominent businessman who. He was a depositor in good standing of respondent bank. Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank. 43907. petitioner entrusted to his secretary. That MR. Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing on the checks. as it is hereby DISMISSED. The NBI then suggested that petitioner be asked to submit seven (7) or more additional standard signatures executed before or about. at the time material to this case.R. Petitioner.3 Between the dates September 5. Ilusorio which we have on file at our said office on such dates. RAMON K. Mr. ILUSORIO. However. finding no sufficient basis for plaintiff's cause herein against defendant bank. 47942. Several employees of Manila Bank were also called to the witness stand as hostile witnesses. the NBI informed the trial court that they could not conduct the desired examination for the reason that the standard specimens submitted were not sufficient for purposes of rendering a definitive opinion. Katherine2 E. Eugenio. Petitioner fired Eugenio immediately. That I have met and known her as KATHERINE E. 76 . petitioner filed the instant case. 06-09037-0. attesting to the truth of the circumstances as narrated above. and was going out of the country a number of times. 1980 and January 23. Branch XV (now the Regional Trial Court of Makati. and immediately after the dates of the questioned checks. 1999 by the Court of Appeals in CA-G.7 Aggrieved. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards.34. petitioner elevated the case to the Court of Appeals by way of a petition for review but without success. SO ORDERED.634. Dante Razon. this case would have to be. the judgment appealed from is AFFIRMED. and how he discovered the alleged forgeries. 1994 with the following dispositive portion: WHEREFORE. The appellate court disposed as follows: WHEREFORE. the court a quo rendered judgment on May 12. under current Checking Account No. RAMON K. ILUSORIO in said Investment Corporation. petitioner testified on his own behalf. Razon’s affidavit states: That I have examined and scrutinized the following checks in accordance with prescribed verification procedures with utmost care and diligence by comparing the signatures affixed thereat against the specimen signatures of Mr. It was also Eugenio who verified and reconciled the statements of said checking account. the signature on the check is first verified against the specimen signature cards on file with the bank. 1987. Private respondent.…5 Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. failed to comply with this request. through an affidavit executed by its employee. Costs against the appellant. for damages. Branch 138) dismissing Civil Case No. an executive secretary of MR. was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations.

Manila Bank is now estopped from asserting that the fact of forgery was never proven. including custody and possession of cancelled checks and reconciliation of accounts. "3" and "7"). guided by those considerations which ordinarily regulate the conduct of human affairs. It is only after taking such precautionary measures that the subject checks were given to the teller for payment. hence there is no reason for the reversal of its ruling. He adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement of the payee’s signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. it found that: The evidence on both sides indicates that TMBC’s employees exercised due diligence before encashing the checks. Petitioner invokes the doctrine of estoppel. petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks..8 Before us. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR THE LOSS. but the same was denied by the appellant. The evidence further shows that the appellee. He did not even submit his own specimen signatures.e. sought to borrow the questioned checks from the appellant for purposes of analysis and examination (Exhibit "9"). saying that having itself instituted a forgery case against Eugenio. Consistently. taken at various years. is barred from raising the defense that the fact of forgery was not established. a mistake is not equivalent to negligence if they were honest mistakes. it was petitioner. petitioner ascribes the following errors to the Court of Appeals: A. as soon as it was informed by the appellant about his questioned signatures. was precluded from setting up forgery.16 As borne by the records. AND SHOULD BE MADE TO PAY PETITIONER.SO ORDERED. 12 Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent. 1979 and 1981 (Exhibits "1". bank statements. 9 B. but the same was unsuccessful for lack of sufficient specimen signatures. TO THE PETITIONER. taken on or about the date of the questioned checks. the appellee presented specimen signature cards of the appellant. Lastly. who was negligent. i. petitioner’s contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis.if indeed there was. showing variances in the appellant’s unquestioned signatures. For its part. petitioner failed to submit additional specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT. Negligence is the omission to do something which a reasonable man. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE. the CA and the RTC found that Manila Bank employees exercised due diligence in cashing the checks. considering that the fact of forgery was never proven. According to the appellate court. Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of judicial proceedings. Its verifiers first verified the drawer’s signatures thereon as against his specimen signature cards. It was also the former which sought the assistance of the NBI for an expert analysis of the signatures on the questioned checks. Thus. in 1976. and when in doubt. The Court of Appeals found that petitioner. In some instances the verifier made a confirmation by calling the depositor by phone. It is incumbent upon petitioner to establish the fact of forgery. Manila Bank additionally points out that Section 23 13 of the Negotiable Instruments Law is inapplicable. Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. However. In the instant case. The burden to prove forgery was upon the plaintiff. by his own inaction. Said the appellate court: We cannot fault the court a quo for such declaration. "2". 10 C. Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -. it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards. in filing an estafa case against petitioner’s secretary. we find that petitioner has no cause of action against Manila Bank. for examination and comparison with those of the subject checks. which burden he failed to discharge.15 Moreover. the verifier went further. AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES. Aside from his own testimony.17 In the present case. On the other hand. namely. we believe and so hold that if there were mistakes. such as by referring to a more experienced verifier for further verification. the appellant presented no other evidence to prove the fact of forgery. considering that the plaintiff’s evidence on the alleged forgery is not convincing enough. the employees of the bank exercised due diligence in the performance of their duties. the same were not deliberate. would do. To be entitled to damages. not the bank. The bank’s employees in the present case did not have a hint as to Eugenio’s modus operandi because she was a regular customer of the bank. and (2) whether or not private respondent. by submitting his specimen signatures and comparing them with those on the questioned checks. 14 On the first issue. check books. Curiously though. WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN. NEGOTIABLE INSTRUMENTS LAW. since the bank took all the precautions. 23. the bank negates petitioner’s claim of estoppel. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC.11 D. passbooks. or the doing of something which a prudent and reasonable man would do. Said the Court of Appeals on this matter: 77 . having been designated by petitioner himself to transact in his behalf.

(Chairman). therefore. petitioner is precluded from setting up the forgery. SO ORDERED. for the commission of a felony is an offense against the State. What is worse. by entrusting not only his credit cards with her but also his checkbook with blank checks. Acting C. the appellant had introduced his secretary to the bank for purposes of reconciliation of his account. In the case before us. the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. no recovery could be had for damages..All told.month after month. especially when affirmed by the appellate court. Costs against petitioner. petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so. The assailed decision of the Court of Appeals dated January 28. or to give a discharge therefor.. 21 In the instant case. we find no reversible error that can be ascribed to the Court of Appeals. are binding upon us19 and entitled to utmost respect20 and even finality. Petitioner’s failure to examine his bank statements appears as the proximate cause of his own damage. Thus.. 27 but without admitting that he had any personal knowledge of the alleged forgery. the fact of forgery was not established with certainty. whenever the bank verifiers call the office of the appellant. Rule 110 of the Rules of Court the complaint or information filed in court is required to be brought in the name of the "People of the Philippines. CA24 to buttress his contention that respondent Manila Bank as the collecting or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements is misplaced. 47942. or to enforce payment thereof against any party. it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be. and Callejo. In the cited cases. he could have been alerted to any anomaly committed against him. he had all the opportunities to verify his account as well as the cancelled checks issued thereunder -. namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. 78 . In view of Article 2179 of the New Civil Code. Court of Appeals23 and Philippine Bank of Commerce vs. under Section 2. Had he done so. However. His testimony did not indicate that he was out of the country during the period covered by the checks. but because he did not pay sufficient attention to the matter. On the second issue. Sr. In the present case. and that Manila Bank had no authority to pay the forged checks.Moreover. Thus. respondent bank filed the estafa case against Eugenio on the basis of petitioner’s own affidavit. by bolstering the estafa case which he filed against his secretary. In other words. Petitioner’s reliance on Associated Bank vs.R. Proximate cause is that cause. the fact of forgery was not in issue. He also entrusted to her the verification and reconciliation of his account. in natural and continuous sequence. 25 Thus. the State is the plaintiff. No right to retain the instrument.J. Mendoza. The trouble is. assuming there is forgery. through a letter dated July 14. We stress the rule that the factual findings of a trial court. It was only then that he was minded to verify the records of his account. 1980 (Exhibit "8"). 18 The abovecited findings are binding upon the reviewing court. WHEREFORE. he was not personally checking the same. We find no palpable error that would warrant a reversal of the appellate court’s assessment of facts anchored upon the evidence on record. In those cited cases. and without which the result would not have occurred. CV No. In our view. it is the exception that applies. the check is wholly inoperative. is AFFIRMED. the said secretary became a familiar figure in the bank. JJ. Austria-Martinez." In the instant case. Further adding to his injury was the fact that while the bank was sending him the monthly Statements of Accounts. petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. True. In a criminal action. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative. it is the same secretary who answers and confirms the checks. But. the instant petition is DENIED for lack of merit. having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioner’s. the appellant had put so much trust and confidence in the said secretary. the collecting banks were held to be negligent for failing to observe precautionary measures to detect the forgery. the rule does provide for an exception. Bellosillo. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. But he did not. the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the bank’s attention at the earliest opportunity. which. both courts below uniformly found that Manila Bank’s personnel diligently performed their duties. It is. as petitioner himself stated in his petition. until his partner asked him whether he had entrusted his credit card to his secretary because the said partner had seen her use the same. easy to understand that the filing of the estafa case by respondent bank was a last ditch effort to salvage its ties with the petitioner as a valuable client." 26 Further. concur. can be acquired through or under such signature. 22 when the plaintiff’s own negligence was the immediate and proximate cause of his injury. 1999 in CA-G. produces the injury. unbroken by any efficient intervening cause.

The following day. respondents. maintained a current account with defendant Far East Bank and Trust Company1 ("FEBTC") at the latter’s Bel-Air. Kyu. The check. The salient facts follow. She testified that her findings showed that Jong’s signature on the check was genuine.: Called to fore in the present petition is a classic textbook question – if a bank pays out on a forged check. demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999. Syfu showed the check to Sempio. Plaintiff Samsung Construction Company Philippines. for payment or encashment. FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS. the assistant accountant of Samsung Construction. Branch 9. petitioner.. examined the balance of the bank account and discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999. Jong learned of the encashment of the check. who vouched for the genuineness of Jong’s signature.7 He reported the matter to Jong. 4 On 19 March 1992. was also in the bank. through counsel. Kyu Yong Lee ("Kyu").9 Subsequently. Unsatisfied. Samsung Corporation. After ascertaining there were enough funds to cover the check. and the latter presented three (3) identification cards. She testified that based on her examination.00) had been encashed. Laguna. another bank officer. Sempio was well-known to Syfu and the other bank officers. 129015 August 13. Syfu then noticed that Jose Sempio III ("Sempio").6 At the same time. The bank teller. a document examiner from the PNP Crime Laboratory. Makati. and realized that his signature had been forged. vs. 9261506 before the Regional Trial Court ("RTC") of Manila. both sides presented their respective expert witnesses to testify on the claim that Jong’s signature was forged. a criminal case for qualified theft was filed against Sempio before the Laguna court. Syfu authorized the bank’s encashment of the check to Gonzaga.15 79 . Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law. while based in Biñan. its Project Manager. FEBTC.13 During the trial.8 Jong proceeded to the police station and consulted with his lawyers. DECISION TINGA.3 while the checks remained in the custody of the company’s accountant.11 In response. she concluded that Jong’s signature had been forged on the check. is it liable to reimburse the drawer from whose account the funds were paid out? The Court of Appeals. Velez likewise counterchecked the signature on the check as against that on the signature card. and attorney’s fees. Samsung Construction. After comparing the two signatures. INC. Inc. Satisfied with the genuineness of the signature of Jong. ("Samsung Construction"). first checked the balance of Samsung Construction’s account.500. Flores. presented Senior NBI Document Examiner Roda B. he being the assistant accountant of Samsung Construction.5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the specimen signature card with the bank. 2004 SAMSUNG CONSTRUCTION COMPANY PHILIPPINES. which had referred the check for investigation to the NBI. Sempio said that the check was for the purchase of equipment for Samsung Construction. with interest. Aware that he had not prepared such a check for Jong’s signature. He too concluded that the check was indeed signed by Jong. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check. Kyu perused the checkbook and found that the last blank check was missing. J. for approval. in reversing a trial court decision adverse to the bank.10 In a letter dated 6 May 1992. applying time-honored principles of law. invoked tenuous reasoning to acquit the bank of liability.R. Justiani was satisfied as to the authenticity of the signature appearing on the check. payable to cash and drawn against Samsung Construction’s current account. Cleofe Justiani. Perez. the accountant of Samsung Construction. and prayed for the payment of the amount debited as a result of the questioned check plus interest. a certain Roberto Gonzaga presented for payment FEBTC Check No. Confirming the identity of Gonzaga. as it was bank policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos. Makati branch.500.2 The sole signatory to Samsung Construction’s account was Jong Kyu Lee ("Jong"). was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999. We reverse. which had sought the assistance of the Philippine National Police (PNP). 432100 to the bank’s branch in Bel-Air. 12 The case was docketed as Civil Case No.00). No. On the other hand.G. Velez then forwarded the check and signature card to Shirley Syfu.14 presented Rosario C. Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez. who then proceeded to the bank.00).500. FEBTC said that it was still conducting an investigation on the matter. She then asked Gonzaga to submit proof of his identity.

agreeing to pay for them on demand. W. or to enforce payment thereof against any party thereto. constitute a ratification of the payment. FEBTC timely appealed to the Court of Appeals. The bank owes the depositor money in the same sense that any debtor owes money to his creditor. together with interest tolled from the time the complaint was filed. xxx This rule of liability can be stated briefly in these words: "A bank is bound to know its depositors’ signature. which must be borne by one or two innocent persons. imputing blame on the accountant Kyu for lack of care and prudence in keeping the checks. The bank still must bear the loss. Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact. On 28 November 1996.17 Moreover. the plaintiff brought suit against the defendant bank for money which had been deposited to the plaintiff’s credit and which the bank had paid out on checks bearing forgeries of the plaintiff’s signature. of course.20 Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned the RTC’s finding of forgery. it impliedly agrees to pay only upon the depositor’s order. The fact that the forgery is a clever one is immaterial. in his book Negotiable Instruments and Other Related Commercial Paper wrote. if a bank pays the check. agreeing to repay it on demand. can be acquired through or under such signature. which if observed would have prevented Sempio from gaining access thereto. is not properly payable and is not chargeable to the customer’s account. Added to this. the Special Fourteenth Division of the Court of Appeals rendered a Decision. or had bought goods from the depositor. It was further held that the fact that the plaintiff waited eight or nine months after discovering the forgery. Such liability attaches even if the 80 . Upon examination of the record.16 reversing the RTC Decision and absolving FEBTC from any liability. and based on the applicable laws and jurisprudence. the appellate court also held that assuming there was forgery. it is wholly inoperative. Moreover.500.000. and attorney’s fees in the amount of Fifteen Thousand Pesos (P15.24 By no means is the principle rendered obsolete with the advent of modern commercial transactions. Nickles. The case referred to is Robinson v. FEBTC is liable for the loss since it authorized the discharge of the forged check. the loss was placed upon the bank. forgery is a real or absolute defense by the party whose signature is forged.00). in his treatise The Law of Forged and Altered Checks." and payment made "through or under such signature" is ineffectual or does not discharge the instrument. and no right to retain the instrument. the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance.Confronted with conflicting expert testimony. 22 The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Section 23 of the Negotiable Instruments Law states: When a signature is forged or made without the authority of the person whose signature it purports to be. it has failed to comply with its contract in this respect. elucidates: When a person deposits money in a general account in a bank. The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the maker’s signature and is expected to know and compare it. 717.00). before notifying the bank. It also contends that the appellate court erred in finding that it had been negligent in safekeeping the check. And yet. or to give a discharge therefor. so as to preclude the plaintiff from holding the bank liable. When the bank receives the deposit. in the case of bank and depositor. (Emphasis supplied) The general rule is to the effect that a forged signature is "wholly inoperative. 26 On the premise that Jong’s signature was indeed forged. the bank’s obligation to pay checks drawn by the depositor in proper form and presented in due course. the RTC chose to believe the findings of the NBI expert. if a loss. xxx It was held that the bank was liable. did not. Security Bank. But they all sum up to the proposition that a bank must know the signatures of those whose general deposits it carries. the relationship between the bank and the depositor is that of debtor and creditor. such loss would be borne by the negligent party. The Court of Appeals held that the contradictory findings of the NBI and the PNP created doubt as to whether there was forgery.25 Under Section 23 of the Negotiable Instruments Law. Rep.23 Brady. Therefore. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. we reverse the Court of Appeals. Even in a case where the forged check was drawn by the depositor’s partner. National City Bank of New York. there is. the drawee cannot charge it to the drawer’s account. can be traced to the neglect or fault of either." The rule is variously expressed in the many decisions in which the question has been considered. against which he has the privilege of drawing checks in the ordinary course of business. In this case. So far as the legal relationship between the two is concerned. When the bank pays a check. it occurred due to the negligence of Samsung Construction. Ark. the RTC held that Jong’s signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung Construction’s account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999. In a Decision dated 25 April 1994. a check drawn against the account of an individual customer that is signed by someone other than the customer. and without authority from her. National City Bank of New York19 that. it is paying out its own money and not the depositor’s. thus: The deposit contract between a payor bank and its customer determines who can draw against the customer’s account by specifying whose signature is necessary on checks that are chargeable against the customer’s account. inasmuch as any "unauthorized signature on an instrument is ineffective" as the signature of the person whose name is signed. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.18 The Court of Appeals invoked the ruling in PNB v. the situation is the same as though the bank had borrowed money from the depositor. on which the depositor’s signature is a forgery. the Court is obliged to examine the record to draw out the correct conclusions. Therefore. Contemporary texts still affirm this well-entrenched standard. even if innocent of intentional fraud. the bank is held liable. The forgery may be committed by a trusted employee or confidential agent. as a matter of law. and in applying the equity principle enunciated in PNB v. 216 S..21 If payment is made.

the upward strokes of eight (8) of these signatures are looped. Of the twenty one (21) other genuine samples examined by the PNP. Furthermore. and when a bank has been so deceived. Q: Now. standing alone. barely any actionable claim would prosper.40 She had trained with the Royal Hongkong Police Laboratory and is a member of the International Association for Identification. 6. can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke "s" is pointing directly upwards? A: There is none in the standard signature. This reasoning is pure sophistry."33 as if the mere conjuration of the word would sufficiently disquiet whatever doubts about the deviations.30 During the testimony of PNP expert Rosario Perez. A: Yes.’" as referred to by the PNP examiner who had marked it in her comparison chart as "point no. xxx These contradictory findings create doubt on whether there was indeed a forgery.bank exerts due diligence and care in preventing such faulty discharge. This Court has long deferred to the appellate court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through the minutiae that scatters the factual field. Q: Now. conducted by the NBI Academy. the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP. which had the opportunity to examine the relevant documents and to personally observe the expert witness. Yet.39 There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner. sir. both clothed with the presumption of official duty. the Court of Appeals was sadly remiss. 27 The forgery may be so near like the genuine as to defy detection by the depositor himself. there [are] differences on that questioned signature and the standard signatures. and had held that rank for twelve years prior to her testimony. the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere variation. she had examined more than fifty to fifty-five thousand questioned documents. courts. The trier of fact will have to decide which version to believe. The difference is glaring. the appellate court’s error in this case warrants special attention." To the plain eye. she would just blandly assert that these differences were just "variations. are fallible. in order to draw a conclusion. in this questioned document point no. A document formally presented is presumed to be genuine until it is proved to be fraudulent. The Court similarly finds the testimony of the PNP expert as unconvincing. as it is absurd and even dangerous as a precedent. and indeed. she had been promoted to the rank of Senior Document Examiner with the NBI. Rhoda Flores. and yet the bank is liable to the depositor if it pays the check. Each time. and not every error deserves a stern rebuke. both agencies of the government. Rhoda Flores. During the trial. such upward final stroke consists of a vertical line which forms a ninety degree (90º) angle with the previous stroke. it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. A document examiner for fifteen years. the PNP examiner was confronted with the inconsistency in point no. the court arrived at the conclusion that the testimony of the NBI document examiner is more credible because the testimony of the PNP Crime Laboratory Services document examiner reveals that there are a lot of differences in the questioned signature as compared to the standard specimen signature. 6. The NBI expert. while the upward stroke of the seventh36 forms a severe forty-five degree (45º) with the previous stroke. and not the PNP expert’s. it must be proved by clear.37 Again. Doing so is tantamount to a jurisprudential cop-out. the Court of Appeals held: [There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by handwriting experts from the NBI and the PNP. Of course. 230 SCRA 550. 6. the Supreme Court held that forgery cannot be presumed. PNP document examiner Perez admitted to having examined only around five hundred documents as of her testimony. and relying instead on presumptions haphazardly drawn. the "s" stroke is directly upwards. and explain why or why not such version is more credible than the other. In the case of Tenio-Obsequio v. Any litigator worth his or her salt would never allow an opponent’s expert witness to stand uncontradicted. the person who executed the questioned signature was hesitant when the signature was made. or "the point to the short stroke of the terminal in the capital letter ‘L. Reliance therefore cannot be placed merely on the fact that there are colliding opinions of two experts. positive and convincing evidence. makes a similar finding. at least nine (9) ended with an upward stroke. on an average of fifteen to twenty documents a day. this presumption must be overcome but this can only be done by convincing testimony and effective illustrations. In failing to thoroughly evaluate the evidence before it. 38 the same excuse she proffered for the other marked differences noted by the Court and the counsel for petitioner. She had placed among the top five examinees in the Competitive Seminar in Question Document Examination. especially one which is extremely crucial."31 This Court.43 81 . 28 Thus.42 In comparison. 29 In ruling that forgery was not duly proven. like humans. the first matter of inquiry is into whether the check was indeed forged.35 However. which qualified her as a document examiner. NBI expert. clearly disbelieved the PNP expert. defeated as it would be by the mere invocation of the existence of a contrary "expert" opinion. and explained its reason behind the conclusion: After subjecting the evidence of both parties to a crucible of analysis.41 As of the time she testified. The PNP expert excused the noted "differences" by asserting that they were mere "variations.32 Yet the RTC. in examining the signatures. Clearly. Such conclusion. If this rationale were adopted as a governing standard by every court in the land. On the other hand. sir. the manner of execution of the standard signatures used reveals that it is a free rapid continuous execution or stroke as shown by the tampering terminal stroke of the signatures whereas the questioned signature is a hesitating slow drawn execution stroke." which are normal deviations found in writing. Court of Appeals. Forgeries often deceive the eye of the most cautious experts. would be of little or no value unless supported by sufficiently cogent reasons which might amount almost to a demonstration. the RTC bluntly noted that "apparently. In a forgery trial. Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. clearly qualifies as an expert witness. thus the spectacle of competing expert witnesses is not unusual.34 The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward stroke in the signature. as testified to by Ms. unlike the questioned signature. she was confronted several times with apparent differences between strokes in the questioned signature and the genuine samples.

does not entitle the bank to shift the loss to the drawer-payor. Thus. which was relied upon by the employees of FEBTC in authenticating Jong’s signature. Jong immediately reported the forgery upon its discovery. the putative forger. the forgery appears to have been made possible through the acts of one Jose Sempio III. The presumption remains that every person takes ordinary care of his concerns. because the legal presumption remains that ordinary care was employed. any averments he would have on the matter. deserve primacy in consideration. Proving a negative fact may be "a difficult office. 60 as relied upon by the Court of Appeals. In the case at bar. Sempio was assistant to the Korean accountant who was in possession of the blank checks and who through negligence. yet it cannot be ignored that Jong was in the best position to know whether or not the signature on the check was his. 52 Yet. the record does not clearly establish what measures Samsung Construction employed to safeguard its blank checks. had the opportunity to examine the specimen signature card signed by Jong. and not to order. Court of Appeals53 applies in this case. Had the Korean accountant been more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to effect the forgery. the matter it had to prove was the claim it had alleged . to wit: [T]he mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent. The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged. The Court’s pronouncement in PCI Bank v. in the absence of evidence to the contrary. in defense. It cannot be required as well to prove that it was not negligent. since Kyu. in the absence of some circumstance raising estoppel against the drawer.54 Admittedly. it failed to convincingly demonstrate why such findings were more credible than those of the NBI expert. Kyu. a stereoscopic microscope. hence we cannot agree with the Court of Appeals’ finding of negligence. She also prepared enlarged photographs of the signatures in order to facilitate the necessary comparisons. the Court of Appeals failed to assess the effect of Jong’s testimony that the signature on the check was not his. and invoked the doctrines that "where a loss must be borne by one of two innocent person. an assistant accountant employed by the plaintiff Samsung [Construction] Co. Besides. comparison and evaluation of the writing habits with the use of instruments such as a magnifying lense. the assailed Decision noted that the PNP. and varied lighting substances.56 and that the ordinary course of business has been followed. and not Jong. as it seeks to overcome a presumption in law. the Court of Appeals determined that it was the negligence of Samsung Construction that allowed the encashment of the forged check. such testimony cannot prove that the checks were indeed kept in a safety box. Inc. NBI Examiner Flores utilized the scientific comparative examination method consisting of analysis.45 The NBI found that there were significant differences in the handwriting characteristics existing between the questioned and the sample signatures. it is reasonable that it would be borne by him. it was incumbent upon FEBTC. Jong’s testimony is supported by the findings of the NBI examiner. he was there to certify that it was a genuine check issued to purchase equipment for the company. would have the personal knowledge as to how the checks were kept. not the NBI. Five of these signatures were executed on checks previously issued by Jong. enabled Sempio to have access to the same.57 Negligence is not presumed. 51 We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. we can conclude that there was no negligence on Samsung Construction’s part. Jong did testify that his accountant. 47 The assertion may seem self-serving at first blush. kept the checks inside a "safety box. deserves careful examination. but must be proven by him who alleges it. He filed the appropriate criminal charges against Sempio. Still. as in this case. and explained her reasons in its Decisions. Forgery can be established comparing the contested signatures as against those of any sample signature duly established as that of the persons whose signature was forged. can be traced to the neglect or fault of either. because he has been negligent in failing to recognize that the handwriting is not that of his customer. While the payee. while the other five contained in business letters Jong had signed. recognition. if adjudged as truthful. as Jong’s testimony on that point is hearsay. We cannot sustain this "tar and feathering" resorted to without any basis. link/connecting strokes. FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung Construction. However.48 Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law."59 but necessarily so. we are unable to conclude that Samsung Construction was guilty of negligence in this case. As a throwaway. it well has the means of disputing the presumption of regularity. 46 The RTC was sufficiently convinced by the NBI examiner’s testimony. proportion characteristics. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. The drawee who has paid upon the forged signature is held to bear the loss."50 Applying these rules. While his claim should not be taken at face value. The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such party’s negligence was the cause for the forgery.In analyzing the signatures. through whose means it has succeeded49 or who put into the power of the third person to perpetuate the wrong. National City Bank of New York. The point in issue has sometimes been said to be that of negligence."55 and no contrary version was presented by FEBTC. the degree of diligence exercised by the bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under Section 23 by his own negligence. The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part of the bank in its acceptance and payment of the forged check. may not have the personal knowledge as to the standard procedures observed by the drawer. Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the date the check was encashed. They are also backed by factual circumstances that support the conclusion that the assailed check was indeed forged. and other identifying details. At the same time. The crucial fact in question is whether or not the check was forged. The distinction is irrelevant in establishing forgery. The Court of Appeals concluded that Samsung Construction was negligent. The rule of equity enunciated in PNB v. to prove the negative fact that Samsung Construction was negligent. Philippines. The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence on his part would have prevented the forgery.44 She compared the questioned signature as against ten (10) other sample signatures of Jong. Judicial notice can be taken that is highly unusual in practice for a business establishment to draw a check for close to a million pesos and make it payable to cash or bearer. as to manner of execution. who supposedly stole the blank check and who presumably is responsible for its encashment through a forged signature of Jong Kyu Lee. FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature cards.whether the check was forged. While the Court of Appeals disagreed and upheld the findings of the PNP. even if innocent of any intentional fraud.58 While the complaint was lodged at the instance of Samsung Construction. not whether the bank could have detected the forgery. However. who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank. But it follows obviously 82 .

a stranger to FEBTC. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged. the general rule remains that the drawee who has paid upon the forged signature bears the loss. the general rule should apply. considering the fiduciary nature of their relationship. Yet. but mandatory that all earnest efforts be undertaken to ensure the validity of the check. but of indorsers.that if the payee. the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from setting up the defense of forgery. the only proof of such allegations is the testimony of Gemma Velez. it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. as a general rule. 76 Given the circumstances. extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the questionable check was his. It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. much more so if they are evaluated in concurrence. FEBTC did not present as a witness any other employee of their Bel-Air branch. Velez had no personal knowledge as to the past relationship between FEBTC and Sempio.74 In fact. those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer. 72 However. Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check. as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer.67 In this case. abstract some of the check blanks. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of the bank. therefore. 73 and had met Sempio for the first time only on the day the check was encashed. it was not sufficient for FEBTC to have merely complied with its internal procedures. Indeed. and who did not carry with him any written proof that he was authorized by Samsung Construction to encash the check. but failed. The same circumstance attends PNB v. if a bank pays a forged check.64 which was also cited by the Court of Appeals. holder. even if the bank performed with utmost diligence.78 83 . Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. the concurrence of two bank officers is required.77 A bank is liable. Even assuming that FEBTC had a standing habit of dealing with Sempio. The justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in a position to verify the drawer’s signature by comparison with one in his hands. who also testified that she did not know Sempio personally. and should the amount exceed one hundred thousand pesos. But the bank may. where a clerk of the depositor or other persons. there are several troubling circumstances that lead us to believe that the bank itself was remiss in its duty. the bank seems to have relied heavily on the say-so of Sempio. acting in behalf of Samsung Construction. For one. the bank tried. not only did the amount in the check nearly total one million pesos. it was also payable to cash. the check was presented for payment by one Roberto Gonzaga. whereas it has not this right to the same extent with reference to a check bearing a forgery of the drawer’s signature. Consequently. was not even an employee of Samsung Construction. a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the drawer’s signature or a forged indorsement. or if by any act of his own he has at all contributed to induce the banker's negligence. Banks are engaged in a business impressed with public interest. taking advantage of the opportunity. irrespective of its good faith. It was even claimed that everytime FEBTC would contact Jong about problems with his account. National City Bank of New York were not of the drawer. That latter circumstance should have aroused the suspicion of the bank.61 (Emphasis supplied) Quite palpably. Given the shadiness attending Gonzaga’s presentment of the check. and any averments of her to that effect should be deemed hearsay evidence. Since the drawer. Still. Instead. According to FEBTC Senior Assistant Cashier Gemma Velez.75 Obviously. FEBTC confirms this through its own internal procedures. They have the obligation to treat their client’s account meticulously and with the highest degree of care. is more than that of a good father of a family." 71 Even assuming that such personal verification is tantamount to extraordinary diligence. who was not designated as the payee of the check. the irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert. Velez had to inquire with the other officers of the bank as to whether Sempio was actually known to the employees of the bank. instead of to the order of a specified person. but has ordinarily no opportunity to verify an indorsement. we might as well comment on the bank’s performance of its duty. including those who supposedly had transacted with Sempio before. or presenter of the forged paper has himself been in default. Court of Appeals. in paying a forged check. and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss. is not precluded by negligence from setting up the forgery. as he had regularly transacted with the bank in behalf of Samsung Construction.68 Moreover. to contact Jong over the phone to verify the check. 66 The general rule imputing liability on the drawee who paid out on the forgery holds in this case. Gonzaga. 63 It is also worth noting that the forged signatures in PNB v. who was present at the bank at the time the check was presented. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. 65 Thus. Interestingly. The Court recently emphasized that the highest degree of care and diligence is required of banks. FEBTC alleges that Sempio was well-known to the bank officers. 62 And for another. It is accepted that a forged signature of the drawer differs in treatment than a forged signature of the indorser. in point of fact Samsung Construction was not negligent at all since it reported the forgery almost immediately upon discovery. recover back the money which it has paid on a check bearing a forged indorsement. then he may lose his right to cast the loss upon the banker. The diligence required of banks.69 These circumstances are already suspicious if taken independently. Jong would hand the phone over to Sempio. forges the depositor’s signature and collect on the checks from the bank. and it is their duty to protect in return their many clients and depositors who transact business with them. and of the authority of Gonzaga to collect payment therefor. it cannot be denied that FEBTC still paid out the check despite the absence of any proof of verification from the drawer. the settled rule is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him. if he has himself been guilty of a negligence prior to that of the banker. 70 She added that calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank. After all. Checks below twenty-five thousand pesos require only the approval of the teller. but an "extra effort. Samsung Construction.

plus interest of 12 percent thereto from October 19. deposited the questioned check in its savings account with said bank. In turn.. Since the demands of Capitol were not heeded. 1996 PHILIPPINE NATIONAL BANK. then proceeded to debit the latter's account for the same amount. Abante Marketing's account since the latter had already withdrawn the amount of the check as of October 15. 1981. CV No. CAPITOL CITY DEVELOPMENT BANK. a client of Capitol City Development Bank (Capitol). Philippine Bank of Communications is ordered to pay Capitol City Development Bank attorney's fees in the amount of Ten Thousand (P10. F. The facts of the case are as follows. 1992 of respondent Court of Appeals in CA-G. 1989. Abante Marketing. thereafter.R. On August 11. returned the check to PBCom. JJ. On the other hand. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. Costs against respondent. sent the check back to petitioner. in turn. 1981.) On Philippine National Bank's fourth-party complaint. petitioner. debit F. dated 25 April 1994 is REINSTATED.R. Abante Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB pays to PBCom.WHEREFORE. defendant Philippine Bank of Communications is ordered to re-credit or reimburse plaintiff Capitol City Development Bank the amount of P97. SO ORDERED.000. Puno. However. petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check. G. the Regional Trial Court rendered its decision the dispositive portion of which reads: WHEREFORE. Callejo. This check was drawn against Philippine National Bank (herein petitioner). Capitol could not. (Chairman). Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which. PHILIPPINE BANK OF COMMUNICATIONS.650. concur. PBCom followed suit by requesting an explanation and re-crediting from petitioner. Petitioner.650. sent the check to petitioner for clearing. judgment is hereby rendered as follows: 1.:p This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29. PBCom. Sr. 1981 until the amount is fully paid. but PBCom is entitled to reimbursement/indemnity from PNB. Branch 9. respondents.) On attorney's fees. dated August 7. J. the Petition is GRANTED. in turn reimbursed or indemnified by F. Petitioner cleared the check as good and. 4. 24776 and its resolution dated September 16. 1981. 107508 April 25. Abante Marketing for the same amount. Abante Marketing. as collecting agent of Capitol. in turn. and subsequently. and F. in turn. Abante Marketing. denying petitioner Philippine National Bank's motion for reconsideration of said decision. and Chico-Nazario. on its part. ABANTE MARKETING. 3.00) Pesos. and Philippine National Bank to be.. vs. however. On October 3. The Decision of the Court of Appeals dated 28 November 1996 is REVERSED. No. 2. filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. 1992. filed a fourth-party complaint against F. 1981 in the amount of P97. Culture and Sports [DECS]) payable to F.00. F. Austria-Martinez.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse and indemnify Philippine Bank of Communications for whatever amount PBCom pays to plaintiff.00 was issued by the Ministry of Education and Culture (now Department of Education. the reason being that there was a "material alteration" of the check number. Petitioner. PBCom credited Capitol's account for the amount stated in the check. and the Decision of the Regional Trial Court of Manila. KAPUNAN.) On plaintiffs complaint. 84 . A check with serial number 7-3666-223-3. on October 19. it filed a civil suit with the Regional Trial Court of Manila against PBCom which. COURT OF APPEALS.

We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question. What constitutes a material alteration. No pronouncement as to costs.5. (b) The sum payable. 4 We find no merit in the petition. SO ORDERED. It maintains that under Section 125(f). 85 . 6 We do not agree. is a material alteration. and pay plaintiff-appellee attorney's fees of P10. 6.650. After the check shall have been honored by PNB. (f) Or which adds a place of payment where no place of payment is specified. any change that alters the effect of the instrument is a material alteration. Any alteration which changes: (a) The date.00. petitioner filed the instant petition which raises the following issues: I WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW. III WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. 1992 for lack of merit. CHECK WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK.000. (d) The number or the relations of the parties. IV WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES.) No pronouncement as to costs. 1 An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29. Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. or any other change or addition which alters the effect of the instrument in any respect. PBCom shall re-credit plaintiff-appellee's account with it with the amount. Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law. 2 A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16. SO ORDERED. 3 Hence. either for principal or interest. the decretal portion of which reads: WHEREFORE.) The Counterclaims of PBCom and PNB are hereby dismissed. 2031) 5 which provides: Sec. the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for attorney's fees and ordering PNB to honor the check for P97. 1992. 225. (c) The time or place of payment.00. (e) The medium or currency in which payment is to be made. II WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE. with interest as declared by the trial court.

(6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ per cent. without consent of the defendant." 86 . but the holder may enforce it only according to its original tenor. N. (9) Striking out the name of the payee and substituting that of the person who actually discounted the note. 1.L.) and spoliation (alterations done by a stranger) will not avoid the instrument.I. Aug." (2) Writing "protest waived" above blank indorsements.An alteration is said to be material if it alters the effect of the instrument. (3) Adding the date of maturity as a marginal notation." (5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged. (4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank. (3) A change in the date from which interest is to run. Section 1 of the Negotiable Instruments Law provides: Sec. 1901." 9 Reproduced hereunder are some examples of material and immaterial alterations: A.L. 1. whether the time for payment is thereby curtailed or extended. (d) Must be payable to order or to bearer. and (e) Where the instrument is addressed to a drawee. 5. Vitug opines that "an innocent alteration (generally. Immaterial Alterations: (1) Changing "I promise to pay" to "We promise to pay". or order $9 fifty cents CTR" The insertion of the figure 5 before the figure 9. — Form of negotiable instruments. a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. (6) An alteration in the maturity of a note. (5) Adding the words "with interest" with or without a fixed rate. 7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. "July ____. struck out the name of the defendant as payee and inserted the name of the maker of the original note." (8) Plaintiff. (10) Substituting the address of the maker for the name of a co-maker. (7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion. 8 In other words." Justice Jose C. Crystal Falls. Material Alterations: (1) Substituting the words "or bearer" for "order. Pay to G. where there are two makers. changes on items other than those required to be stated under Sec. (b) Must contain an unconditional promise or order to pay a sum certain in money. he must be named or otherwise indicated therein with reasonable certainty. (4) A check was originally drawn as follows: "Iron County Bank. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer. or at a fixed or determinable future time. In his book entitled "Pandect of Commercial Law and Jurisprudence. (2) Adding the word "annual" after the interest clause. the instrument being otherwise unchanged. (c) Must be payable on demand. Mich. 10 B.

) Petitioner. Hence. Batonghinog. And as (a) safety measure. without the consent of a surety co-maker. we quote with favor the findings of the respondent court: xxx xxx xxx If the purpose of the serial number is merely to identify the issuing government office or agency. Thus. Dumlao and of the resident Auditor. petitioner insists. SN7-3666223-3 dated August 7. Now. filling in the blank with the place desired. 11 The case at bench is unique in the sense that what was altered is the serial number of the check in question. The ownership of the check is established without the necessity of recourse to the serial number. Said certification reads: J5 TO WHOM IT MAY CONCERN: This is to certify that according to the records of this Office. an item which.650." The holder on or after maturity wrote in the blank space the words "May 1. Alvarez are not challenged.00) 87 . besides being a negotiable instrument itself. its alteration in this case had no material effect whatsoever on the integrity of the check. the same being an immaterial or innocent one. Neither there any proof that the amount of the check was erroneously charged against the account of a government office or agency other than the Ministry of Education and Culture. it is through the serial numbers that (a) TCAA Check is determined to have been issued by a particular office or agency of the government. A concrete example is that of the disbursements of the Ministry of Education and Culture. Neither is the authenticity of the different codes appearing therein questioned . . It is petitioner's submission that the certification issued by Minrado C. stated. 1981 drawn in favor of F. the name of the government agency which issued the subject check was prominently printed therein. The aforementioned alteration did not change the relations between the parties. TCAA PNB Check Mo. Cashier III of the MEC clearly shows that the check was altered. for fictitious payee to succeed in its malicious intentions to defraud the government. 12 xxx xxx xxx Petitioner's arguments fail to convince. "Extended to ________. (8) Where there was a blank for the place of payment. (9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft should be discounted by the trust company of which the indorsee was cashier. 1913. . is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The identity of the issuing government office or agency was not changed thereby and the amount of the check was not charged against the account of another government office or agency which had no liability under the check. The name of the drawer and the drawee were not altered. all it need do is to get hold of a TCAA Check and have the serial numbers of portion (sic) thereof changed or altered to make it appear that the same was issued by the MEG. Otherwise.. We now go to the second issue. The intended payee was the same. It is issued by the Bureau of Treasury sizeable bundles of checks in booklet form with serial numbers different from other government office or agency. (11) An extension of time given by the holder of a note to the principal maker. Despite these findings.(7) A printed form of promissory note had on the margin the printed words. it can readily be observed. every government office o(r) agency (is) assigned TCAA checks bearing different number series. The owner and issuer of the check is boldly and clearly printed on its face. is immaterial. Penomio C." as a reference memorandum of a promise made by him to the principal maker at the time the words were written to extend the time of payment. the alteration in the number of the check did not affect or change the liability of the Ministry of Education and Culture under the check and. As succinctly found by the Court of Appeals. The check's issuer was therefore sufficiently identified. that: xxx xxx xxx It is an accepted concept. 13 (Emphasis ours. The check's serial number is not the sole indication of its origin. thus cannot refuse to accept the check in question on the ground that the serial number was altered." and below the name of the payee are the rubber-stamped words: "Ministry of Educ. that a TCAA check by its very nature is the medium of exchange of governments (sic) instrumentalities of agencies. second line from the top: "MINISTRY OF EDUCATION AND CULTURE. The genuineness of the amount and the signatures therein of then Deputy Minister of Education Hermenegildo C. therefore. The sum of money due to the payee remained the same. & Culture. Abante Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY PESOS ONLY (P97." These words are not alleged to have been falsely or fraudulently intercalated into the check. however. rendering the referral to the serial number redundant and inconsequential. (10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the plaintiff.

the same shall be disallowed. there was no material alteration on the check. JJ. unsubstantiated and speculative computation of what it allegedly could have earned or realized were it not for the debit made by PBCom which was triggered by the return and debit made by PNB. as we previously emphasized. 188 SCRA 170 [1990]). we cannot rule on the authenticity of the contents of the certification. As to the award of attorney's fees being an exception rather than the rule. without which the award is a conclusion without a premise and improperly left to speculation and conjecture. the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines demands factual. Padilla. The reason for the award must be stated in the text of the court's decision. However. 17 (Emphasis ours. However. Neither did petitioner present an eyewitness to the execution of the questioned document who could possibly identify it. 88 . the same being in all respects negotiable. Jr. still the best evidence of the material alteration would be the disputed check itself and the serial number thereon. The trial court merely ruled as follows: With respect to Capitol's claim for damages consisting of alleged loss of opportunity. this Court finds that Capitol failed to adequately substantiate its claim. What Capitol had presented was a self-serving. assigning the latter as one of the errors committed by the trial court. v. Court of Appeals: 19 The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. Intermediate Appellate Court. the trial court and the Court of Appeals failed to explicitly state the rationale for the said award. it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v.000. petitioner unambiguously questioned before it the award of attorney's fees. Inc.. the change of its serial number not being substantial to its negotiability.00 as attorney's fees is hereby deleted. concur.) And contrary to the Court of Appeal's resolution. 16 Absent this proof. Anent the third issue — whether or not the drawee bank may still recover the value of the check from the collecting bank even if it failed to return the check within the twenty-four (24) hour clearing period because the check was tampered — suffice it to state that since there is no material alteration in the check. SO ORDERED. 18 The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank & Trust Corporation (Solidbank) v. Moreover. The one who signed the certification was not presented before the trial court to prove that the said document was really the document he prepared and that the signature below the said document is his own signature. 1981 (the date PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees. petitioner has no right to dishonor it and return it to PBCom. legal and equitable justification. Vitug and Hermosisima. The series number of said check was not included among those requisition by this Office from the Bureau of Treasury. WHEREFORE.. However. Intermediate Appellate Court. the amount of P10. 176 SCRA 539 [176 SCRA 539]). the decision of the Court of Appeals is hereby AFFIRMED. In their respective decisions. 15 We agree with the respondent court. premises considered. this Court finds that it would be fair and reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19. Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented.was not issued by this Office nor released to the payee concerned. except for the deletion of the award of attorney's fees. Petitioner thus assails the refusal of respondent court to give weight to the certification because the author thereof was not presented to identify it and to be cross-examined thereon. If it is stated only in the dispositive portion of the decision. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines. Bellosillo.

plaintiff-appellant. So. Mariano V. No. After hearing.. As such disbursing officer. Ramos worked under him as assistant agent in the bank branch aforementioned. vs. V.G. the currency being used in Mindanao.000. 1382 issued on May 2. Ramos on April 30. ET AL.: In August. Ramos was inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. M. 1942 by the Provincial Treasurer of Misamis Oriental to Mariano V. Enrique P. L-2861 February 26. Provincial Treasurer of Lanao did not have that amount in cash. Luciano for appellee Provincial Treasurer of Misamis Oriental.000 which he had received from the Provincial Treasurer of Lanao. 1947. his assistant agent M. Office of the Solicitor General Felix Bautista Angelo and Solicitor Augusto M. Ramos and supposedly indorsed to Montinola. 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon.000 in emergency notes and a check for P500.000.000 in emergency notes and a check No. Montinola has appealed from that decision directly to this Court inasmuch as the amount in controversy exceeds P50. he gave Ramos P300. the court rendered a decision dismissing the complaint with costs against plaintiff-appellant. On May 2. In April of that year 1942. J. thru the recommendation of Provincial Treasurer Laya. V. 1942. Laya was the Provincial Treasurer of Misamis Oriental. particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces. Quijano. Montinola filed a complaint in the Court of First Instance of Manila against the Philippine National Bank and the Provincial Treasurer of Misamis Oriental to collect the sum of P100. 1942. went to the neighboring Province Lanao to procure a cash advance in the amount of P800. was the emergency currency which had been issued since January. 1951 ENRIQUE P. Jarencio for appellee Philippine National Bank.000.000 for the use of the USAFFE in Cagayan de Misamis. THE PHILIPPINE NATIONAL BANK.000 emergency notes in the Philippine National Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit. 89 . About April 26. 1382 for P100. MONTINOLA. Pedro Encarnacion. There is no dispute as to the following facts. 1942. Rosete and Lucena for appellant. In April and May.000 drawn on the Philippine National Bank. As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the province. Ubaldo D. Laya did not have enough cash to cover the check so he gave Ramos P400. the amount of Check No. 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500. Second Assistant Corporate Counsel Hilarion U.R. According to Laya he had previously deposited P500. defendants-appellees. MONTEMAYOR.

Ramos was made a prisoner of war until February 12. V. evidencing said payment. it may be stated that looking at the face of the check (Exhibit A) we see that the left third portion of the paper has been cut off perpendicularly and severed from the remaining 2/3 portion. According to Montinola's version. at the back of the document he wrote in longhand the following: Pay to the order of Enrique P. Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was selling only P30. offered to sell him the check. P450.000.000 of the check and for this reason.000 only. he presented the check itself and had its face marked Exhibit A and the back thereof Exhibit A-1. bottled. and that in order to justify the non-delivery of the document and to discourage Ramos from getting it back.000. to be sure that it was genuine and negotiable. but not black and sharp as the blot itself. As to how said present indorsement came to be written. payable in installments. the USAFFE forces to which he was attached surrendered. Montinola. In this he was corroborated by Atty. the edges of the severed portions as well as of the remaining major portion. torn and partly burned. and its condition can best be appreciated by seeing it. V. the Japanese forces entered the capital of Misamis Oriental. went to see President Carmona of the Philippine National Bank in Manila about said check. that of this amount. In explanation of the mutilation of the check Montinola told the court that several months after indorsing and delivering the check to him. he (Montinola) had to resort to the mutilation of the document. Before going into a discussion of the merits of the version given by Ramos and Montinola as to the indorsement or writing at the back of the check. 1942. When Montinola filed his complaint in 1947 he stated therein that the check had been lost. But the check is badly mutilated. 1943. As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check. This writing was in some mysterious way obliterated. in typewriting are words and figures also in typewriting. and each tablet valued at P100. are a facsimile of the signature of Ramos. 1945. does not now appear at the back of said check. a triangular portion of the upper right hand corner of said remaining 2/3 portion has been similarly cut off and severed. namely. Ramos allegedly indorsed this check No. he (Simeon) prepared a document evidencing said payment of P20. It has already been described in detail. V. "517 Isabel Street" and about ¹/8 of an inch therefrom. Ramos. he (Simeon) prepared another document with two copies. which back bears a larger smear right under the blot. all this tearing.000. accompanied by his agents and by Ramos himself. leaving a balance unpaid of P45. and on June 10.000 would be paid in a few days. 1382 to Enrique P. for the sale to him of P30. About the last days of December. "pay to the order of" — in rubber stamp and in violet color are placed about one inch from the top. and so in lieu thereof he filed a supposed photostic copy. the circumstances surrounding its preparation. according to Montinola. at the trial. This indorsement which now appears on the back of the document is described in detail by trial court as follows: The endorsement now appearing at the back of the check (see Exhibit A-1) may be described as follows: The woods. The circumstances and conditions under which the negotiation or transfer was made are in controversy. Below "Enrique P. M. after which.000 was paid to Ramos in Japanese military notes in five installments. According to Montinola. where cut bear traces of burning and searing. the edges of the check appear to have been burned. The indorsement or writing described by M. Said present indorsement occupies a good portion of the back of the check.Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him." To the above description we may add that the name of M. Montinola. Ramos. that when the first check for P20. the entire check is pasted on both sides with cellophane. sometime in June. V. Roughly. that when the second check for P25. needing money with which to buy foodstuffs and medicine. with the understanding that the balance of P45. burning. it is well to give a further description of it as we shall later. and the balance of P400.000 of the check. Simeon Ramos Jr. There is a signature which apparently reads "M. This is followed by the words "Enrique P. V. the supposed participation of M. one for Montinola and the other for Ramos. which seems to have penetrated to the back of the check (Exhibit A-1). V. Ramos is hand printed in green ink. even death by himself or his guerrilla forces if he did not return said check.000 of the value of the document and that he was instructing the bank to deposit to his credit the balance. V. Exhibit A. Ramos" also in green ink but made in handwriting.000 tablets. and in its place was placed the present indorsement appearing thereon.000 Montinola would pay him P90.000 in Japanese military notes but that Montinola gave him only two checks of P20.000 Japanese military notes. Montinola" in typewriting which is approximately 5/8 an inch below the stamped words "pay to the order of". However. under the signature. each bottle containing 1. Ramos. Ramos in it and the 90 . both signed by Montinola and M. there is a big blot with indelible ink about the right middle portion. M. that after examining it President Carmona told him that it was negotiable but that he should not let the Japanese catch him with it because possession of the same would indicate that he was still waiting for the return of the Americans to the Philippines. The balance to be deposited in the Philippine National Bank to the credit of M. four bottles of sulphatia sole. he asked Ramos to hand print it because Ramos' signature was not clear. Ramos further said that in exchange for this assignment of P30. Ramos which had been written by him at the back of the check. 1944 or the first days of January.000 was issued by Montinola. Montinola P30.000 in Japanese military notes.000 was issued by Montinola. 1944. and to keep and attach this triangular portion and the rectangular ¹/3 portion to the rest of the document. V. Ramos duly indorsed the check to him. he was released and he resumed his status as a civilian. threatening Montinola with bodily harm. Ramos demanded the return of the check to him.000 was paid in kind. blotting and smearing and pasting of the check renders it difficult if not impossible to read some of the words and figures on the check.000 and P25. finally. that he and Ramos finally agreed to the sale of the check for P850. What appears thereon is the indosement testified to by Montinola and described by the trial court as reproduced above. we agree with trial court that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30. Montinola". who told the court that the agreement between Ramos and Montinola was that the latter. but there are words stamped apparently in rubber stamp which. was to pay Ramos P90. that upon payment of the full price.

and finally sign his name too far below the main indorsement. considering the fact that it involves his life savings. Montinola. What is worse is that Montinola's excuse as to how it was lost. the oval line in violet. The balance to be deposited to the credit of M. It is now so unclean and discolored. Obviously Cortado had no recollection as to how such marks ever were stamped at the back of the check. (b) Again Cortado. Ramos". that is. in its well-prepared decision.000 worth of sulphatiazole in January 1945 to complete the alleged consideration of P850. registered said check with the General Auditing Office and he knew that Ramos. the most logical conclusion is that Ramos wanted the check at all costs because Montinola did not acquire the check to such an extent that it borders on intentional cancellation thereof (see Sections 119-123 Negotiable Instruments Law) there is room to believe that Montinola did not have so much investments in that check as to adopted an "what do I care?" attitude. (d) It seems that Montinola was not so sure as to what he had testified to in reference to the consideration he paid for the check. In court he testified that he paid P450. create doubts as to whether or not really Ramos made the indorsement as it now appears at the back of Exhibit A. was hot after the possession of that check. is found in the following: That Ramos came to his house.000 in Japanese Military Notes as consideration for the check? The following observations are in point: (a) According to plaintiff's witness Gregorio A. the rubber stamp was already in the house of Montinola. V. approximate intentional cancellation. Montinola told Provincial Treasurer 91 . Yet. armed with a revolver. so much so that a photostatic copy thereof was merely attached to the complaint (see paragraph 7 of the complaint).000. during the trial the original check Exhibit A was produced in court. a nearby house. Cortado.000 in cash from June to December 1944. Exhibit 3 the record. V. Montinola" and the line in the form of cane handle crossing the word "street" in the words and figures "517 Isabel Street" in the endorsement Exhibit A-1 "unusual" to him. as aforesaid. The condition of the check as it was produced is such that it was partially burned. speaking of the endorsement as it now appears at the back of the check (Exh. and that upon the return of Ramos the next day he showed the two parts of the check. Montinola" "and "517 Isabel Street". Conceding at the moment these facts to be true. the question is: Why should Montinola be afraid of Ramos? Montinola claims that Ramos went there about April. the triangle on the right upper part and the torn piece on the left part. he could have very well sought police protection or transferred to some place where Ramos could not bother him. and that before the alleged loss. Montinola and Ramos returned in group to the house of Montinola. and with portions thereof burned-all done by plaintiff. Montinola 517 Isabel Street". The acts done by the very plaintiff on a document so important and valuable to him. that when he informed Ramos that he did not have it in the house. Montinola. and stamped it in his house.000 only. it is pasted in cellophane. Montinola the amount of P30. threatened his life and demanded from him the return of the check. Oriental Misamis. signed by M. obviously he overlooked a letter he wrote to the provincial treasurer of Cagayan. When Montinola testified this way in court. says on these points: The allegedly indorsement: "Pay to the order of Enrique P. but in some deposit outside thereof and that Ramos promised to return the next day. on the other hand. partially blotted. And then. badly mutilated. we quote with approval what the trial court presided over by Judge Conrado V. Sanchez. testified that Ramos carried in his pocket the said rubber stamp as well as the ink pad. that it was mixed up with household effects is not plausible. discolored and pasted with cellophane. (c) Another circumstances which bears heavily upon the claim of plaintiff Montinola that he acquired the full value of the check and paid the full consideration therefor is the present condition of said check. In that letter Exhibit 3. Ramos-according to the latter-does not now appear at the back of the check. bottled with ink on both sides torn three parts. and it was on the table of the upper floor of the house. At the time of the filing of the complaint the check was allegedly lost. together with the stamp pad used to stamp the same. really Ramos did not have anything more to do with this check for the reason that Montinola had obtained in full the amount thereof. But a comparison between the photostatic copy and the original check reveals discrepancies between the two. And there is the circumstance of the alleged loss of the check. Cortado stated that when he (Cortado). there could not be any reason why Ramos should have threatened Montinola as stated by the latter. in his own house. he took extreme pains and precautions to save the check from the possible ravages of the war. If he believed he was standing by his rights. on the other hand. and which according to him involves his life savings. 1945. Had Montinola really paid in full the sum of P850. Exhibit A-1. 1947. enclosing "P. and P400. Under the circumstances. The only reason advanced by plaintiff as to why tore check. the alleged owner thereof." of the words "Enrique P. testified that Ramos typewrote the words "Enrique P.writing originally appearing on the reverse side of the check. during liberation. and that as far as he could remember this writing did not appear on the instrument and he had no knowledge as to how it happened to be there. that is. A different indorsement. A-1) stated that Ramos typewrote these words outside of the premises of Montinola. burned the torn edges and bottled out the registration at the back. Speaking of the rubber stamp used at the back of the check and which produced the words "pay to the order of". dated May 1. burned the sides with a parrafin candle to show traces of burning. had it photographed. He also said that he placed the blots in indelible ink to prevent Ramos — if he would be forced to surrender the middle part of the check — from seeing that it was registered in the General Auditing Office. that the same night he tore the check into three parts. The unusually big space occupied by the indorsement on the back of the check and the discrepancies in the versions of Montinola and his witness Cortado just noted. One thing difficult to understand is why Ramos should go into the laborious task of placing the rubber stamp "Pay to the order of" and afterwards move to the typewriter and write the words "Enrique P. and upon seeing the condition thereof Ramos did not bother to get the check back. now appears. since liberation. Atadero.

000 was issued to complete the payment of the other check for P500. of which only one-half or P45. then the bank is not only drawee but also a drawer of the check. V. on A. Phil. and not by the Philippine National Bank which has no such obligation. Ramos. After considering the testimony of the one and the other.000 of said currency in the Philippine National Bank branch in Cebu. Phil. Laya was ex officio agent of the Philippine National Bank branch in that province. stated that he issued the check only as Provincial Treasurer. The check. we stated that as Provincial Treasurer of Misamis Oriental. Now. 14-20. Said check for P100.. National Bank" under the signature of Laya.000 in cash was paid to Ramos by Laya from the funds. therefore. obviously. Naturally. A). National Bank" after 92 . On the face of the check (Exh. and later introduced in evidence for him as Exhibit E states that Laya issued the check "in his capacity as Provincial Treasurer of Misamis Oriental". National Bank" now appearing under his signature did not appear on the check when he issued the same. that when a check is issued by the Provincial Treasurer as such. For. it is countersigned by the Provincial Auditor as was done on the check (Exhibit A). Phil. at the time the check was issued. not as agent of the Bank. Ramos sold to him P30. Laya. pp. National Bank" now appearing on the face of the check (Exh. V. The Provincial Auditor at that time had no connection in any capacity with the Misamis Oriental agency of the Philippine National Bank. In this he was corroborated by the payee M. V. according to Provincial Treasurer Laya. It is not likely. Phil.) At the beginning of this decision. too there is the circumstance that this check was issued by the provincial treasurer of Lanao to Ramos who requisitioned the said funds in his capacity as disbursing officer of the USAFFE. he deposited P500. We again quote with approval the pertinent portion of the trial court's decision: The question is reduced to whether or not the words. Phil. and that in issuing the check (Exh. National Bank" were added after Laya had issued the check. "certified check" or "cashier's check. National Bank" below the signature of Laya and the printed words "Provincial Treasurer". medicine.000 in emergency notes and the P100. presumably. Brief of Appellee. Montinola did not mention the cash that he paid for the check.Elizalde of Misamis Oriental that "Ramos endorsed it (referring to check) to me for goods in kind.000 Japanese money. the check is countersigned not by the Provincial Auditor who has nothing to do with the bank. it may yet avoid payment." In said letter Exhibit 3. The balance of P400. we may safely conclude as we do that the words "Agent." Besides. Plaintiff Montinola on the other hand testified that when he received the check Exhibit A it already bore the words "Agent. Laya and the printed words "Provincial Treasurer" were added in the check after the same was issued by the Provincial Treasurer of Misamis Oriental. as part of the advance funds for the USAFFE in Cagayan de Misamis. As already stated. Upon the foregoing circumstances the court concludes that the words "Agent.000 issued by the Provincial Treasurer of Lanao to Ramos. And then. purportedly showing that he issued the check as agent of the Philippine National Bank.000 of the face value thereof in consideration of the sum of P90. therefore. V. Phil. In the first place. Ramos add or place those words below the signature of Laya before transferring the check to Montinola? Let us bear in mind that Ramos before his induction into the USAFFE had been working as assistant of Treasurer Laya as ex-officio agent of the Misamis Oriental branch of the Philippine National Bank. testifying in court. etc. namely. He also testified that the said check was issued by him in his capacity as provincial treasurer of Misamis Oriental and that is why the same was countersigned by Provincial Auditor Flores. but that if the Provincial Treasurer issues a check as agent of the Philippine National Bank. one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose. Ramos who equally assured the court that when he received the check and then delivered it to Montinola. 31-33. A) we now find the words in parenthesis "Agent. but by the bank cashier. National Bank" which now appear on the check Exhibit A were not typewritten below his signature when he signed the said check and delivered the same to Ramos.000 check to Ramos. and Montinola evidently is trying to hold the Philippine National Bank liable in that capacity of drawer. Phil. Phil. A) were added or placed in the instrument after it was issued by Provincial Treasurer Laya to M. Ubaldo D. Ramos. V. according to Laya. There is no reason known to us why Provincial Treasurer Laya should issue the check (Exh. when he issued check in his capacity as agent of the Misamis Oriental agency of the Philippine National Bank the said check must be countersigned by the cashier of the said agency — not by the provincial auditor. and that the words in parenthesis "Agent. He could not have therefore issued the check-as a bank employee-payable at the central office of the Philippine National Bank. Laya. Laya already knew that Cebu and Manila were already occupied. that Ramos had made the insertion of the words "Agent. The logical conclusion. did M. A) as agent of the Philippine National Bank. (R.000. he expected to have it cashed at said Cebu bank branch against his deposit of P500. Laya credited his depository accounts as provincial treasurer with the corresponding credit entry. "Agent. Laya assured the court that there could not be any mistake as to this. received by him for the use of the guerrillas. his testimony was corroborated by the payee M. The very Annex C. In the normal course of events the check could not have been issued by the bank. pp. But what renders more probable the testimony of Laya and Ramos is the fact that the money for which the check was issued was expressly for the use of the USAFFE of which Ramos was then disbursing officer. From all the foregoing.. upon receiving a relatively considerable amount of these emergency notes for his office. is that the check was issued by Laya only as Provincial Treasurer and as an official of the Government which was under obligation to provide the USAFFE with advance funds. because as drawee alone. the court finds that the preponderance of the evidence supports Laya's testimony. National Bank' below the signature of Ubaldo D. which was not done in this case. Ramos must have known the procedure followed there as to the issuance of checks. those words did not appear under the signature of Ubaldo D. Said USAFFE were being financed not by the Bank but by the Government and. not of the bank but of the Provincial Treasury. and this is borne by the fact that the signature of Laya was countersigned by the provincial auditor. Exhibit A is not what we may term in business parlance. not the bank cashier. made part of plaintiff's complaint.000 (in Japanese money) was actually paid by said plaintiff to Ramos. inasmuch as the bank has not yet accepted or certified the check. From the foregoing the court concludes that plaintiff Montinola came into the possession of the check in question about the end of December 1944 by reason of the fact that M. so much so that upon the delivery of the P400. In a straightforward manner and without vacillation Laya positively testified that the check Exhibit A was issued by him in his capacity as Provincial Treasurer of Misamis Oriental and that the words "Agent. It this is true.

especially with the aid of a handlens. A) to Montinola about the last days of December. and since the check bears the countersignature not of the Bank cashier of the Provincial Auditor. a stable check. National Bank". Phil. A-1). Of course. show notable differences and discrepancies. the letter A of the word "Agent" is toward the right of the tail of the beginning letter of the signature of Ubaldo D. The plaintiff because of the alleged loss of the check. with the original Annex A. Moreover. the money circulating in 93 . Phil. The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and "Treasurer". Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions. in which case. The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the lower right hand corner of the edge of the check (Exh. We then have the following facts. we find that in transcribing and copying the check. Referring to the mimeographed record on appeal filed by the plaintiff-appellant. For instance. on Exhibit B is on the very border line itself or even before said border line. We tried to verify this discrepancy by going over the original records of the Court of First Instance so as to compare the copy of Annex A in the complaint. allegedly attached to the complaint a photostatic copy of said check and marked it as Annex A. The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A. There is one other circumstance. Ramos also told the court that it is not true that he ever went with Montinola to see President Carmona about the check in 1944. at most he can be considered only as assignee. he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Unless the plaintiff in making this copy or transcription in the complaint committed a serious omission which is decisive as far as the bank is concerned. and that when shown the check he told Montinola that it was stale. 1945.000 of the check to Enrique P. This writing was obliterated and in its place we now have the supposed indorsement appearing on the back of the check (Exh.000 of the value of the check. this same ")" on Exhibit B appears in a single line and is relatively nearer to the border line. with the title Provincial Treasurer.000 was paid by Montinola. But in transcribing and copying said Annex A in his complaint. he has not paid the full amount of P90. Laya. because he should have realized that following the practice already described. but the same letter "N" is directly under the letter "I" of the word "Provincial" in Exhibit B. the photostatic copy.000 to Montinola and to deposit the balance to his (Ramos) credit. was payable on demand. But a minute examination of and comparison between Annex A. It is therefore evident that the Annex A now available is not the same original Annex A attached to the complaint in 1947. It may therefore be considered. in compliance with the verbal order of the trial court. and not as agent of the bank. National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check (Exhibit A). even then.000 for which Ramos sold him P30.000 Japanese military notes. Montinola is not even a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. 1948. At the time of the transfer of this check (Exh. It is therefore more logical to believe and to find that the addition of those words was made after the check had been transferred by Ramos to Montinola. is missing. was long overdue by about 2 ½ years. the check having been issued by Laya as Provincial Treasurer. being a negotiable instrument. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. the addition of the words "Agent. constitutes a material alteration of the instrument without the consent of the parties liable thereon. the check which. of which he was President. 1944 when Ramos supposedly approached him for the purpose of negotiating the check. National Bank" could not change the status and responsibility of the bank. he (Montinola) consulted President Carmona of the Philippine National Bank who assured him that the check was good and negotiable. or the first days of January. 1942. If Annex A also marked Exhibit B is the photostatic copy of the original check No. Montinola must have known that at the time the check was issued in May. said photostatic copy now marked Annex A and Exhibit B was submitted on October 15. that at the time the complaint was filed. An indorsement which purports to transfer to the indorsee a part only of the amount payable. after liberation. And. (Section 124 of the Negotiable Instruments Law). as such assignee. As already stated. M. The insertion of the words "Agent. and so discharges the instrument. the inference is. 1945. of which only P45. Ramos sold P30. Phil. A). National Bank" now appearing on the face of the check under the signature of the Provincial Treasurer. There are other notable discrepancies between the check Annex A and the photostatic copy. the phrase "Agent. Montinola for P90. the photostatic copy also marked Exhibit B and the face of the check. said phrase did not appear on the face of the check. as regards the relative position of the phrase "Agent. said treasurer would have placed below his signature the words "Agent of the Philippine National Bank". 1948. The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Montinola claims that about June. President Carmona on the witness stand flatly denied Montinola's claim and assured the court that the first time that he saw Montinola was after the Philippine National Bank. Neither could it be said that he took it in good faith. there are other facts and circumstances involved in the case which support this view. Exhibit A was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer on the Philippine National Bank as drawee. this same letter "k" however. it was long overdue. On the basis of the facts above related there are several reasons why the complaint of Montinola cannot prosper. Neither is he an indorsee for as already stated. but the same letter "a" in Exhibit "B" is just below the space between the words "Provincial" and "Treasurer". Of course. 1944. 1382 particularly the face thereof (Exhibit A). The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and appears to be double instead of one single line. one of which is that he became the holder before it was overdue. important and worth nothing." Montinola may therefore not be regarded as an indorsee. then said photostatic copy should be a faithful and accurate reproduction of the check. but said original Annex A appears to be missing from the record.he received the check. . National Bank" does not appear under the signature of the provincial treasurer. Phil. Montinola speculated on the check and took a chance on its being paid after the war. The writing made by Ramos at the back of the check was an instruction to the bank to pay P30. In the second place. Phil. At most he may be regarded as a mere assignee of the P30. but according to the manifestation of counsel for the plaintiff dated October 15. Exhibit B.000 sold to him by Ramos. particularly the face of it (Exhibit A) in the complaint. around August or September. However. giving ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit A). . Phil. particularly of the phrase "Agent. When Montinola received the check. now we have in the list of exhibit a photostatic copy marked Annex A and Exhibit B. this same letter "A" however in Exhibit B is directly under said tail. contended that if the check in question had been issued by the provincial treasurer in his capacity as agent of the Philippine National Bank. That probably was the reason why the bank in its motion to dismiss dated September 2. reopened. V. 1947. on Exhibit A. . How it disappeared is not explained. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability. the words "Agent. Exhibit A. (as in this case) does not operate as a negotiation of the instrument. as was stated by the trial court in its decision.

Montinola dated February 27. Therefore. to the City Fiscal's Office for appropriate criminal action against the plaintiff-appellant if the facts so warrant. Bengzon. The bank on March 2. V. It was negotiated in breach of trust. concur. 1950. for any action he may deem proper in the premises. In view of all the foregoing. Ramos as the disbursing officer of the USAFFE. it is absolutely necessary for the court to examine the original in order to see the actual alterations supposedly made thereon. 94 .. and that at the time that Ramos sold a part of the check to him. Also. Tuazon. he had no right to indorse it personally to plaintiff. once the decision becomes final. Feria. hence he transferred nothing to the plaintiff. said check may no longer be available if the appellant is allowed to withdraw said document. the same is hereby affirmed with costs. the check was issued to M. 1950. Reyes and Bautista Angelo. JJ. he should have known that a check for such a large amount of P100. A) for him to keep. Paras.. In view of said opposition this Court resolution of March 6. V.000 could not have been issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE. Moran. Acting upon the petition contained in the bank's brief already mentioned. As already stated. In the prayer for relief contained at the end of the brief for the Philippine National Bank dated September 27. we find this prayer: It is also respectfully prayed that this Honorable Court refer the check. as a mere assignee Montinola is subject to all the defenses available against assignor Ramos.J. Ramos was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family. 1950 opposed the said petition on the ground that inasmuch as the appellant's cause of action in this case is based on the said check. let the Clerk of Court transmit to the city fiscal the check (Exh. C. Padilla. Subsequently. finding no reversible error in the decision appealed from. in a petition signed by plaintiff-appellant Enrique P. he asked this Court to allow him to withdraw the original check (Exh.Mindanao and the Visayas was only the emergency notes and that the check was intended to be payable in that currency. Pablo. denied said petition for withdrawal. And. and that should this Court grant the prayer contained in the bank's brief that the check be later referred to the city fiscal for appropriate action. A) together with all pertinent papers and documents in this case. 1949. As observed by the trial court. Exhibit A. expressing his willingness to submit it to the court whenever needed for examination and verification. Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer. Ramos not as a person but M.

1950.3 Sadaya received nothing therefrom. petitioner. a promissory note for P15. proceeds of the promissory note. while these two did not receive value on the promissory note. And Varona is bound by the obligation to reimburse Sadaya. paid that balance. For. 1952. in a decision promulgated on July. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15. Francisco Sevilla was named administrator. and directing the administrator to pay the same from any available funds belonging to the estate of the deceased Victor Sevilla. the proceeds of the loan went to Varona and the other two received nothing therefrom. No. totalled P5. the outstanding balance stood P4. we repeat. there is an implied contract of indemnity. 1960. is that of joint and several obligors. Belen Law Offices for petitioner.2 Better yet. Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount of 50% of P5. Victor Sevilla died.873.000. 1518. For.500.746. or P2. against the intestate estate of the deceased Victor Sevilla. the bank collected from Sadaya the foregoing balance which. or its order. 1. or both. J. payable on demand. Payments were made on account. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from Oscar Varona.G. The common creditor. in respect to each other? Surely enough. Poblador. we first look into the relations inter se amongst the three consigners of the promissory note.000. FRANCISCO SEVILLA. In Special Proceeding No. Victor Sevilla. 5 For 95 . 1957. a solidary accommodation maker — who made payment — has the right to contribution. After all. The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not receive any amount as consideration for the promissory note.12.4 3." but signed it only "as surety for Oscar Varona".12. 1967 INTESTATE ESTATE OF VICTOR SEVILLA. the administrator appealed. voted to set aside the order appealed from and to disapprove and disallow "appellee's claim of P5. in the absence of agreement to the contrary between them. as amongst the three.746. they executed the same with.00-peso promissory note in favor of the Bank of the Philippine Islands. vs." be approved.746. the individual obligation of each of them to the bank is no different from. Oscar Varona. This right springs from an implied promise between the accommodation makers to share equally the burdens that may ensue from their having consented to stamp their signatures on the promissory note.000. On October 6." The case is now before this Court on certiorari to review the judgment of the Court of Appeals. that contract by Oscar Varona. 4. L-17845 April 27. Varona received full value of the promissory note. As such accommodation the makers. Simeon Sadaya. the trial court issued an order admitting the claim of Simeon Sadaya in the amount of P5. now out of the way. Varona failed to reimburse Sadaya despite repeated demands. The entire. On June 5. jointly and severally. On principle. He paid the bank because he was a joint and several obligor.1 The Court of Appeals. Their relations vis-a-vis the Bank. Sadaya filed a creditor's claim for the above sum of P5.00 with interest at 8% per annum.416. as between Varona and Sadaya. in favor of the Bank of the Philippine Islands. indeed. 2. had payment been made by Oscar Varona. need not be essayed.: On March 28. the obligation of Varona and Sevilla to Sadaya who paid can not be joint and several. But can the same thing be said about the relations of the three consigners. This is but right and just.00. and subject to conditions imposed by law.R.850. Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona.00.746.12. from his co-accommodation maker. The motion to reconsider having been overruled. amount of P15.06.12 against the intestate estate. Oscar Varona and Simeon Sadaya executed. Their liability to the bank upon the explicit terms of the promissory note is joint and several. was received from the bank by Oscar Varona alone.12. Special Proceeding No. No payment thereafter made. The least that can be said is that. plus attorneys fees in the sum of P1. instead of Simeon Sadaya. the Bank of the Philippine Islands. 15. together with interest. and no greater and no less than. As of June 15. And the fact is that one of the last two. Cruz & Nazareno for respondent. respondent. 1518. SANCHEZ. Varona could not have had reason to seek reimbursement from either Sevilla or Sadaya.00. SIMEON SADAYA. 1949. the bank could have pursued its right to collect the unpaid balance against either Sevilla or Sadaya. and for the purpose of lending their names to. Intestate estate proceedings were started in the Court of First Instance of Rizal.

indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. unless the payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent. the one among them who has paid may demand of each of the others the share which is proportionally owing from him. — La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben concurrir para que pueda tener lugar lo dispuesto en el mismo.6 This is as it should be. Esa accion — sostienen — no nace de la fianza. If any of the guarantors should be insolvent. By Article 18 of the Civil Code in matters not covered by the special laws. Article 2073. on this point stated: Otros.ñët Because Sevilla and Sadaya. No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos derechos."11 Not that the requirements in paragraph 3. Not one of them benefited by the promissory note. his share shall be borne by the others. como ha dicho Laurent. Lo cierto es que esa accion concedida al fiador nace. sancionado por el art. es de todo punto indudable que ejercitando esta accion pueden quedar libres de toda responsabilidad los demas cofiadores si. Ese derecho que concede al fiador para reintegrarse directamente de los fiadores de lo que pago por ellos en vez de dirigir su reclamacion contra el deudor. contraida por todos ellos. se libran los que no han pagado por consecuencia del acto realizado por el que pago. que igualmente estaban estaban obligos a dicho pago.1äwphï1. are devoid of cogent reason. 2073. And now. y esa limitacion este debidamente aconsejada por una razon de prudencia que no puede desconocerse. in themselves. cuya justificacion resulta evidenciada desde luego. just quoted. in the same proportion.13 96 . entienden que. y en la practica quedaria reducido el primero a la indemnizacion por el deudor a los confiadores que hubieran hecho el reintegro. se han extremado sus consecuencias hasta el punto de que estas son contrarias. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid the debt to the creditor and is seeking contribution from his cosureties. el hecho de afianzar una misma deuda no crea ningun vinculo juridico. Perforce. su origen de una acto posterior. no solo a la logica. En efecto. Manresa. por el contrario. cual es el pago de toda la deuda realizado por uno de ellos. como Pothier. They stand on the same footing. puesto que mucha mas garantias de solvencia y mucha mas seguridad del cobro ha de encontrar en los fiadores que en el deudor. a soportar siempre los gastos y las molestias que anteriormente homos indicado. their burdens should be equally spread. como tenemos ya dicho. y la equdad. they clearly placed themselves — in so far as payment made by one may create liability on the other — in the category of mere joint grantors of the former. ni ninguna razon de obligar entre los fiadores. se aprovenchen de ese acto en perjuico del que lo realozo. cual es la de evitar que por la mera voluntad de uno de los cofiadores pueda hacerse surgir la accion de reintegro contra los demas en prejuicio de los mismos. es un beneficio otorgado por la ley solo ell dos casos determinados. pues teniendo en primer termino el fiador que paga por el deudor el derecho de indemnizacion contra este. to the requisites before one accommodation maker can seek reimbursement from a co-accommodation maker. dicho acto redunda en beneficio de los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo compromiso con el acreedor. their case comes within the ambit of Article 2073 of the Civil Code which reads: ART. "their deficiency shall be supplied by the provisions of this Code". including the payer. obligando a estos. repitiendo despues por ellas contra el deudor con la imposicion de las molestias y gastos consiguientes. In misfortune. De ese obligacion. reclamando de los confiadores en primer lugar el oportuno reintegro. en efecto. 1. estos en tendrian mas remedio que satisfacer sus ductares respectivas. sino que trae. Nothing extant in the Negotiable Instruments Law would define the right of one accommodation maker to seek reimbursement from another. la ley no ha podido menos de reducir el ejercicio de ese derecho a los casos en que absolutamente sea indispensable. are but co-guarantors of Varona. commenting on Article 1844 of the Civil Code of Spain. The provisions of this article shall not be applicable. pero es consecuencia del beneficio o del derecho de division.10 As Mr. no permite que los denias fiadores. si bien el principio es evidente enestricto concepto juridico. a consecuencia de ella. pues. When there are two or more guarantors of the same debtor and for the same debt.having lent their signatures to the principal debtor. we must go to the Civil Code. Por el contrario de prescindir de dicho derecho el fiador.9 5. indudablemente optaria siempre y en todo caso por el segundo. por virtud de esta todos los cofiadores vienen obligados a contribuir al pago de parte que a cada uno corresponde. sin excepcion alguna. si.838. Says Manresa: 12 c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad de los cofiadores. Y para evitar estos perjuicios. del hecho del pago. El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio. sino tambien a la equidad. el de indemnizacion por el deudor y el del reintegro por los cofiadores.7 which is substantially reproduced in Article 20738 of our Civil Code. que debe ser el alma del Derecho. y si bien este no hizo mas que cumplir el deber que el contracto de fianza le imponia de responder de todo el debito cuando no limito su obligacion a parte alguna del mismo.

'1') was replaced by Atty.6. Santos. Santos. or (b) a principal debtor is insolvent.. Benares and plaintiff Ricardo S. However. 1987. Benares. Atty. Ricardo S. Melquiades P. dated June 14. tendered cashier's check No. Hence. REGALADO. However..000. Alfonso Llamas.. Dizon. 1981 to the defendant Ernestina Crisologo-Jose. Inc. Santos. in the amount of P45. COURT OF APPEALS and RICARDO S. de Leon for petitioner. Benares and by the plaintiff Ricardo S. the check will be encashed accordingly. respondents.000. promulgated on September 8. J. did sign the check. The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any judicial demand. The parties are substantially agreed on the following facts as found by both lower courts: In 1980. was the vice-president of Mover Enterprises. Atty. The defendant refused to receive the cashier's check in payment of the dishonored check in the amount of P45. Santos.R.. Llamas. J.00 (Exh. plaintiff Ricardo S. since at that time. the treasurer of Mover Enterprises was not available.'I') payable to defendant Ernestina Crisologo-Jose.L. plaintiff encashed the aforesaid cashier's 97 . CC 160152 for P45. the aforesaid check for P45.000. Atty. concur. also payable to the defendant Jose. Oscar Benares. during the preliminary investigation of the criminal charge against Benares and the plaintiff herein. When defendant deposited this replacement check (Exhs. Santos. plaintiff Ricardo S.. Oscar Z. Concepcion. 22 with the Quezon City Fiscal's Office against Atty. 093553 drawn against Traders Royal Bank. Jr. and the president of the said corporation was Atty. The investigating Assistant City Fiscal. 80599 September 15.00 (Exh. Plaintiff Ricardo S.. since the compromise agreement was not approved within the expected period of time. which reversed the decision of the trial Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Rogelio A. Quezon City.: Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals. No. Santos. Hence. 22 docketed as Criminal Case No. and the treasurer of the said corporation. in accommodation of his clients. Benares with another Traders Royal Bank cheek bearing No. Oscar Z. 'A' and '2') with her account at Family Savings Bank. No costs. Benares prevailed upon the plaintiff.B. Jr..000." and that "there is an absolute absence of evidence showing that Varona is insolvent".00. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Mayon Branch.P. it was dishonored for insufficiency of funds. So ordered. with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong. JR. in the same amount of P45. Zaldivar and Castro. for violation of Batas Pambansa Blg.00 (Exhs. Santos. Meanwhile. 1980. Oscar Z. the same was to be signed by its president. Since the check was under the account of Mover Enterprises. 379299 dated August 10. Regala. in his own behalf and as Vice-President for Sales of Mover Enterprises. Jr. Oscar Z. the complainant in that criminal case. the spouses Jaime and Clarita Ong. Makalintal.000. petitioner. J. 1980. vs. issued Check No. This combination of fact and lack of fact epitomizes the fatal distance between payment by Sadaya and Sadaya's right to demand of Sevilla "the share which is proportionately owing from him." For the reasons given. On April 30. 1989 ERNESTINA CRISOLOGO-JOSE. and (2) a joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand. Benares. the spouses Jaime and Clarita Ong. G. This replacement check was also signed by Atty. Bengzon. Jr. 1980. Jr. Jr. Reyes. in-charge of marketing and sales.00 dated April 10. accordingly filed an amended information with the court charging both Oscar Benares and Ricardo S. Benares. Jr. It appears that the check (Exh. Inc.. C. 'A' and '2'). Inc. Jr.J. defendant through counsel was constrained to file a criminal complaint for violation of Batas Pambansa Blg. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that he paid to the payee. the judgment of the Court of Appeals under review is hereby affirmed. Santos. to sign the aforesaid chEck as an alternate story. Ajes for private respondent. before Assistant City Fiscal Alfonso T. Q-14867 of then Court of First Instance of Rizal. JJ. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. SANTOS.

Nevertheless. 1. have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. From the standpoint of contract law. or indorser. although such holder at the time of taking the instrument knew him to be only an accommodation party. the accommodation party is in effect a surety for the latter. 10 Corollarily. as well as the consequences arising from their acts in connection therewith. then she is effectively barred from recovering from Mover Enterprises. 6 Assuming arguendo that Mover Enterprises. he is liable to a holder for value as if the contract was not for accommodation 5 in whatever capacity such accommodation party signed the instrument. one of the signatories of the check issued under the account of Mover Enterprises.check and subsequently deposited said amount of P45. the signatories of said instrument where the facts show that the accommodation involved was for their personal account. knew him to be only an accommodation party. or indorser. is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another. but should render personally liable. Oscar Z. the value of the check. the assignment of errors wherein are prefatorily stated and discussed seriatim. Such a person is liable on the instrument to a holder for value. or the nature of the transaction. signing as maker. as vice-president of said corporation. 8 Hence. 'D' and 'E'). and not private respondent who merely signed the check in question in a representative capacity. the check issued in favor of herein petitioner. corporate officers. the instant petition. and (3) sign for the purpose of lending his name for the credit of some other person. Benares and given to the plaintiff herein to be applied in payment of the dishonored check. 9 By way of exception. is an accommodation party under the Negotiable Instruments Law and a debtor of petitioner to the extent of the amount of said check. without receiving value therefor. does not include nor apply to corporations which are accommodation parties. directing the trial court to give due course thereto. Petitioner contends that respondent Court of Appeals erred in holding that private respondent.. The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve. an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. 4 As earlier stated. Thus. whether primarily or secondarily. he differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Inc. such as the president and vice-president. Liability of accommodation party an accommodation party is one who has signed the instrument as maker. That it was a personal undertaking of said corporate officers was apparent to petitioner by reason of her personal involvement in the 98 . acceptor. Inc. as hereinbefore explained. hence he is not liable thereon under the Negotiable Instruments Law. is the accommodation party in this case." rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. Consequently. the court a quo. The pertinent provision of said law referred to provides: Sec. Hence. Incidentally. notwithstanding such holder. petitioner is not without recourse. undertaking or purpose and the creditor was aware thereof. the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor. a person must (1) be a party to the instrument. Be that as it may. it has been held that in lending his name to the accommodated party. Inc. 29. he cannot recover against the corporation thereon. 3 After trial. Since such accommodation paper cannot thus be enforced against the corporation. and for the purpose of lending his name to some other person. that is. that is. was evidently charged with the knowledge that the cheek was issued at the instance and for the personal account of Atty. If we indulge petitioner in her aforesaid postulation. If the form of the instrument. 7 This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Inc. to be considered an accommodation party. drawer. The instant case falls squarely within the purview of the aforesaid decisional rules. Petitioner avers that the accommodation party in this case is Mover Enterprises. the inevitable question is whether or not it may be held liable on the accommodation instrument. Based on the foregoing requisites. as petitioner suggests. 1981 (Exhs. We hold in the negative.000. Benares who merely prevailed upon respondent Santos to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. the cashier's check adverted to above was purchased by Atty. drawer. The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value. holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is applicable to this case. at the time of taking the instrument. one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. respondent court reversed and set aside said judgment of dismissal and revived the complaint for consignation. (2) not receive value therefor. it is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. especially since it is not involved in any aspect of the corporate business or operations. acceptor. Petitioner.00 with the Clerk of Court on August 14.

as the other co-surety. we do not thereby rule that all the operative facts for consignation which would produce the effect of payment are present in this case. if any. Benares and respondent Santos. therefore. on the one hand. Indeed. and which would be subject to such issues or claims as may be raised by defendant and the counterclaim filed therein which is hereby ordered similarly revived. for that matter. by holding that no criminal liability had yet attached to private respondent when he deposited with the court the amount of P45. These are matters alien to the present controversy on tender and consignation of payment. or from the first day of actual preliminary investigation. 22 provides that the element of knowledge of insufficiency of funds or credit is not present and. In the latter case. to determine whether or not there was knowledge of insufficiency of funds in or credit with the drawee bank.00 on August 14. and whether there was a justification for not making the requisite arrangements for payment in full of such check by the drawee bank within the said period. Petitioner's submission is that no creditor-debtor relationship exists between the parties. 1981. Q-14867. the criminal trial court has to grapple with such factual issues as. to petitioner's claims being directed personally against Atty. between August 7. for instance. Those are factual issues that are not clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case No. We interpose the caveat.000.000. therefore. Concomitantly. thus: Section 2 of B. 2. Q-33160. supra.00 is the final plaint of petitioner. and petitioner. With the dishonor of the check. however. president and vice-president. and August 14. That respondent court virtually prejudged Criminal Case No. 1981. A co-maker or co-drawer under the circumstances in this case is as much an accommodation party as the other co-signatory or. therefore. on the other.P. whether or not the period of five banking days had expired. This circumstance enables respondent Santos to resort to an action of consignation where his tender of payment had been refused by petitioner. from the commercial and civil law aspects determinative of said issue.financial arrangement and the fact that. respectively. 1981. As previously discussed. On her second assignment of error. hence consignation is not proper. and that the requisite quantum of evidence in the two types of cases are not the same. 3. Santos. These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive rule. that by holding that the remedy of consignation is proper under the given circumstances. she actually had no transaction directly with said corporation. Jr. In its own decision therein. for which reason it has advisedly been directed by respondent court to give due course to the complaint for consignation. The fact that he was only a co-signatory does not detract from his personal liability. juris tantum at that.P. the resolution of which should not be interfered with by respondent Court of Appeals at the present posture of said case. respondent court went beyond the ratiocination called for in the appeal to it in CA-G. Q-14867. this argument was premised on the assumption that private respondent Santos is not an accommodation party. much less preempted by the inappropriate and unnecessary holdings in the 99 . petitioner argues that the Court of Appeals erred in holding that the consignation of the sum of P45. liable for the value of the check. as between Atty. the foregoing matters are properly addressed to the trial court in Criminal Case No. The fifth banking day fell on August 14. that payment of civil liability is not a mode for extinguishment of criminal liability. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or credit. while it was the corporation's check which was issued to her for the amount involved. Hence. as a lone signatory in an accommodation instrument. of Mover Enterprises. Based on the foregoing consideration." Yet. Aruego. when the drawer pays the holder the amount due or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. the crime does not exist.00 with the Court a quo on August 14. CV. the date when the debt due was deposited with the Clerk of Court (a Saturday and a Sunday which are not banking days) intervened.000. 1981. Oscar Z. assume solidary liability ex lege for the debt involved. this Court finds that the plaintiff-appellant acted within Ms legal rights when he consigned the amount of P45. in the process determining whether notice of dishonor should be reckoned from any prior notice if any has been given or from receipt by private respondents of the subpoena therein with supporting affidavits. where no such period and its legal effects are involved. 11 That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another court are improper do not have to be belabored.R. 05464. respondent Santos is an accommodation party and is. there was created a debtor-creditor relationship. drawing and issuance of a check. To repeat. Q-14687 of the Regional Trial Court of Quezon City filed against private respondent for violation of Batas Pambansa Blg. he is in effect a co-surety for the accommodated party with whom he and his co-signatory. We sustain petitioner on this score. Thus. the making. the date when plaintiff-appellant receive (sic) the notice of nonpayment. 22. however. it declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly consign the amount of the debt due with the court after his tender of payment was refused by the creditor. Under the doctrine in Philippine Bank of Commerce vs. No.000. no criminal liability has yet attached to plaintiff-appellant when he deposited the amount of P45. made by private respondent after his tender of payment was refused by petitioner. It will be noted that the last part of Section 2 of B.00. payment of which is refused by the drawee because of insufficient funds in or credit with such bank is prima facie evidence of knowledge of insufficiency of funds or credit. There should be no legal obstacle. it digressed into the merits of the aforesaid Criminal Case No. when the check is presented within 90 days from the date of the check. Inc. Benares and respondent Ricardo S. 1981. was proper under Article 1256 of the Civil Code..

numbered 765380 and dated April 4.R. quantities of steels bars of various sizes and rolls of G. 1992 STELCO MARKETING CORPORATION. 1981. JJ. Romeo Y. 1 On seven (7) different occasions in September and October. Inc. SO ORDERED.86. we modify the decision of respondent court in CA-G. the check was actually issued in said amount of P126. Lim. The aggregate price for the purchases was P126.859. Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery). No. These bars and wire were delivered at different places at the indication of RYL Construction. Consequently.I. Melencio-Herrera J." 3 Why the check was made out in the amount of P126. On April 4. wire. 1980. Romeo Lim had asked Limson. took no part. Anyway.. G. subject to the aforesaid modifications. NARVASA. 05464 by setting aside and declaring without force and effect its pronouncements and findings insofar as the merits of Criminal Case No. RYL gave to Armstrong.. Inc. concur. WHEREFORE. 1981.86 is not explained. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES. Industries — described by STELCO as its "sister corporation" and "manufacturing arm" 2 — a check drawn against Metrobank in the amount of P126. and the latter had agreed to give Lim a check only by way of accommodation. signed by its President.61. INC. it sold to RYL Construction.. c. CV No.aforequoted portion of the decision of said respondent court. Padilla and Sarmiento. Q-14867 and the liability of the accused therein are concerned.129.J. The check was issued by Limson at the behest of his friend. 96160 June 17. petitioner. Artemio Torres. and its Vice-President. the judgment of respondent Court of Appeals is AFFIRMED. "only as guaranty but not to pay for anything.86. 129. was given by 100 . Peter Rafael Limson.R. President of RYL. and as already stated. vs. That check was a company check of another corporation. Steelweld Corporation of the Philippines. for financial assistance. HON. Paras. respondent.129.: Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. the latter made no payments for the construction materials thus ordered and delivered despite insistent demands for payment by the former.

1990. appellee had no cause of action against said appellant. (being) a baseless one that dragged appellant in court and caused it to incur attorney's fees and expense of litigation. . the truth. there is no evidence that appellee Stelco Marketing became a holder for value. 15 That disposition was justified in the judgment as follows: 16 There is no question. . Eleven months or so later — and some four (4) years after issuance of the check in question — in May. . — An accommodation party is one who has signed the instrument as maker. and on complaint of Armstrong Industries (through a Mr. Rafael Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22. STELCO filed with the Regional Trial Court at Caloocan City a civil complaint 9 against both RYL and STEELWELD for the recovery of the valued of the steel bars and wire sold to and delivered to RYL (as already narrated) in the amount of P126. Young). 1985. 4 in payment of an obligation. . Nowhere in the check itself does the name of Stelco Marketing appear as payee. 3) nevertheless. STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court.129.000. and for the purpose of lending his name to some other person. But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation. 1990.86. 1985. (and the appellee. (Stelco Marketing Corporation) the amount of P126.86 with legal rate of interest from May 9. . the check "is wholly inoperative since . 11 A preliminary attachment was issued by the trial court on the basis of the averments of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD. the transactions described in the complaint having been solely and exclusively between the plaintiff and RYL Construction. it was dishonored because "drawn against insufficient funds. .: 101 . . From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there succeeded in reversing the judgment. 1980 ." it had "not entered into any transaction or business dealing of any kind" with STELCO. . Liability of an accommodation party. Lim or to the plaintiff not to mention also the fact that the said plaintiff failed to comply with the requirements of the law to hold the said defendant (STEELWELD) liable . . acceptor. according to Steelweld. 8 The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec. 1984 "on the ground that the check in question was not issued by the drawer "to apply on account for value. 12 It never appeared. there was no commercial transaction between said appellant and appellee. drawer. . 1985. "plus 18% interest from August 20. that as far as any commercial transaction is concerned between plaintiff and defendant Steelweld no such transaction ever occurred. or indorser. Lim to be used as collateral for another obligation . 7 They were acquitted in a decision rendered on June 28. the check bore two(2) endorsements. as far as Steelweld is concerned. plus another sum equivalent to 25% of the total amount due as and for attorney's fees ." 10 Among the allegations of its complaint was that Metrobank Check No." followed by that of "Armstrong Industries. . Such a person is liable on the instrument to a holder for value notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. indorsee or depositor thereof. . . Ordinarily. RYL could no longer be located and could not be served with summons. (but) in breach of his agreement (Lim) utilized and negotiated the check for another purpose. duly indorsed by R. In this Court it seeks to make the following points in connection with its plea for the overthrow of the Appellate Tribunal's aforesaid decision. Only STEELWELD filed an answer. When the latter deposited the check at its bank. 765380. it specifically denied the facts alleged in the complaint. . ." Trial ensued upon these issues. there having been no transaction between them involving the purchase of certain merchandise there would be no privity of contract between them.Y. Sec. . . without receiving value therefor. viz.129. 14 The judgment sentenced "the defendant Steelweld Corporation to pay to .Y. . STELCO) to pay appellant the sum of P15. . Lim. Finally. . It having been established that appellee had no commercial transaction with appellant Stelco. 18 the Court of Appeals 19 ordered "the complaint against appellant (STEELWELD) DISMISSED.00 as attorney's fees and cost of litigation. when this case was instituted until fully paid. Moreover.R. and plaintiff will have no right to sue the defendant for payment of said merchandise for the simple reason that the defendant did not order them. after which judgment was rendered on June 26." 5 When so deposited. 765380 above mentioned had been given to it in payment of RYL's indebtedness. Under the Negotiable Instruments Law an accommodation party is liable. 1986. . such less receive them. . 2) the check in question was "only given to a certain R. By Decision promulgated on May 29. . did not issue it for any valuable consideration either to R. Steelweld . appellee's complaint is for the collection of the unpaid accounts for delivery of steels bars and construction materials.. under date of July 16. 20 The Court stressed that — . 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim. being basically that — 1) STELCO "is a complete stranger to it. under civil law rules. ." it being merely for accommodation purposes. STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated November 13. Lim to Armstrong Industries. 13 In said pleading. 29. (and) 25% of the total amount sought to be recovered as and by way of attorney's fees . that of "RYL Construction." 6 On account of the dishonor of Metrobank Check No. the suit . then.

29 of the Negotiable Instruments Law for having issued . is that STELCO never became a holder for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as payee. ." it adds. as regards an accommodation party (such as STEELWELD). Liability of accommodation party. 765380 ever dated back to nay time before the instrument's presentment and dishonor." says the law. . and was able. at the time of taking the instrument. The record does show that after the check had been deposited and dishonored. before the court a quo. knew him to be only an accommodation party. as accommodation party. otherwise.e. at any time before the dishonor of the check. at the time of taking the instrument. It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not specify to whom STEELWELD. 66571." 23 Now. "A holder in due course. . within the contemplation of the Negotiable Instruments Law. Such a person is liable on the instrument to a holder for value. (and hence) not effective as against a holder in due course. to be "used as collateral for another obligation. which by traditional precept is normally conclusive on this Court. he had no notice of any infirmity in the instrument or defect in the title of the persons negotiating it. possession of a negotiable instrument after presentment and dishonor. . acceptor. STELCO came into possession of it in some way. notwithstanding such holder. 102 . . after indorsing it." 24 The trouble is. . But. is utterly inconsequential." The points are not well taken. 22 "is a holder who has taken the instrument under the following conditions: (a) That is complete and regular upon its face. and certain it is that neither said pronouncement nor any other part of the judgment of acquittal declared it liable to STELCO. and without notice that it had been previously dishonored." (3) in breach of the agreement.1) said decision is "not in accord with law and jurisprudence. several years after the dishonor of the check.Y. has no application. the fourth condition." 3) "STELCO is a holder in due course of Metrobank Check No. knew him to be only an accommodation party. it "could not have presented. . The crucial question is whether or not STELCO ever became a holder in due course of Check No. 29. and for the purpose of lending his name to some other person. (4) Armstrong deposited the check to its account. To be sure. marked and introduced (said check) in evidence ." 25 What the record shows is that: (1) the STEELWELD company check in question was given by its president to R. — An accommodation party is one who has singed the instrument as maker." and 4) "Negotiation in breach of faith is a personal defense . or indorsed to it in any manner or form in payment of an obligation or as security for an obligation.Y. as already pointed out. (c) That he took it in good faith and for value. (5) the check was dishonored. It never did. 765380 because the record shows it to have been in "actual possession" thereof. (d) That at the time it was negotiated to him. 765380. to give it in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and Torres) and RYL. i. This is because Section 29 of the law above quoted preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. R. or for any other purpose before it was presented for payment. a bearer instrument. however. is supposed to be liable. indorsee or depositor thereof. (and hence) holds the same free from personal or equitable defense. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions. or any communication of any sort between STEELWELD and STELCO. it gives rise to no liability on the part of the maker or drawer and indorsers.. without receiving valued therefor. Lim. or indorser. drawer. On the contrary." The cited provision reads as follows: Sec. or payment. 765380 . if such was the fact. STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in Criminal Case No. or between either of them and Armstrong Industries. (the check) for the accommodation of Romeo Lim. 21 that the acquittal of the two (2) accused (Limson and Torres) did not operate "to release Steelweld Corporation from its liability under Sec. lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it. . (2) it was given only by way of accommodation. STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No. the factual finding of the Court of Appeals. it does not make the possessor a holder for value within the meaning of the law. the manufacturing arm of STELCO and its sister company." "Besides. (b) That he became the holder of it before it was overdue. there is no evidence whatever that STELCO's possession of Check No. Lim indorsed the check to Armstrong in payment of obligation. There is no evidence whatsoever that the check was ever given to it. the check in question was presented by STELCO to the drawee bank for payment through Armstrong Industries." 2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law.

J. appears to be entirely in accord with the facts and the applicable law. Lim negotiated the check accepted the instrument and attempted to encash it in behalf. Padilla and Regalado." 26 Neither is there any evidence whatever that Armstrong Industries. and without notice that it had been previously dishonored. MIRANDA. to whom R. Young) who instituted the criminal prosecution of the drawers.R. 13418 is AFFIRMED in toto.. JJ.. No. WHEREFORE. On the contrary." and it did not take the check "in good faith and for value. It did not become "the holder of it before it was overdue. It does not meet two of the essential requisites prescribed by the statute. concur. Limson and Torres. L-56169 June 26. The petitioner has failed to show any sufficient cause for modification or reversal of the challenged judgment of the Court of Appeals which. petitioner.R. SO ORDERED Paras. 1992 TRAVEL-ON. G. INC. the indications are that Armstrong was really the intended payee of the check and was the party actually injured by its dishonor. RESOLUTION 103 . vs. Costs against petitioner. on the contrary. is on leave. it was after all its representative (a Mr. CV No. albeit unsuccessfully. the petition is DENIED and the Decision of the Court of Appeals in CA-G. and as agent of STELCO.. COURT OF APPEALS and ARTURO S. Nocon.It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value.Y. respondents..

FELICIANO.17 which represents some of the payments subsequently made by private respondent.432.74 was still used as basis in the accounting of 7 April 1972 considering that according to the table of transactions for the year 1969 and 1970. the total unpaid account of private respondent amounted to P239. plus litigation expenses. but reduced the award of moral damages to P20. private respondent testified that he bad issued the checks in the name of TravelOn in order that its General Manager. moral damages of P10. Petitioner further argues that even assuming that the checks were for accommodation. He argued that he had issued the postdated checks for purposes of accommodation.00. Travel-On's witness. 104 .00 reducing his indebtedness to P105.74 and from it deduct P38. examined the record and it shows that the 7 April 1972 Statement of Account had simply not been updated. denied by the trial court.57. private respondent paid various amounts in cash and in kind. We have. Private respondent Arturo S.000. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by Travel-On to respondent's running account with it.00 which is the total amount of the checks he issued. In his answer. private respondent made another payment of P10. In the instant Petition for Review.00. as he had in the past accorded similar favors to petitioner. Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks issued by private respondent with a total face amount of P115.57.00. the Court of Appeals affirmed the decision of the trial court.432. that there was no satisfactory explanation as to why the total outstanding amount of P278. Inc.201. The writ of attachment was granted by the court a quo. He claimed reimbursement of his alleged over payments. Travel-On further alleged that in March 1972. which in fact then increased the award of moral damages to P50. could show to Travel-On's Board of Directors that the accounts receivable of the company were still good.000. that if we use as basis the figure as of 31 January 1970 which is P278.: Petitioner Travel-On. however. without success. private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint. Also. Petitioner filed a motion for reconsideration that was. averred that from 5 August 1969 to 16 January 1970. Elita Montilla. and upon request of Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the passenger. with interest at the legal rate from the date of the filing of the Answer on 28 August 1972. the figure — P239.000.00. on the other hand explained that the "accommodation" extended to Travel-On by private respondent related to situations where one or more of its passengers needed money in Hongkong. He further stated that Elita Montilla tried to encash the same.00 for attorney's fees and the costs of the suit. the court a quo ordered Travel-On to pay private respondent the amount of P8. private respondent contested several tickets alleged to have been erroneously debited to his account. and exemplary and moral damages by reason of the allegedly improper attachment of his properties. which explains the varying figures in each of the statements rendered as of a given date. claimed that he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. simply did not mean that private respondent had no more financial obligations to petitioner. During the proceedings.000.57 will be obtained.000. but that these were dishonored and were subsequently returned to him after the accommodation purpose had been attained. petitioner sold and delivered various airline tickets to respondent at a total price of P278.00 for the wrongful issuance of the writ of attachment and for the filing of this case. Miranda had a revolving credit line with petitioner. and thereafter issued six (6) postdated checks amounting to P115.000.00 which were all dishonored by the drawee banks. Elita Montilla.638. In support of his theory that the checks were issued for accommodation. P5. private respondent is still liable thereunder considering that petitioner is a holder for value. The appellate court made much of the fact that the figures representing private respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the figures found in the statement which showed private respondent's transactions with petitioner for the years 1969 and 1970. that to settle said account. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. they did not satisfactorily establish the amount of the outstanding indebtedness of private respondent.000. with a prayer for the issuance of a writ of preliminary attachment and attorney's fees.794. Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various statements of account prepared by petitioner did not show that Private respondent had an outstanding balance of P115.794.894. J. On appeal. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom. however. it is urged that the postdated checks are per se evidence of liability on the part of private respondent. In its decision dated 31 January 1975.91 representing net overpayments by private respondent.000. On 14 June 1972. The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially stable. The complaint. Petitioner moved for reconsideration of the Court of Appeal's' decision. It was pointed out that while the various exhibits of petitioner showed various accountabilities of private respondent.000. the fact alone that the various statements of account had variances in figures. It must be stressed that private respondent's account with petitioner was a running or open one. however. Private respondent.

the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. that private respondent was liable thereunder. Such a person is liable on the instrument to a holder for value. TravelOn obviously was not an accommodated party. the amount of such liability is the face amount of the checks. that explanation. 5 Private respondent maker of the checks did not successfully rebut these presumptions. Section 29 of the Negotiable Instruments Law provides as follows: Sec. the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court of Appeals. by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course. without receiving value therefor. appears merely contrived and quite hollow to us. Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course. acceptor. the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. Those checks in themselves constituted evidence of indebtedness of private respondent. in other words. not the accommodation transactions recognized by the NIL. for the reason that Petitioner's application for the writ of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. Thus. that these checks clearly established private respondent's indebtedness to petitioner. — An accommodation party is one who has signed the instrument as maker. In the first place. drawer. By doing so. but rather the circumvention of then existing foreign exchange regulations by passengers booked by Travel-On. Having issued or indorsed the check. If anyone was in bad faith. Only evidence of the clearest and most convincing kind will suffice for that purpose. The latter. We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly private respondent maker of those checks was not liable thereon to petitioner payee of those checks. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove" that Travel-On's account receivables were somehow "still good. 4 that the checks were supported by valuable consideration. receives or realizes full value which the accommodated party then must repay to the accommodating party. it presented these checks for payment at the drawee bank but the checks bounced. in any case. 3 In the case at bar. The award of moral damages to Private respondent must be set aside. the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence. evidence not successfully overturned or rebutted by private respondent. unless of course the accommodating party intended to make a donation to the accommodated party. 2 In the case at bar. contrary to these established rules. In accommodation transactions recognized by the Negotiable Instruments Law. There is nothing in the checks themselves (or in any other document for that matter) that states otherwise. The Court considers that Private respondent was unable to rebut satisfactorily this legal presumption. 1 Thus." It will be seen that this claim was in fact a claim that the checks were merely simulated. Contrary to the view held by the Court of Appeals. Further. we believe and so hold that private respondent must be held liable on the six (6) checks here involved. and to 105 .The appellate court erred in considering only the statements of account in determining whether private respondent was indebted to petitioner under the checks. or indorser.00 which Travel-On admitted in its complaint to have been paid by private respondent sometime in March 1992. Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On. it failed to give due importance to the most telling piece of evidence of private respondent's indebtedness — the checks themselves which he had issued. Upon the other hand. The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for encashment. that private respondent did not intend to bind himself thereon. 29. This cannot be countenanced. Liability of accommodation party. which incidentally involved receipt of full consideration by private respondent. It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. placed the burden of proving the existence of valuable consideration upon petitioner. knew him to be only an accommodation party. the Court of Appeals.000. 6 no such evidence was submitted by private respondent. The latter's explanation was denied by Travel-On's General Manager. and for the purpose of lending his name to some other person. as well as the Decision dated 31 January 1975 of the trial court. no such transaction was here shown. an accommodating party lends his credit to the accommodated party. It must also be noted that those checks were issued immediately after a letter demanding payment had been sent to private respondent by petitioner Travel-On. notwithstanding such holder. at the time of taking the instrument. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. it was private respondent who issued bad checks and then pretended to have "accommodated" petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's financial condition. while the Negotiable Instruments Law does refer to accommodation transactions. reduced only by the P10. the "accommodation" or assistance extended to Travel-On's passengers abroad as testified by petitioner's General Manager involved. who gave full value therefor to the accommodated party. ACCORDINGLY. Travel-On was payee of all six (6) checks. it was up to private respondent to show that he had indeed issued the checks without sufficient consideration. it realized no value on the checks which bounced. this Court finds that the checks are the all important evidence of petitioner's case.

00. instructed one of its employees.6 On November 20. Jr. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for the purpose of withdrawing the amount of $2. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch. Ariel Reyes. petitioner. petitioner filed a complaint against private respondent. de Guzman and/or Agnes C. Benjamin D.R. 37392 affirming in toto that of the Regional Trial Court of Makati. plus ten percent (10%) of the total amount due as attorney's fees. G. No. Napiza for sum of money.500. 028-187. YNARES-SANTIAGO. it may not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing. Gutierrez. He claimed that petitioner had no one to blame except itself "for being grossly negligent. Private respondent acceded. his father immediately tried to contact Chan but the latter was out of town.00 with legal interest thereon from 14 June 1972.1âwphi1. JJ.541. the matter would be referred to the bank's lawyers for appropriate action to protect the bank's interest." Petitioner should have disallowed the withdrawal because his passbook was not presented.500.500. Reyes reminded private respondent of his son's promise and warned that should he fail to return that amount within seven (7) days. to inform his father that the check bounced. Costs against Private respondent. I did not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient." by way of 106 . Private respondent filed his answer.000. Jr. 1984. concur.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G. Notably. J.12 In reply.R. CV No.500. 1985 demanding the return of the $2. with the understanding that as soon as the check is cleared.enter a new decision requiring private respondent Arturo S.00.11 This was followed by a letter of the bank's lawyer dated April 8. my obligation on the transaction is moral in nature."8 Consequently. . 1984. 1987." Charging petitioner with "apparent ignorance of routine bank procedures. 1984. the reason why the transaction is not reflected in the passbook of the account. it had allegedly admitted having paid the amount in the check "by mistake" . payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2. de Guzman and was duly initialed by the branch assistant manager. In turn. Continental Bank Manager's Check No. 1984. Napiza IV. without his knowledge.541. 1984. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question.67 from FCDU Savings Account No. was able to withdraw the amount of $2. Davide. admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared. private respondent wrote petitioner's counsel on April 20. 112392 February 29. the manager of petitioner's Buendia Avenue Extension Branch. Mr. or a total period of fifty (50) days had elapsed at the time of withdrawal. Jr. de Guzman and Agnes C. and agreed to deliver to Chan a signed blank withdrawal slip. 198513 stating that he deposited the check "for clearing purposes" only to accommodate Chan. private respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. a sum equivalent to 20% of the total amount due as attorney's fees.. which (sic) I have been and is (sic) still exerting utmost and maximum efforts to collect from Mr. private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 000147574 dated August 17.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment. Using the blank withdrawal slip given by private respondent to Chan.nêt If at all. He added: Further.00) and duly endorsed by private respondent on its dorsal side. petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit check7 because it was "not of the type or style of checks issued by Continental Bank International. one Ruben Gayon. xxx xxx xxx On August 12. de Guzman after it shall have been cleared upon instruction of Chan. the withdrawal slip shows that the amount was payable to Ramon A.2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. 2000 BANK OF THE PHILIPPINE ISLANDS. NAPIZA. "if not altogether due to collusion and/or bad faith on the part of (its) employees. .9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check. He also said that upon learning of the dishonor of the check. Henry Chan who is directly liable under the circumstances. 1984 and withdrawn on October 23. On September 3.. who is private respondent's son.10 Private respondent's son undertook to return the amount of $2.67 from his dollar savings account through collusion with one of petitioner's employees. on October 23.00 to petitioner bank. both of them would go to the bank to withdraw the amount of the check upon private respondent's presentation to the bank of his passbook. respondents. COURT OF APPEALS and BENJAMIN C.500. Miranda to pay to petitioner Travel-On the amount of P105. Bidin. vs. and litigation and/or costs of suit. 1986." in fact. please take notice that said check was deposited on September 3.5 It appears that the check belonged to a certain Henry who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. On December 18. said party was able to withdraw the amount of $2. Also. Besides. Branch 139. Teresita Lindo. and Romero. praying for the return of the amount of $2. However.

Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private respondent's claim could be ventilated in another case. she may not be liable on account of the dishonor of the checks indorsed by her. 2. Meanwhile. a person "who has signed the instrument as maker. Likewise. Liability of general indorser. according to its tenor. 1988. or both. he will pay the amount thereof to the holder. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER. a decision was rendered dismissing the complaint.e. The Court of Appeals cited the case of Roman Catholic Bishop of Malolos. 107 . Without filing a motion for the reconsideration of the Court of Appeals' Decision." Such an indorser "who indorses without qualification. 3. should be liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. raising the following issues: 1. on the other hand. 1991. as the case may be.000. private respondent prayed for moral damages of P100. 15 In People v. i. Jr. Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits." inter alia "engages that on due presentment. 1987 directing private respondent to actively participate in locating Chan. On November 4. Under the law. the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise. it shall be accepted or paid. and (b) That the instrument is at the time of his indorsement. he engages that on due presentment. the trial court. and (c) that all prior parties had capacity to contract. Thus. and (c) of the next preceding section. private respondent alone was liable "for the value of the credit given on account of the draft or check deposited. The appellate court held that petitioner committed "clears gross negligence" in allowing Ruben Gayon.. these requirements are designed to protect the bank from deception or fraud. To so hold him liable "would render inutile the requirement of "clearance" from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit. i. and the necessary proceedings on dishonor be duly taken.16 this Court described the liabilities of an indorser as follows: Appellant's contention that as mere indorser. (b) that he has a good title to it. The lower court held that petitioner could not hold private respondent liable based on the check's face value alone. private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's fees of P5." Chan was able to withdraw the amount of $2. 65. and that if it be dishonored. Private respondent also filed a motion for admission of a third party complaint against Chan. or to any subsequent indorser who may be compelled to pay it. and held that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account. He alleged that "thru strategem and/or manipulation. Petitioner claims that private respondent. Inc. Furthermore.00 per appearance in court. petitioner should suffer the resultant loss. the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the instrument for the full amount thereof against all parties liable thereon." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. petitioner's contention that private respondent warranted the check's genuineness by endorsing it is untenable for it would render useless the clearance requirement. dismissed the third party complaint without prejudice. "a person placing his signature upon an instrument otherwise than as a maker. 1987 and October 28. Petitioner filed a comment on the motion for leave of court to admit the third party complaint." Is an indorser of the instrument.counterclaim. v. he will pay the amount thereof to the holder. in addition. petitioner filed this petition for review on certiorari. Maniego. Sec." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latter's account of the value or proceeds of the check. the motion to admit third party complaint should be granted.00 and attorney's fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500. whenever it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts. or any subsequent indorser who may be compelled to pay it. having affixed his signature at the dorsal side of the check. and that if it be dishonored." Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds. as the case may be.000.000.500. and the necessary proceedings on dishonor be duly taken. After all. is likewise untenable. to withdraw the money without presenting private respondent's passbook and." Maniego may also be deemed an "accommodation party" in the light of the facts.. warrants to all subsequent holders in due course — (a) The matters and things mentioned in subdivisions (a).00 honorarium per appearance.00 even without private respondent's passbook. the Court of Appeals affirmed the lower court's decision. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some other capacity.00 plus P300. 2031): Sec.e. After private respondent failed to comply. Among the "parties liable thereon. * * (the instrument) shall be accepted or paid. — Every indorser who indorses without qualification. valid and subsisting. before the check was cleared and in crediting the amount indicated therein in private respondent's account. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON. according to its tenor.00. 66. It stressed that the mere deposit of a check in private respondent's account did not mean that the check was already private respondent's property.14 where this Court stated that a personal check is not legal tender or money. provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be. or both. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations. the trial court issued orders on August 25. And. exemplary damages of P50. (b). IAC. on May 18. On appeal.

Private respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. without receiving value thereof. That the withdrawal slip was in fact a blank one with only private respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition that had private respondent indicated therein the person authorized to receive the money. Gayon. etc. The interest of justice thus demands looking into the events that led to the encashment of the check. the unavoidable conclusion is that the typewritten name of "Ruben C. and the Bank is hereby authorized to execute immediately the necessary corrections.00. amendments or changes in its record. she is under the law "liable on the instrument to a holder for value. 6 requiring that the request for withdrawal must name the payee. The fact that private respondent's passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3. that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe. Withdrawals may be made by draft." 20 Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. or indorser. money orders. for the protection of the bank's interest and as a reminder to the depositor. 19 Under these rules."18 We hold. the accommodation party being the surety. Private respondent does not deny having signed such authority. and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's savings passbook. to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals must be made by the depositor personally but in some exceptional circumstances. then Ruben Gayon. upon presentation of the depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter. petitioner's personnel should have been duly warned that Gayon. 6 set out by petitioner so that. for any reason. de Guzman. who was also employed in petitioner's Buendia Ave. at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. there could not have been a principal-agent relationship between private respondent and Gayon so as to render the former liable for the amount withdrawn.e. Jr. If. two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip. cannot be collected or if the Bank is required to return such proceeds. Deposits shall not be subject to withdrawal by check." although she has the right. Otherwise. without the same being returned yet.drawer. the proceeds of the deposited checks. For withdrawals thru a representative. Jr. mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the withdrawal slip or by authenticated cable. checks." was intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. the personality of private respondent's son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft.. Any stamp. notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an accommodation party. and may be withdrawal only in the manner above provided. however. to obtain reimbursement from the party accommodated." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. All deposits will be received as current funds and will be repaid in the same manner. Thus: 2. and whether or not the defective items can be returned to the depositor. in which the amount deposited withdrawn shall be entered only by the Bank. In the passbook that petitioner issued to private respondent. drafts.21 was not the proper payee of the proceeds of the check. It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party. the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person. the date he deposited the controversial check in the amount of $2. Such request must indicate the name of the payee/s. etc. Collection charges by the Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. the collection shall be debited by the Bank against the account." Petitioner relied "on the genuine signature on the withdrawal slip. the following rules on withdrawal of deposits appear: 4.500. after paying the holder. provided. and (b) the depositor's passbook. 5. the Bank may allow withdrawal by another upon the depositor's written authority duly authenticated. the withdrawal shall be entered in the depositor's passbook. to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. This is clear from Rule No. however. considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature. However. Withdrawals in the form of notes/bills are allowed subject however. If the account has sufficient balance. private respondent "presented the opportunity for the withdrawal of the amount in question. either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. 17 However. Of course. petitioner likewise overlooked another rule that is printed in the passbook. the provisional entry therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed. Under these facts. amount and the place where the funds are to be paid. (Emphasis and underlining supplied. transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. as well as on the savings passbook at the first opportunity to reflect such cancellation. depositor should accomplish the authority at the back. to their (availability). 1984.) 108 . money orders. de Guzman &/or Agnes C.22 In allowing the withdrawal. Petitioner contends that "(I)n failing to do so (i. and for the purpose of lending his name to some other person. naming his authorized agent). "since the relation between them is in effect that of principal and surety. will be accented as subject to collection only and credited to the account only upon receipt of the notice of final payment. he practically authorized any possessor thereof to write any amount and to collect the same. acceptor. Moreover.. the amount to be withdrawn and the place where such withdrawal should be made. Extension branch." As such. that deposits of drafts. Petitioner asserts that by signing the withdrawal slip. could not have withdrawn any amount. 6." Such being the case.

JJ. the Court approved the Auditor General's denial of Banco Atlantico's claim for payment of the value of the checks that was withdrawn by Boncan. C.. otherwise it could take a long time before a depositor could make a withdrawal. Spain. this is in accordance with ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. private respondent did not become the outright owner of the amount stated therein. policy and precedent. in dealing with its depositors. and without which the result would not have occurred. the amount of $600. the amount of $2. In total disregard of its own rules. always having in mind the fiduciary nature of their relationship.32 On November 19. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large.00.26 Banco Atlantico. an interest of $11. Again. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law. it is at once apparent that petitioner's personnel allowed the withdrawal of an amount bigger than the original deposit of $750. Kapunan and Pardo. petitioner's personnel negligently handled private respondent's account to petitioner's detriment. such as a check. On September 30. November 20. 28 In the case at bar. While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check.500.640. which.00. whether a manager's check or ordinary check. it should suffer the resulting damage.35 From these facts on record. merely designating petitioner as the collecting bank. Said ruling brings to light the fact that the banking business is affected with public interest. or the doing of something which a prudent and reasonable man would do. provides that test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not. a bank is under obligation to treat the accounts of its depositors "with meticulous care.00. in natural and continuous sequence. 1984.As correctly held by the Court of Appeals. then he is guilty of negligence. 37392 is AFFIRMED. SO ORDERED. after receiving the deposit. petitioner's branch manager. paid the amounts represented in three (3) checks to Virginia Boncan. the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained.30 Upon private respondent's deposit of $2. produces the injury.541. Smith. in depositing the check in his name. 1984. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the following day. private respondent was. a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care. is not legal tender. under its own rules. The seventy-eight (78)-year-old. Davide. private respondent had a balance of only $750. The Decision of the Court of Appeals in CA-G.00 and the additional charges of $10.31 On September 10.500.00 on September 3. unbroken by any efficient intervening cause.33 That must have been the time when Reyes. 1984 the word "hold" was written beside the balance of $109. a commercial bank in Madrid.59 was reflected in the ledger and on October 23. Said practice amounts to a disregard of the clearance requirement of the banking system.67 was entered as withdrawn with a balance of $109.250. blameworthy. By the nature of its functions. common sense. petitioner shall credit the amount in private respondent's account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. guided by those considerations which ordinarily regulate the conduct of human affairs. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him.29 Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent's dollar deposits that had yet to be cleared. The law considers what would be reckless.nêt WHEREFORE.00. 36 is untenable. yet still relevant. would do.500. the petition for review on certiorari is DENIED. Proximate cause. 1984. This is in consonance with the rule that a negotiable instrument. that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3. CV No."24 The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager's check. in allowing the withdrawal of private respondent's deposit.25 In Banco Atlantico v. failed to exercise the diligence of a good father of a family. case of Picart v.500.S. the finance officer of the Philippine Embassy in Madrid. or negligent in the man of ordinary intelligence and prudence and determines liability by that.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. The bank's ledger on private respondent's account shows that before he deposited $2. petitioner.1âwphi1. Jr.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. Wells Fargo Bank International handled the clearing of checks drawn against U." 27 As such."37 The proximate cause of the withdrawal and eventual loss of the amount of $2. banks that were deposited with petitioner. on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign department. is "that cause. was informed unofficially of the fact that the check deposited was a counterfeit.92.R. Auditor General. but petitioner's Buendia Ave.34 According to Reyes. concur 109 . 1984.23 As such. the Philippine National Bank in New York.. petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence. Puno. by depositing the check with petitioner. Under the above rule. As this Court once said on this matter: Negligence is the omission to do something which a reasonable man.J.00 and the value of the check deposited in the amount of $2. in a way.92. which is determined by a mixed consideration of logic.00 were indicated therein as withdrawn thereby leaving a balance $2.. Reyes' contention that after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon. The bank did so without previously clearing the checks with the drawee bank. In so doing. 1984." Accordingly.

computed from January 15. 32933. defendants [petitioners. and 3) In Civil Case No. computed from March 13. plus attorneys fees equivalent to 10% of the total amount due. until fully paid. and on the second cause of action. vs. respectively. until fully paid. based on the unpaid principal. 86-37388. 117660. until fully paid. respectively. together with interest and service charge thereon at the rate of 14% and 3% per annum. plus (on both causes of action) an amount equal to 15% of the total amounts due. 1983. at the rates of 14% and 3% per annum. 86-37543.: This is a petition for review challenging the decisioni[1] dated October 17. J. together with interest and service charge thereon at the rates of 14% and 2%. computed from March 30. per annum. 1 [2] 1 110 .71. plus costs. herein] are ordered jointly and severally. which affirmed in toto the judgment of the Manila Regional Trial Court. THE HON. INC. petitioners were ordered to pay respondent bank. plus stipulated penalty on unpaid principal at the rate of 6% per annum. to pay to plaintiff the amount of P78.00. judgment is hereby rendered in favor of plaintiff and against defendants. 86-37543. 1983.G. plus a penalty of 6% per annum. plus stipulated penalty on unpaid principal at the rate of 6% per annum. at the rates of 14% and 2% per annum. plus a penalty charge of 6% per annum. based on the outstanding principal of the loan. defendant is ordered to pay plaintiff. in consolidated Cases Nos. Branch 27.212. plus costs. the amount of P494.936. 86-37374. on the first cause of action. as liquidated damages.000.39. 1994 of the Court of Appeals in CA-G. This petition springs from three complaints for sums of money filed by respondent bank against herein petitioners. 1983. as attorneys fees. and MARIO SORIANO.. defendant is ordered to pay plaintiff the amount of P632. 1983. the amount of P510. QUISUMBING. respectively. In the decision of the Court of Appeals. plus liquidated damages equivalent to 15% of the total amount due.R. respondents. until fully paid. computed from March 13. as follows: 1) In Civil Case No. 86-37374. computed from March 30. 86-37388. 2) In Civil Case No. until fully paid. as follows: Wherefore. INC. computed from November 10. together with interest and service charge thereon. computed from January 15. plus 15% as liquidated damage plus 10% of the total amount due. 1982. No. computed from November 10. plus costs. until fully paid.29. respectively. 2000 AGRO CONGLOMERATES. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK. No. 1982.911. petitioners. plus attorneys fees equal to 10% of the total amounts due.R. 1983. 1983. December 18. together with interest and service charge thereon.

000. the vendee. the following are the factual antecedents. Mario Soriano manifested his intention to re-structure the loan. however. Inc. 86. which amount shall cover the ONE MILLION (P1.9 15 16.000.00) as follows: Whereas. petitioners failed to meet their obligations as they fell due.iv[5] This addendum was not notarized. On July 19. the VENDEE hereby undertakes to pay the full amount of the said loan to the Financier on such terms and conditions agreed upon by the Financier and the VENDOR.00 (18% of P2.00) PESOS. as vendor. Central Bank examiner and liquidator Cordula de Jesus. in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1. 1982.360. petitioner Agro Conglomerates.000.000. provided however. The new arrangement pertained to the revision of settlement of the initial payments of P1. 180 days after the signing of the agreement and every six months thereafter. it being understood that while the loan will be secured from and in the name of the VENDOR. b. executed an Addendumiii[4]to the previous Memorandum of Agreement.000.00) Pesos worth of common shares of stock of the Wonderland Food Industries.00) PESOS be paid directly to the VENDOR. The corresponding case histories are illustrated in the table below: DatAm Pa Pa e ou y ym of nt m ent Lo en Ext an t en Du sio e n Da Da te tes Civ il P No Fe Ca 78. to be advanced by the vendee upon the signing of the agreement. the bank released the proceeds of the loan to petitioners.000.2 . During that time. WHEREFORE. Respondent bank filed three separate complaints before the Regional Trial Court of Manila for Collection of Sums of money.000.000. the first installment falling due. Thereafter. se 21 10 8. petitioner Mario Soriano signed as maker several promissory notes. in consideration of the mutual covenant and agreement of the parties.000. Metro Manila.000.000. 82 7.ii[3] the parties covenanted that the purchase price of Five Million (P5. sold two parcels of land to Wonderland Food Industries. Inc. the bank was experiencing financial turmoil and was under the supervision of the Central Bank.00)PESOS. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1.Based on the records.2. the vendor. 1982. 19 37 9 19 83 37 82 Ma 4 y Au 9. 86. that said loan shall be made for and in the name of the VENDOR. being represented herein by its President.000. Au 19 g. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1. with an interest rate of 18% per annum. and (3) The balance of P2. they do further covenant and agree as follows: 1. v. Jaime Cario and referred to hereafter as Financier.00) Pesos shall be paid in cash upon the signing of the agreement. 1(c) of the said agreement.00) Pesos would be settled by the vendee. The bank gave petitioners opportunity to settle their account by extending payment due dates. the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1.000. In their Memorandum of Agreement.000. 19 83 Civ il P Ja Ma Ca 63 n. hereby authorizes the VENDOR to obtain a loan from Summa Savings and Loan Association with office address at Valenzuela.000.360.000. However.00) PESOS cash which was agreed to be paid upon signing of the Memorandum of Agreement. plus interest thereon at such rate as the VENDEE and the Financier may agree.00) PESOS in cash. y se 2. On July 17. under the following terms and conditions: (1) One Million (P1. 19 37 39 19 83 111 . and the respondent bank Regent Savings & Loan Bank (formerly Summa Savings & Loan Association). Consequently.000.000. plus 18% interest on the balance of two million pesos stipulated upon in Item No.. Inc.v[6] payable to the respondent bank. endorsed the subject promissory notes to the banks counsel for collection. (2) Two Million (P2. 2. gus 19 t 83 12.00 shall be paid in four equal installments. yet did not show up nor submit his formal written request.360.360. . Mr.00 and prepaid interest of P360.000.11. the VENDEE will be the one liable to pay the entire proceeds thereof including interest and other charges.

to obtain reimbursement from the party accommodated.. The trial court held that petitioners are liable. as provided by the addendum. Hence. who is entitled to but one performance. while the settlement of said loan would be assumed by Wonderland. disclose that Wonderland did not comply with its obligation under said Addendum (Exh. or by subrogating a third person in the rights of the creditor. acceptor. 86. The vendee is obliged to pay the price. without receiving value therefor. The trial courts decision was affirmed by the appellate court. By this time. and E) have not been paid. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first. this recourse. 71 ch Ju 19 30 ne 82 . petitioner Soriano signed several promissory notes and received the proceeds in behalf of petitionercompany. 83 19 82 Civ il P M Ju Ca 51 ar ne se 0. 1990). since the relation between them has in effect become one of principal and surety. he is directly and equally bound with the principal. vii [8] He has the right. RESPONDENT BANK AND WONDERLAND INC. And since the loans obtained under the four promissory notes (Exhs. Jul 14. and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value. ar 14. Inc. y 19 19. 83 54 19 Se 3 83 pt. the attendant facts herein do not make a case of novation. and as between the two who are bound. either by changing the object or principal conditions. however. the concurrence of the following requisitesxiii[14] are indispensable: 112 . to wit: The evidences. or indorser. after paying the holder. vi[7] Petitioners appealed to the Court of Appeals. A. In fact. their obligation to pay the promissory notes was novated by substitution of a new debtor. Wonderland. the conflict among the parties started from a contract of sale of a farmland between petitioners and Wonderland Food Industries. primary and absolute. May 29. G. one rather than the other should perform. actually no sale of the land (58 tsn.9 M 83 er 36. Contrary to petitioners contention. the accommodation party being the surety. and there was. wherein petitioners raise the sole issue of: WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM. defendants failed to file a third-party complaint against Wonderland. no such sale materialized.0 ch 11. C. that the petitioners would secure a loan in the name of Agro Conglomerates Inc. 28. CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR. the parties (with the participation of respondent bank) executed an addendum providing instead. which shows the weakness of its stand that Wonderland is answerable to make said payments. SIGNED BY THE PETITIONERS. did not materialize (57 tsn. in other words. Wonderland shall be responsible for the payment thereof.ix[10] The suretys liability to the creditor or promisee of the principal is said to be direct. An accommodation party is a person who has signed the instrument as maker. Hence. notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. ibid).xi[12] We do not give credence to petitioners assertion that. or by substituting another in place of the debtor. 1. In the instant case the original plan was that the initial payments would be paid in cash. The obligation or promise of each party is the cause or consideration for the obligation or promise by the other. despite opportunities given by plaintiff to defendants to make payments. while the vendor must deliver actual possession of the land. we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. 13 19 37 00 . Revealed by the facts on record. Wonderland is not answerable. petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. for the total amount of the initial payments. pte 49 19 mb 4. it stands to reason that defendants are liable to pay their obligations thereunder to plaintiff.xii[13] In order that a novation can take place. Thereafter. Se P 9. A contract of sale is a reciprocal transaction. er 26. Petitioners became liable as accommodation party.00. WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES. S) as the agreement to turn over the farmland to it.38 83 Au 8 g. Subsequently. 19 19 83 83 Oct Se ob pt. As found by the trial court. They alleged that the addendum specifically states that although the promissory notes were in their names.viii[9] Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee.x[11] And the creditor may proceed against any one of the solidary debtors. 19 19 83 82 In their answer.

1961 113 . L-15126 November 30. were executed after the addendum. and De Leon.. 3) There must be the extinguishment of the old contract. concur G. if the terms thereof are clear and leave no doubt as to the intention of the contracting parties. not the stipulations in the promissory notes which pertain to the surety contract. No. Jr. SO ORDERED. namely the petitioners herein. Mendoza. The well-settled rule is that novation is never presumed. the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale of the farmland. It was wrong for petitioners to presume a novation had taken place. 22 of the Civil Code provides: Every person who through an act of performance by another.1) There must be a previous valid obligation. At this instance. Sec. However. The assailed decision of the Court of Appeals dated October 17. or any other means. With the rescission. WHEREFORE. Buena. the literal meaning shall control. JJ. 2) There must be an agreement of the parties concerned to a new contract.R. their contemporaneous and subsequent acts should be considered. (Chairman). xiv[15] it must be clearly and unequivocally shown.xvi[17]The contract of sale between Wonderland and petitioners did not materialize. and 4) There must be the validity of the new contract. Costs against petitioners.. which bound the petitioners to pay. the first requisite for a valid novation is lacking. xvii[18] But respondent appellate court did not err in holding that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had obtained the loan proceeds. Bellosillo. It is true that the basic and fundamental rule in the interpretation of contract is that.xv[16] As it turned out. If petitioners sustained damages as a result of the rescission. 1994 is AFFIRMED. only a contract of surety arose. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. they should have impleaded Wonderland and asked damages. The non-inclusion of a necessary party does not prevent the court from proceeding in the action. The addendum modified the contract of sale. But it was admitted that petitioners received the proceeds of the promissory notes obtained from respondent bank. Wonderland apparently assured the payment of future debts to be incurred by the petitioners. the petition is DENIED for lack of merit. there was confusion or merger in the persons of the principal obligor and the surety. There was no novation by substitution of debtor because there was no prior obligation which was substituted by a new contract. shall return the same to him. acquires or comes into possession of something at the expense of the latter without just or legal ground. In the instant case. Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private respondent. and the judgment rendered therein shall be without prejudice to the rights of such necessary party. The addendum which was dependent thereon likewise lost its efficacy. It will be noted that the promissory notes. Consequently. in order to judge the intention of the parties.

but which facts were not known to plaintiff. J. as affirmative defense. Hon. delivered the same to the Ocampo Clinic. de Ocampo. — That Manuel Gonzales represented to defend Anita C. which reads as follows: Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following Agreed Stipulation of Facts. R. but that defendant Hipolito Gatchalian is personally acquainted with V. — That defendants. Exh. on the following day as previously agreed upon. and that plaintiff was guilty of gross negligence in not taking steps to protect itself. 114 . Gatchalian and who furthermore had no reason to know check was given to plaintiff. the said check to be for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C.: Appeal from a judgment of the Court of First Instance of Manila. Second. the latter being personally known to defendant Anita C. plaintiff gave Matilde Gonzales P158. Conrado M. Gatchalian to give him (Manuel Gonzales) a check which will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car. defendants-appellants. that upon receipt of said check. plaintiff-appellee. requested Manuel Gonzales to bring the car the day following together with the certificate of registration of the car. Gatchalian drew and issued a check. First. in payment of the fees and expenses arising from the hospitalization of his wife. expressly or impliedly. the parties submitted a stipulation of facts. Gatchalian. Ocampo Clinic. Exh. but which facts were not known to plaintiff. — That relying on these representations of Manuel Gonzales and with his assurance that said check will be only for safekeeping and which will be returned to said defendant the following day when the car and its certificate of registration will be brought by Manuel Gonzales to defendants. Third.VICENTE R. or on 9 September 1953. presiding. LABRADOR. and to pay the costs. — That defendant Anita C. for plaintiff-appellee. — That on or about 8 September 1953. in the evening. the difference between the face value of the check and Matilde Gonzales' indebtedness. finding the price of the car quoted by Manuel Gonzales to her satisfaction. Anita C. — That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of Manuel Gonzales from its hospital. applying P441. had no obligation or liability.. to look for a buyer of said car and to negotiate for and accomplish said sale. Exh. Gatchalian. "B" from defendant Anita C. Gatchalian who was then interested in looking for a car for the use of her husband and the family. Exhibit "D") representing the balance on the amount of the said check. vs. accepted said check. Vicente Formoso. both or either of them. Manuel Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase and that for this purpose Manuel Gonzales requested defendant Anita C.75 (Exhibit "A") thereof to payment of said fees and expenses and delivering to Manuel Gonzales the amount of P158. did not know personally Manuel Gonzales or any member of his family at any time prior to September 1953. Exh. on or after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or both of said defendants had assumed. Ninth. Gatchalian. Tenth.25 (as per receipt. defendant Anita C. Said "Stop Payment Order" was issued without previous notice on plaintiff not being know to defendant. "3". — That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its certificate of registration and to return the check. "B". defendant Anita C. that Manuel Gonzales executed and issued a receipt for said check. ANITA GATCHALIAN. Gatchalian. ET AL. Gatchalian that he was duly authorized by the owner of the car. "1". The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one Matilde Gonzales. — That defendants. The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C. with the drawee bank. — That defendants. Sixth. but which facts were not known to plaintiff. which was not fulfilled. the obligation of Manuel Gonzales or his wife for the hospitalization of the latter. Seventh. Eight. At the time of the trial. Gatchalian the following day when Manuel Gonzales brings the car and the certificate of registration.25. so that her husband would be able to see same. Fifth. Velasquez. sentencing the defendants to pay the plaintiff the sum of P600. directly or indirectly with the Ocampo Clinic before. Fourth. had no arrangements or agreement with the Ocampo Clinic at any time prior to. DE OCAMPO & CO. both or either of them. — That Manuel Gonzales having received the check Exh. with legal interest from September 10. was shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo. Gatchalian under the representations and conditions herein above specified. Reyes and Pangalañgan for defendants-appellants. 1953 until paid. The defendants admit the execution of the check but they allege in their answer. both or either of them. Jr. that it was issued subject to a condition. Exh.. with the Ocampo Clinic. defendant Anita C. "B". Gatchalian issued a "Stop Payment Order" on the check. that on this request of defendant Anita C. "B".

be considered as parts of this stipulation. (Par. or the bearer thereof. 52-53) Answering the first contention of appellant. On this issue Brannan holds that a payee may be a holder in due course and says that to this effect is the greater weight of authority. without necessity of formally offering them in evidence. R. "B" and that said complaint was subsequently dropped. delivery was conditional and the condition was not fulfilled. It is also claimed that the plaintiff-appellee is not a holder in due course because it acquired the check with notice of defect in the title of the holder. Stipulation of Facts.). Negotiable Instruments Law). It was necessary for plaintiff to give Manuel Gonzales change in the sum P158. Stipulation of Facts). Stipulation of Facts). Stipulation of Facts. 6th edition.25 (Par. (Par. and without notice that it had been previously dishonored. if necessary. thus: Whether the payee may be a holder in due course under the N. I. Exh. — That the acts of acceptance of the check and application of its proceeds in the manner specified above were made without previous inquiry by plaintiff from defendants: Twelfth. reserving to either party the right to submit reply memorandum. as he was at common law. Stipulation of Facts). to inquire into the title of the holder. which circumstances should have placed the plaintiff-appellee under the duty. — That the exhibits mentioned in this stipulation and the other exhibits submitted previously. V. Since Manuel Gonzales is the party obliged to pay. de Ocampo (Paragraph Sixth. The circumstances are as follows: The check is not a personal check of Manuel Gonzales. That it is complete and regular on its face. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila. The check is payable to bearer.Eleventh. (Defendants-appellants' brief. therefore. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the following conditions: 1. Section 191 defines "holder" as the payee or indorsee of a bill or note. The maker Anita C. 52.) The check could not have been intended to pay the hospital fees which amounted only to P441. any person who holds it should have been subjected to inquiries. Furthermore. Stipulation of Facts). that assuming for the sake of argument that delivery was not for safekeeping merely. there was no delivery required by law (Section 16. Plaintiff could have inquired why a person would use the check of another to pay his own debt. plaintiff should have been more cautious and wary in accepting a piece of paper and disbursing cold cash. 10. Manuel Gonzales. the appellant argues that plaintiff-appellee cannot be a holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of the check. pp. There can be no doubt that a proper interpretation of the act read as a whole leads to the conclusion that a payee may be a holder in due course under any circumstance in which he meets the requirements of Sec. that a holder in due course presupposes a prior party from whose hands negotiation proceeded. 21-25. EVEN IN A BANK. page 252. Sec. who is in possession of it.. plaintiff-appellee may be considered as a holder in due course. 3. citing Brannan's Negotiable Instruments Law.00. No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above. The check is in the amount of P600. The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is here repeated. counsel for plaintiff-appellee argues that in accordance with the best authority on the Negotiable Instruments Law. In their appeal defendants-appellants contend that the check is not a negotiable instrument. 4. The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. 7. In support of the first contention. 2. (pp. de Ocampo (Paragraph Sixth. and because under the circumstances stated in the stipulation of facts there were circumstances that brought suspicion about Gonzales' possession and negotiation. The same inquiries should have been made by plaintiff. That he took it in good faith and for value. the maker and the payee being original parties. 10.75. plaintiff-appellee is the payee. Defendant's Record on Appeal). Gatchalian is a complete stranger to Manuel Gonzales and Dr. a complaint for estafa against Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his obligations with plaintiff and receiving the cash balance of the check. and in the case at bar. Thirteenth. R. it is argued that defendant Gatchalian had no intention to transfer her property in the instrument as it was for safekeeping merely and." 115 . under the facts and circumstances stated in the stipulation of facts. plaintiff had the "means of knowledge" inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties hereto be given fifteen days from today within which to submit simultaneously their memorandum to discuss the issues of law arising from the facts. In support of the contention that plaintiff-appellee is not a holder in due course. CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. L. Hence. and that plaintiff is not a holder in due course. is a question upon which the courts are in serious conflict. WHEREFORE. (Paragraph Ninth. within ten days from receipt of their main memoranda. That he became the holder of it before it was overdue. which is in excess of the amount due plaintiff. if such was the fact.

if such was the fact. As the check was payable to the plaintiff-appellee. or for the purpose of giving effect thereto. Muir. since all that is required is knowledge of such facts that his action in taking the note amounted bad faith. and that the check had two parallel lines in the upper left hand corner. Ozark Motor Co. it is evidence from which bad faith may be inferred. and was entrusted to Manuel Gonzales by Gatchalian. The first argument of the defendants-appellants. that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. Liberty bonds stolen from the plaintiff were brought by the thief. R. So. although he did not have notice of the particular wrong that was committed. and without notice that it had been previously dishonored. 191. 111 Misc. It was a case of "no questions asked. de Ocampo. depends upon whether or not the plaintiff-appellee is a holder in due course." and Section 52 (d). (b) That he became the holder of it before it was overdue. Paika v. The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover the value of the check. in memo. less than five feet tall. therefore. Rep. It is not necessary that he should know the particulars or even the nature of the fraud.Y. thus: A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face. Held. In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith. . Davis v. Our resolution of this issue leads us to a consideration of the last question presented by the appellants." Section 59. 6th ed. Perry. i. Section 52.. we must declare that plaintiff-appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales.W.. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales. it is immaterial that it was the payee and an immediate party to the instrument. 181 N. 114 N. the plaintiff could recover the value of the bonds. To such effect is the consensus of authority." it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor.E. Supp. in other words. The other contention of the plaintiff is that there has been no negotiation of the instrument. 391. 739. and was not to be negotiated. negotiation took place through no fault of the plaintiff-appellee. Let us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter to find if our ruling conforms thereto. for as the stipulation of facts declares the check was to remain in the possession Manuel Gonzales.e. Div. "that every holder is deemed prima facie to be a holder in due course. a boy fifteen years old. that every holder is deemed prima facieto be a holder in due course. 191 so as to read "a holder in due course is a payee or indorsee who is in possession.). The boy stated that they belonged to his mother. 225 Mass.Since "holder". defines holder in due course. but we agree with the defendants-appellants that the circumstances indicated by them in their briefs. includes a payee who is in possession the word holder in the first clause of sec. The defendants paid the boy for the bonds without any further inquiry. the delivery to Manuel Gonzales was a delivery by the drawer to his own agent. The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to dispose of their plunder. Morris v. and it may not be considered as a holder of the check in good faith. defect in the title of the person negotiating it. App. Supp.). immature in appearance and bearing on his face the stamp a degenerate. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his possession. 26 Ariz. First Nat. when the agent of drawer Manuel Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee. affd. 947." Although gross negligence does not of itself constitute bad faith. Horton (Mo. (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. 621." (pp. The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts." and lastly Section 59. V. 640-642. (c) That he took it in good faith and for value. 196 S. but was to serve merely as evidence of good faith of defendants in their desire to purchase the car being sold to them. 395. as defined in sec. The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered to Manuel Gonzales." etc. (Brannan's on Negotiable Instruments Law.Y. such as the fact that appellants had no obligation or liability to the Ocampo Clinic. 945. 52 and in the second subsection may be replaced by the definition in sec. 116 .. Manuel Gonzales was the agent of the drawer Anita Gatchalian insofar as the possession of the check is concerned. If it is such a holder in due course. . 543). that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any . 6th ed. amounting to legal absence of good faith. Accord. 181 N. v. It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. Brannan's Negotiable Instruments Law. but means bad faith in a commercial sense. to the defendants' clerk for sale. The term 'bad faith' does not necessarily involve furtive motives. Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value. 913. Bank. because the drawer did not deliver the instrument to Manuel Gonzales with the intention of negotiating the same. Negotiable Instruments Law. p. Having failed in this respect. 191 App. it being sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title. it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. whether the plaintiff-appellee may be considered as a holder in due course. 563. which practice means that the check could only be deposited but may not be converted into cash — all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales. 830. 229 Pac. and why he used it to pay Matilde's account. unless it can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder Manuel Gonzales.

381. C. including good faith in taking the instrument. L. 32 Vt. except as evidence tending to establish bad faith or fraud. On the other hand. where such a course is required in construing other uniform acts. one line of cases including our own had adopted the test of the reasonably prudent man and the other that of actual good faith. 3172. the English court abandoned its former position and adopted the rule that nothing short of actual bad faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser and let in defenses existing between prior parties. a rule was adopted in harmony with that announced in Gill v. & C. Padilla. Paredes. See G. including those cited above. 215. The question was before this court in Roth v. L. Reyes... therefore.. concur. Colvin.B. In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry. the decision appealed from should be. he is required to establish the conditions entitling him to standing as such. it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title. and the defendants are absolved from the complaint. 3 B. 870. Stated briefly. to prove that it actually acquired said check in good faith. With costs against plaintiff-appellee. would have this effect.In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales). and that. and that even gross negligence would have no effect. It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be entitled to recover. 894. J. & E. that the holder did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or suspicious. That such is the view generally accepted by the courts appears from a recent review of the cases concerning what constitutes notice of defect. why the holder had the check and used it to pay his own personal account. Later in Goodman v. To effectuate the general purpose of the act to make uniform the Negotiable Instruments Law of those states which should enact it. plaintiff-appellee. 96 Vt. As holder's title was defective or suspicious. It devolves upon him to disclose the facts and circumstances attending the transfer. Wilson. Brannan on Neg. 4 A. 187-201. The stipulation of facts contains no statement of such good faith. but are to be considered merely as evidence bearing on the question of bad faith. 466. or suspicious circumstances sufficient to put a prudent man on inquiry. The first had its origin in Gill v. on full consideration of the question. we are constrained to hold (contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff. Cubitt. that no circumstances of suspicion merely. 10 E. where the Supreme Court of Vermont made the following disquisition: Prior to the Negotiable Instruments Act. and. instead of the presumption that payee was a holder in good faith. The rule was adopted by the courts of this country generally and seem to have become a fixed rule in the law of negotiable paper. Harvey. JJ. two distinct lines of cases had developed in this country. like the fact that the drawer had no account with the payee. the fact is that it acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. Dizon and De Leon. Harvey. 31 E. to say the least. 117 . while others followed the change inaugurated in Goodman v. Bautista Angelo. C. reversed. it (payee) cannot be considered as a holder in due course. 3113. 120 At. if the circumstances were such as ought to have excited the suspicion of a prudent and careful man.L. 438. the stipulation of facts indicated by the appellants in their brief.J.. Barrera. concurs in the result. Bengzon. which has been adhered to in subsequent cases. And having presented no evidence that it acquired the check in good faith. L. under the circumstances of the case. Cubitt. Some of the American courts adhered to the earlier rule. placed upon it to show that notwithstanding the suspicious circumstances. from which good or bad faith in the transaction may be inferred. 889. he did not stand in the legal position of a bona fide holder. It would seem that it was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. where the rule was distinctly laid down by the court of King's Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution. 125. hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof. will not of themselves prevent a recovery. and he made no inquiry. or want of proper caution in the purchaser. Ins. because the instrument is not payable to him or to bearer. Law. as it is hereby. In other words. it acquired the check in actual good faith. Concepcion. The burden was. the duty devolved upon it. The rule applicable to the case at bar is that described in the case of Howard National Bank v. For the foregoing considerations. et al. and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist.

and ALBERT UY. respondent Associated Bank on February 2. JOSE GO. on December 29. MESINA. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank. The records of the police show that Associated Bank received the lost check for clearing on December 31. Mesina for John Doe. requesting assistance in Identifying the person who tried to encash the check but said bank refused saying that it had to protect its client's interest and the Identity could only be revealed with the client's conformity. 1984 bearing the number C-11139. ARSENIO M. the check was not in his folder and nowhere to be found. respondents. J. On February 1.000. vs. 70145 November 13. 1986 MARCELO A. informed Cpl. 04710. Escolta Branch. having been notified for the first time of the name of Atty. PARAS. However. Unfortunately. S. When Cpl. Uy had to answer a phone call on a nearby telephone after which he proceeded to the men's room. Jose Go left said check on the top of the desk of the bank manager when he left the bank. replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it. 1983. the facts and statement of the case are as follows: Respondent Jose Go. in its letter. GONONG. 1984 filed an action for Interpleader naming as respondent. dated Jan. thru representative Albert Uy. The bank manager entrusted the check for safekeeping to a bank official. respondent bank. Said case (an Interpleader) was filed by Associated Bank against Jose Go and Marcelo A. Respondent bank. the same was again returned to Associated Bank on January 4. THE HONORABLE INTERMEDIATE APPELLATE COURT. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT" order. Mesina against the trial court in Civil Case No. with the words "Payment Stopped" stamped on it. Lorenzo Navarro demanding payment on the cashier's check in question. He also executed an affidavit of loss. Briefly. he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further.P. On even date. Escolta Branch. police sent a letter to the Manager of the Prudential Bank. 011302 for P800. 1984. Respondent bank moved to amend its complaint. When he returned to his desk. 22. Navarro's client and substituted Marcelo A. 1984 and for the second time it was dishonored. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23. dated December 29. respondent Associated Bank received a letter.00. 011302 for P800. Navarro's then unnamed client. Gimao of the Western Police District that the lost check of Jose Go is in the possession of Marcelo Mesina. 1983. pointing to the person of Alexander Lim as the one who could shed light on it. respondent bank received summons and copy of the complaint for damages of a certain Marcelo A. 1983. He however refused to reveal the name of his client and threatened to sue. dated January 9. coming from Prudential Bank. 1984.00. which dismissed the petition for certiorari and prohibition filed by Marcelo A. HON. 1985. dated January 20. herein petitioner. No. 84-22515. 1984.: This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short). from a certain Atty. which was being held by his client.000. now the Court of Appeals (CA) in AC-G. in his capacity as Judge of Regional Trial Court — Manila (Branch VIII). Several days later. When Jose Go inquired for his cashier's check from Albert Uy.G.R. Simultaneously. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No. if payment is not made. An information for theft (Annex J) was 118 . Atty. Unsure of what to do on the matter.R. Jose Go and one John Doe. Gimao went to Marcelo Mesina to ask how he came to possess the check. who had then a visitor in the person of Alexander Lim. his visitor Lim was already gone. Albert Uy went to the police to report the loss of the check. purchased from Associated Bank Cashier's Check No. a certain Albert Uy. which suggestion Jose Go immediately followed. petitioner.

respondent judge issued an order on November 6. WHEREFORE. Reverse the decision of the IAC. Albert Uy filed a motion of intervention and answer in the complaint for Interpleader. 1984. 1984. for damages. the motion sholud be as it is hereby granted and this case is ordered dismissed. 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence of an order to litigate. 1985. 84-22515. judgment is hereby rendered ordering plaintiff Associate Bank to replace Cashier's Check No. 1984 proceedings in this case was (were) ordered suspended because the main issue in Civil Case No. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the same claim. IAC rendered its decision dimissing the petition for certiorari. 011302 in favor of Jose Go or its cas equivalent with legal rate of itnerest from date of complaint. 84-22515 and in this instant case are the same which is: who between Marcelo Mesina and Jose Go is entitled to payment of Associated Bank's Cashier's Check No. C-11139. SO ORDERED. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself-are general principles which cannot be aptly applied to the case at bar. SO ORDERED. Respondent bank in the other civil case (CC-11139) for damages moved to dismiss suit in view of the existence already of the Interpleader case. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to plead in the interpleader complaint. Petitioner filed his motion for reconsideration which was denied by the trial court on September 26. CC-011302? Said issue having been resolved already in Civil casde No. alleging that: 1. really this instant case has become moot and academic. 1984 in the Interpleader Case and moved to participate as intervenor in the complain for damages. In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the order admitting the Intervention)" dated June 21. 2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in default. 1985. on same date (February 18. petitioner became the holder of the cashier's check as 119 . IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial. Meanwhile. 1985). declaring petitioner in default since his period to answer has already expirecd and set the ex-parte presentation of respondent bank's evidence on November 7. the trial court in Civil Case #84-22515 (Interpleader) rendered a decisio. 1984. Meanwhile. Petitioner Mesina filed his Motion for Reconsideration which was also denied by the same court in its resolution dated February 18. issued an order.instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the date of the filing of this instant petition remains unserved because of Alexander Lim's successful evation thereof. in view of the foregoing. failure to state a cause of action and lack of personality to sue. Petitioner now interposes the following prayer: 1. 4. 1985 resolution denying the Motion for Reconsideration. 3. On March 29. the dispositive portion reading as follows: WHEREFORE. it was disclosed that the "John Doe" impleaded as one of the defendants is actually petitioner Marcelo A. 1985. 2. Jose Go filed his answer on February 24. 1984 as well as the Motion For Reconsideration dated September 10. Petitioner's allegations hold no water. The trial court in the interpleader case issued an order dated July 13. 1984. 1984. in view of the foregoing. On the Scheduled date of pretrial conference inthe interpleader case. Admittedly. On January 22. Petitioner instead of filing his answer to the complaint in the interpleader filed on May 17. denying the motion to dismiss of petitioner Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause of action for itnerpleader. Mesina. 1985 and set aside the February 18. Petitioner now comes to Us. the pertinent portion of which states: The records of this case show that on August 20. the trial court in Civil Case No. Upon motion for respondent Jose Go dated October 31. without considering other things. and with costs of suit against the latter. dated January 22. Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order of respondent court denying his omnibus Motion to Dismiss 2) order of 3) the order of default against him. 1984.

finding that the instant petition is merely dilatory. He refused to say how and why it was passed to him. Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued without jurisdiction alleging that since he is presumably a holder in due course and for value." Respondent IAC cannot rule on whether respondent RTC committed an abuse of discretion or not. have the right to refuse payment of the check when presented by the payee. Furthermore. At the outset. Considering the aforementioned facts and circumstances. Jose Go and John Doe. the same is hereby denied and the assailed orders of the respondent court are hereby AFFIRMED in toto. Feria (Chairman). how can he be compelled to litigate against Jose Go who is not even a party to the check? Such argument is trite and ridiculous if we have to consider that neither his name or Jose Go's name appears on the check. such contention is untenable. Jose Go owns the money it represents and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it. On the other hand. The check was Jose Go's property when it was misplaced or stolen. Both parties were given an opportunity to present their sides. petitioner assails the then respondent IAC in upholding the trial court's order declaring petitioner in default when there was no proper order for him to plead in the interpleader case. Moreover. respondent bank merely took the necessary precaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy. It has been shown that the interpleader suit was filed by respondent bank because petitioner and Jose Go were both laying their claims on the check.endorsed by Alexander Lim who stole the check. Alampay and Gutierrez. In his third assignment of error. There is enough evidence to establish the contrary. since respondent bank was aware of the facts surrounding the loss of the check in question. Said validity will depend on the strength of the parties' respective rights and titles thereto. Petitioner chose to withhold substantial facts. Respondents were not forbidden to present their side-this is the purpose of the Comment of respondent to the petition. concur. The bank was therefore liable to nobody on the check but Jose Go. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment realizing that carrying money in this form is safer than if it were in cash. respondent bank took an precautionary and necessary measures to bring out the truth.. petitioner concealed the circumstances known to him and now that private respondent bank brought these circumstances out in court (which eventually rendered its decision in the light of these facts). without being apprised of the facts and reasons why respondent Associated Bank instituted the Interpleader case. but later on changed to Marcelo A. Again. Jr. substantially and essentially and therefore in compliance with the provisions of Rule 63 of the Rules of Court. Before it resorted to Interpleader. Respondent bank could not be drawer and drawee for clearly. IAC decided the question by considering both the facts submitted by petitioner and those given by respondents. WHEREFORE.000 representing the cashier's check in question in the name of the Clerk of Court of Manila to be awarded to whoever wig be found by the court as validly entitled to it.. and from the moment said cashier's check was lost and/or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. Following such line of argument. petitioner charges it with "gratuitous excursions into these non-issues. compelling petitioner and respondent Jose Go to file their Answers setting forth their respective claims. hence he stopped its payment. If a payee of a cashier's check obtained it from the issuing bank by fraud. When payment on it was therefore stopped. JJ. the Order of the trial court requiring the parties to file their answers is to all intents and purposes an order to interplead. 120 . Subsequently. The check in question suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument. On the very day that the bank instituted the case in interpleader. the respondent bank would. it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the interpleader case was first entitled Associated Bank vs. IAC did not act therefore beyond the scope of the remedy sought in the petition. The bank had no intention to issue it to petitioner but only to buyer Jose Go. a Pre-Trial Conference was set with notice to parties to submit position papers. the owner of the check. In his second assignment of error. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. respondent bank was not the one who did it but Jose Go. He had therefore notice of the defect of his title over the check from the start. there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. SO ORDERED. of course. respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. petitioner is not a party to the check either and therefore has no valid claim to the Check. or if there is some other reason why the payee is not entitled to collect the check. petitioner stubbornly insists that there is no showing of conflicting claims and interpleader is out of the question. What else is the purpose of a law suit but to litigate? The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Fernan. petitioner asking payment thereon and Jose Go as the purchaser or owner. The trial court issued an order. Bank filed the interpleader suit not because petitioner sued it but because petitioner is laying claim to the same check that Go is claiming. The allegation of petitioner that respondent bank had effectively relieved itself of its primary liability under the check by simply filing a complaint for interpleader is belied by the willingness of respondent bank to issue a certificate of time deposit in the amount of P800. Mesina for John Doe when his name became known to respondent bank.

. by its resolution dated October 16.R. in the amount of P15. 1983 METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION.. DE CASTRO. Ltd. beginning May 18. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co. the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount due. It is further provided that in case on non-payment of any of the installments. vs. No. Rizal Quimpo & Cornelio P. L-39641 February 28. Revena for plaintiff-appellee. LTD. plaintiff-appellee. with interest at the rate of one percent per month.00 payable in twelve (12) equal monthly installments. 1974 certified this case to this Court the issue issued therein being one purely of law. Diosdado Garingalao for defendants-appellants. 1969. 121 .: The former Court of Appeals.. J.G. On April 15.. 1969 Dr. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO. defendants-appellants.939.

it does not warrant that if said note is dishonored by the maker on presentment. the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment. (b) that he has a good title to it. Notice of Demand. protest and presentment. that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be. the trial court rendered its decision dated September 12. 1972 the lower court.939. The effect of such indorsement is that the note was indorsed without qualification. plaintiff-appellee can go after said appellant. Branch I. so on November 26. negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. a sister company of Ng Sambok Sons Motors Co. or both as the case may be. Ltd.. it agreed that if Dr. dishonor. so on October 30. hence. (BACOLOD) By: RODOLFO G. hence plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Lastly. the person secondarily liable thereon ceases to be such and becomes a principal debtor. Protest. However. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. the holder need not even proceed against the maker before suing the indorser. Dr. 1973. by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable.On the same date. Villaruel died.00 plus the legal rate of interest from October 30. (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15. the dispositive portion of which reads as follows: WHEREFORE. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note.00 plus interest thereon until fully paid. (c) that all prior parties had capacity to contract. Rule 3 of the Rules of Court. Villaruel has been declared insolvent. 6 Consequently. NONILLO Asst. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand. Villaruel defaulted in the payment of his installments when they became due. and that if it be dishonored. judgment is rendered: (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15. (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. the note shall be accepted or paid. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Villaruel fails to pay the note. General Manager The maker. appellant Sambok indorsed the note "with recourse" and even waived the notice of demand. Villaruel pursuant to Section 21. and under the same management as the former. Dr. it will pay the amount to the holder. 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo. dismissed the case against Dr. During the pendency of the case in the trial court. it becomes a qualified indorser that being a qualified indorser. and (c) To pay the cost of suit. 122 . 1969. 3 Appellant. defendant Dr. Sambok failed to pay. Villaruel failed to pay the promissory note as demanded. dishonor. Sambok Motors Company (hereinafter referred to as Sambok). 5 His liabiliy becomes the same as that of the original obligor. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable.. the present appeal was instituted. protest and presentment were an waived. but rather confirm his obligation as a general indorser.939. he will pay the amount thereof to the holder. Dishonor. The appeal is without merit. and Presentment are hereby waived. 1969 plaintiff formally presented the promissory note for payment to the maker. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. because by such indorsement. The words added by said appellant do not limit his liability. A person who indorses without qualification engages that on due presentment. 1 On plaintiff's motion for summary judgment. appellant Sambok raising a lone assignment of error as follows: The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof. on motion. SAMBOK MOTORS CO. Not satisfied with the decision. on October 24.

: This is a petition for review on certiorari of the decision. of the Regional Trial Court of Naga City (Branch 21) in Special Civil Case No. and the resolution.. The facts are as follows: 123 . 1997. IMPERIAL. No costs.. JJ. No. JESUSA CORAZON L. petitioner. vs. J.. MENDOZA. 1997. RTC '97-3744. is on leave. Guerrero and Escolin. G. 1999 ESTER B. concur. J. Makasiar (Chairman). respondent. 130756 January 21.WHEREFORE. SO ORDERED.R. Jr. MARALIT. the decision of the lower court is hereby affirmed. Aquino. dated August 26. Concepcion. dated September 29.

On August 26. On September 26. Accordingly. 2. 1992. the MTC. Whether or not the MTC merely adjudicated the criminal aspect but not the civil aspect of Criminal Cases 68697. and P130.286. 1997. and to levy the goods and chattels of the defendant/s." Both motions of respondent were denied by the MTC for lack of merit in its order. dated February 24. 2034-91254963. this petition. that on May 20. 2 The decision having become final and executory. Petitioner moved for reconsideration alleging that respondent filed her petition for certiorari and prohibition more than three months after the MTC had ordered execution of its decision on November 11. In her counter-affidavit. . June 1. 1992. made permanent the injunction. The accused however is civilly liable as indorser of the checks which is (sic) the subject matter of the criminal action. when it issued the Order of Execution. THEREFORE. Whether or not the MTC committed grave abuse of discretion amounting to lack or excess of jurisdiction. an alias writ of execution was issued. Imperial. that she gave the money to Aida Abengoza. Whether this case warrants the relaxation of the rule that "Certiorari is not a substitute for a lost or lapsed appeal. 6 The RTC held that the three-month period should be counted from April 1. encash the treasury warrants. Later. that she did not know that the amounts on the treasury warrants had been altered nor did she represent to petitioner that the treasury warrants were genuine. contending that the writ of execution issued by the MTC was at variance with the judgment in the criminal cases. the Court finds no ground to hold the accused criminally liable for which she is charged. 68697. and July 1. directed the sheriff as follows: 4 NOW. that she deposited the treasury warrants in her savings account and then withdrew their peso equivalent with the approval of petitioner. Whether there was substantial variance as between the dispositive portion of the civil judgment and the writ of execution issued thereunder. or from April 7. it rendered a decision. respondent claimed that she merely helped a relative.30. hence Corazon Jesusa L.46) ONLY.e. 68698 and 68699. 5 Accordingly. The RTC issued a writ of preliminary injunction enjoining enforcement of the writ of execution issued by the M'TC. and that the treasury warrants were subsequently returned one after the other by the United States Treasury. 1 Maralit alleged that she was assistant manager of the Naga City branch of the Philippine National Bank. and 2034-33330760 and on the same days withdrew their peso equivalent of P59. On April 14. through the Makati branch of the Citibank. which was not even sufficient for expenses and that of her family. The RTC likewise found the second ground of petitioner's motion for reconsideration. . 68698 and 68699. However. you are hereby commanded to cause the execution of the aforesaid judgment in the amount of THREE HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320..13. Imperial is ACQUITTED of all the charges against her. which. 124 . Hence. Respondent at first moved to declare her savings account exemp from execution on the ground that the same represented her salary as an employee of the Commission on Audit. Whether respondent's Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court was filed out of time. on the ground that the amounts thereof had been altered. The RTC held that the decision of the MTC did not really find respondent liable for P320. together with all your lawful fees for the services of this writ. judgment was rendered as follows: WHEREFORE. devoid of merit. 1992 respondent Imperial separately deposited in her savings account at the PNB three United States treasury warrants bearing USTW Nos. and that upon being informed of the dishonor of the warrants she immediately contacted Aida Abengoza and signed an acknowledgment of debt promising to pay the total amount of the treasury warrants. 1997. when the MTC denied private respondent's motion for reconsideration of the order denying her motion to quash the writ of execution. except those which are exempt from execution and to make the sale thereat in accordance with the procedure outlined by Rule 39. she moved to quash the writ of execution on the ground "that the judgment did not order the accused to pay [a] specific amount of money to a particular person as it merely adjudicated the criminal aspect but not the civil aspect hence there was no judgment rendered which can be the subject of execution.326. i.60.00. on November 11. equivalent to the amount of the 3 three US$ checks amounting to $12. 1997. 2034-91180047. among other things. the sheriff served a notice of garnishment on the PNB. 5. 6. After preliminary investigation." 4. Maralit filed three complaints for estafa three falsification of commercial documents through reckless imprudence against respondent Jesusa Corazon L. when the alias writ of execution was issued. 1996. The accused however is civilly liable as indorser of the checks subject matter of the criminal action. Writ of Execution and Alias Writ of Execution to implement its final and executory civil judgment in Criminal Cases No. Revised Rules of Court and such cases made and provided.286. P130. Aida Abengoza. 1996. 3 The writ of execution. she was held personally liable by the PNB for the total amount of P320. her motion was denied on September 28.621. Maralit claimed that as a consequence. 1996. Petitioner raises the following issues: 7 1. 1997. respondent filed a petition for certiorari and prohibition in the Regional Trial Court of Naga City. which reads:" . 1996. ordered the enforcement of the civil liability against the accused arising from the criminal action. that its decision was contrary to law and jurisprudence.287.216.Petitioner Ester B. Whether or not a court exercising certiorari jurisdiction has the authority to modify or alter the final and executory decision of the lower court even by way of an obiter dictum. the City Prosecutor of Naga City filed three informations against respondent in the Municipal Trial Court of Naga City (Branch 3).743. respectively.46 because in fact it was petitioner who was found responsible for making the defraudation possible. dated December 9. (PNB). 1997. 1997. in view of the foregoing considerations.86." 3.

. and 4) . However. In the first place the accused is not an employee of the bank. judgment). For three (3) times. In reaching that conclusion. the opinion part. bear analysis. by the MTC." the writ of execution commanded the Sheriff "to cause the execution of the aforesaid judgment in the amount of THREE HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320. . The Court however is quite intrigue[d] on why the accused was allowed to encash the peso equivalent despite the fact that the check was deposited for collection and clearing.621. The variance. The [MTC's] findings of facts and conclusions of law as expressed in the body of the decision do not support the dispositive portion of the judgment that [respondent herein] is civilly liable." 9 Nevertheless. determined according to their peso equivalent." In the judgment. 2) disregard[ing] existing procedure. [her] negligence. She likewise explained that she trusted the accused whom she knew is working in the same building and a depositor. as accused in the case. . If there is anyone who has disregarded banking laws. . it is the private complainant for approving withdrawals before the check were cleared. and imprudence [which] caused damage and loss to [petitioner]. it is clear that it can only be to petitioner that respondent was made liable as the former was the offended party in the case. The private complainant in this regard explained that [as assistant branch manager] she has the discretion and that there is no hold order appearing in the savings account of the accused. If the complainant was not remiss in her duty in imposing the banking rules strictly. between the judgment and the writ of execution is substantial because it consists of the addition of the amount of the civil liability of the [respondent herein]. the Court stated in the body of its decision that it is [petitioner] Maralit herself who should be faulted and be held responsible for the payment of the dishonored US Dollar checks. ." To find therefore that there is no declaration of civil liability of respondent would be to disregard the judgment of the MTC. it would be to amend a final and executor decision of a court.13. Such reading of the MTC decision will not. to affirm the RTC's decision would be to hold that respondent was absolved from both criminal and civil liability. therefore. On the contrary a reading of the body of the judgment in question will show that [respondent] is not civilly liable. Naga Branch. the ambiguity can easily be clarified by a resort to the text of the decision or. In this case. (Sec. but in the writ of execution. . The question is whether the decision of the MTC finds respondent civilly liable and. banking laws. the dispositive portion of the decision of the MTC expressly declares respondent to be "civilly liable as indorser of the checks which is [sic] the subject matter of the criminal action. while the MTC found petitioner partly responsible for the encashment of the altered checks. policies. . however. without the check being cleared and if the same is dishonored she should be responsible. and circulars of the PNB. Maralit is more knowledgeable of the banking procedures of the bank of which she is the assistant manager. the portion in question refers to the allegations in the three informations that respondent committed falsification of commercial documents through reckless imprudence by "1) taking advantage of [her] position as state auditor of the Commission on Audit assigned at the PNB. Judgment). nothing is mentioned about the amount for which [respondent herein] is liable as indorser. The Court is of the opinion that there was negligence on both the complainant and the accused but greater responsibility should be borne by the private complainant.286. for how much. This is a generous statement. It is the established procedure of banks that out of town checks and US Treasury Warrants should first be cleared before the same is to be paid.46) ONLY. She has no control nor supervision over its employees.286. in addition to the fact that respondent executed a notarized acknowledgment of debt promising to pay the total amount of said warrants. not tak[ing] the necessary precaution to determine the genuineness of the Treasury Warrants and the alteration of the amount[s] therein deposited and [in] encash[ing] the checks.Petitioner contends that the phrase "civilly liable" in the judgment part of the MTC's decision also connotes an order to pay on respondent's part. The information accuses the accused for disregarding the banking laws and procedure of the PNB. She took the risk therefore she should be responsible for the outcome of the risk she has taken. She knows the risk of approving encashment before clearing. 3) . . it found respondent civilly liable because of her indorsements of the treasury warrants. 10 Thus. Doing so. In short she took the risk of approving the withdrawal of the peso equivalent. carelessness. (page 5. the MTC held that respondent was civilly liable as the penultimate paragraph of its decision makes clear: The Court symphatizes with the complainant that there was indeed damage and loss. 66 Negotiable Instrument Law). It is argued that the decision of the MTC did not order respondent. the judgment pronounced [respondent herein] to be "civilly liable" as indorser of the checks which is the subject matter of the criminal action. 8 This portion of the decision of the MTC actually refers to respondent's criminal liability and not her civil liability. the RTC said: A mere reading of the dispositive portion of the judgment and the writ of execution will readily show that there is variance between the two. Whereas. it can only be for the total amount of the treasury warrants subject of the case. (page 7. As already stated. As for that amount respondent is liable. in the affirmative. . xxx xxx xxx . but said loss is chargeable to the accused who upon her indorsements warrant that the instrument is genuine in all respect what it purports to be and that she will pay the amount thereof in case of dishonor. Hereunder quoted are portions of the body of the decision in question showing that [respondent] herein should be held civilly liable and that it was [petitioner] Maralit who should be blamed and held responsible: . . to pay a specific amount of money to any particular person such that it could not be an adjudication of respondent's civil liability. More specially. Mrs. 125 . (page 6. the RTC held that the MTC did not really find respondent liable. . in the decision of the MTC.46. It may fairly be assumed that the decision of the MTC was an adjudication of both the criminal and civil liability of respondent inasmuch as it does not appear that petitioner instituted a separate civil action or reserved or waived the right to bring such action. Worse. equivalent to the amount of the 3 three US$ checks amounting to $12. More so if the holder is a second indorser. Judgment). The accused could not have encashed and deposited the checks without her approval. what is properly called. the civil liability of the [respondent herein] has already been fixed at P320. then these things could not have happened. For one. .

1âwphi1. concur.For another. that respondent should pay petitioner the amounts of the altered treasury warrants is the logical consequence of the MTC's holding that private respondent is civilly liable for the treasury warrant subject of the case. 1999 REMEDIOS NOTA SAPIERA. petitioner. respondents. BELLOSILLO. No.nêt SO ORDERED. 128927 September 14. Bellosillo.R. COURT OF APPEALS and RAMON SUA. 11 WHEREFORE. Puno. Quisumbing and Buena. G.: 126 . the decision of the Regional Trial Court of Naga City (Branch 21) is REVERSED.. vs. J. JJ.

at P335. involved the same checks. and to pay private respondent P167.150. (d) Sales Invoice No.000. 22 on two (2) counts and sentenced him to suffer imprisonment of six (6) months and one (1) day in each of the cases. 1987 in the amount of P28.00. 24626. the Court of Appeals ruled that private respondent could not recover twice on the same checks. Cases Nos. 045104758 dated March 2. 8733 and 8734 against De Guzman. 1987 in the amount of P42. of Rule 111 of the Rules of Court. that said items were paid with PCIBank Check No. The appellate court noted that private respondent was the same offended party in the criminal cases against petitioner and against de Guzman. On several occasions petitioner Remedios Nota Sapiera.00 and Metrobank Check No. the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious. D-8730 and D-8731. Such action requires only a preponderance of evidence. 157073 dated February 26.00. 8730 and 8729 against petitioner. On 22 January 1996.000. 1987. said items were paid with Metrobank Check No. Upon motion of the defendant. the trial court having declared in its decision that the fact from which the civil liability might have arisen did not exist. 22. Cases Nos. (c) PCIB Check No. DAG-045104758 PA dated 2 March 1987 for P125.00 as civil indemnity. it may be inferred from the text of the decision whether or not acquittal is due to that ground. 36376 rendered the assailed Decision insofar as it sustained the appeal of private respondent on the civil aspect and ordering petitioner to pay private respondent P335.00 as the sum total of the amounts of the four (4) checks involved. We cannot sustain petitioner. a civil action for damages for the same act or omission may be instituted.P.REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of the Court of Appeals 1 which acquitted her of the crime of estafa but held her liable nonetheless for the value of the checks she indorsed in favor of private respondent Ramon Sua. Since he had collected P125. mostly cigarettes. The Court of Appeals granted the petition and ruled that private respondent could appeal with respect to the civil aspect the judgment of acquittal by the trial court.00 as civil indemnity in Crim.00 already collected by private respondent. D-8728. An examination of the decision in the criminal cases reveals these findings of the trial court — Evidence for the prosecution tends to show that on various occasions. 1987 in the amount of P125. 127 .00. to wit: PCIB Checks Nos.150. In a criminal case where the judgment of acquittal is based upon reasonable doubt. this petition alleging that respondent Court of Appeals erred in holding petitioner civilly liable to private respondent because her acquittal by the trial court from charges of estafa in Crim. D-8733 and D-8734. Private respondent Ramon Sua informed Arturo de Guzman and petitioner about the dishonor but both failed to pay the value of the checks. When presented for payment the checks were dishonored because the drawer's account was already closed. DAG-045104758 PA for P125. purchased from Monrico Mart certain grocery items.00 from Arturo de Guzman with regard to his civil liability in Crim.150. Cases Nos. the Court of Appeals in CA-GR CV No.000.00 as civil liability to private respondent. specifically provides: "Extinction of the penal action does not carry with it extinction of the civil. (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature. 157057 dated February 27.103. to P335. docketed as CA-GR SP No.000.00.00.75. 20120 dated February 27.00. this amount should be deducted from the sum total of the civil indemnity due him arising from the estafa cases against petitioner. and.000.000. On 27 December 1989 the court a quo 2 acquitted petitioner of all the charges of estafa but did not rule on whether she could be held civilly liable for the checks she indorsed to private respondent. 20148 and 20149 both dated March 2. The issue is whether respondent Court of Appeals committed reversible error in requiring petitioner to pay civil indemnity to private respondent after the trial court had acquitted of her of the criminal charges. which was erroneously placed. 8733 and 8734. D-8728. a sari-sari store owner. The appellate court then corrected its previous award. These cases against petitioner and de Guzman were consolidated and tried jointly. On 19 March 1997 the Court of Appeals issued a Resolution noting the admission of both parties that private respondent had already collected the amount of P125. that said items purchased were paid with PCIBank No. Private respondent then filed a petition for mandamus with the Court of Appeals." The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a declaration that the fact from which the civil liability might arise did not exist. 1987 in the amount of P140. as amended.150. 157073 dated 26 February 1987 for P28. (b) PCIB Check No.00.00 representing the aggregate face value of the four (4) checks indorsed by petitioner plus legal interest from the notice of dishonor. Cases Nos. D-8730 and D-8731 was absolute. that said items purchased were paid with PCIBank Check No. and.00.00.000. Remedios Nota Sapiera purchased from Monrico Mart grocery items (mostly cigarettes) which purchases were paid with checks issued by Arturo de Guzman: that those purchases and payments with checks were as follows: (a) Sales Invoice No. 3 Thus. (b). 1987 in the amount of P120. Thus. Arturo de Guzman was charged with two (2) counts of violation of B. 157059 dated 26 February 1987 for P140. 8733 and 8734. the court shall so declare. (b) Sales Invoice No. Cases Nos. 157057 dated 27 February 1987 for P42. Blg. d) Metrobank Check No. 1987. (c) where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. under Art. Cases Nos. These checks were signed at the back by petitioner. Private respondent filed a notice of appeal with the trial court with regard to the civil aspect but the court refused to give due course to the appeal on the ground that the acquittal of petitioner was absolute. The trial court found Arturo de Guzman guilty of Violation of B. and Crim. Hence. Section 2.150. praying that the court a quo be ordered to give due course to the appeal on the civil aspect of the decision. D-8729. Blg. par. In the absence of any declaration to that effect. Hence. 20104 dated February 26. Criminal Cases Nos. 1987. Thus.000. 29 of the Civil Code — When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt. petitioner was adjudged to pay P210. Petitioner filed a motion for reconsideration of the Decision. Deducting the amount of P125. the civil liability is not extinguished by acquittal where: (a) the acquittal is based on reasonable doubt. 20108 dated February 26. docketed as Crim. 157059 dated February 26.150. D-8729. 157057 for P42. (c) Sales Invoice No.P.00.000. docketed as Crim. and paid for them with checks issued by one Arturo de Guzman: (a) PCIB Check No.000.000. unless the extinction proceed from a declaration in a final judgment that the fact from which the civil might arise did not exist. four (4) charges of estafa were filed against petitioner with the Regional Trial Court of Dagupan City.000.

petitioner was informed of the dishonor. — Where the language of the instrument is ambiguous. petitioner admitted having signed the four (4) checks in question on the reverse side. That when presented for payment by the collecting bank to the drawee bank. Liability of general indorser. It has given rise to numberless instances of miscarriage of justice. . Sec. 5 The rationale behind the award of civil indemnity despite a judgment of acquittal when evidence is sufficient to sustain the award was explained by the Code Commission in connection with Art.150. It is just and proper that for the purposes of imprisonment of or fine upon the accused. The dismissal of the criminal cases against petitioner did not erase her civil liability since the dismissal was due to insufficiency of evidence and not from a declaration from the court that the fact from which the civil action might arise did not exist. at the time of the indorsement. But the purpose of indemnifying the complaining party. 4 An accused acquitted of estafa may be nevertheless be held civilly liable where the facts established by the evidence so warrant. is AFFIRMED. Construction where instrument is ambiguous. that she pays in cash. The accused should be adjudged liable for the unpaid value of the checks signed by her in favor of the complainant. it is undisputed that the four (4) checks issued by de Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and. Sec. that de Guzman purchases from her grocery items including cigarettes. less the amount of P125. the prosecution failed to prove conspiracy. the finding of the Court of Appeals that petitioner is civilly liable for the aggregate value of the unpaid four (4) checks subject of the criminal cases in the sum of P335. In the case of accused Remedios Nota Sapiera. the checks were dishonored by the drawee bank due to the closure of the drawer's account. Dagupan Branch. . where the acquittal was due to a reasonable doubt in the mind of the court as to the guilt of the accused. . that she knows Ramon Sua. that she never pays in check. that she has business dealings with him for 5 years. that she was not informed of dishonored checks. The reasoning followed is that inasmuch as the civil responsibility is derived from the criminal offense. he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it.150. resulting in the amount of P210. to wit: The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of the most serious flaws in the Philippine legal system. on due presentment.00 as civil liability. said checks were dishonored due to account closed. for collection from the drawee bank. as evidenced by check return slips. the Court finds that accused Remedios Nota Sapiera is the owner of a sari-sari store inside the public market. sometimes delayed by several days. valid and subsisting.000. 63.00 still due private respondent. that petitioner signed the same checks on the reverse side. One is for punishment or correction of the offender while the other is for reparation of damages suffered by file aggrieved party . with regard to the computation of the civil liability of petitioner. why should the offense also be proved beyond reasonable doubt? Is not the invasion or violation of every private right to be proved only by preponderance of evidence? Is the right of the aggrieved person any less private because the wrongful acts is also punishable by the criminal law? 6 Finally. However. The Negotiable Instruments Law clearly provides — Sec. he is deemed an indorser. 29 of the Civil Code.That all these checks were deposited with the Consolidated Bank and Trust Company. that the goods were delivered to de Guzman. and. We affirm the findings of the Court of Appeals that despite the conflicting versions of the parties. . . and (b) That the instrument is. The evidence of the prosecution shows that petitioner purchased goods from the grocery store of private respondent as shown by the sales invoices issued by private respondent. that she did not know the subject invoices. . that she signed the four (4) checks on the reverse side. One affects the social order and the other private rights. . Costs against petitioners. candies and assorted grocery items. is a factual matter which is binding and conclusive upon this Court. is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. when the latter is not proved. The Decision of the Court of Appeals dated 22 January 1996 as amended by its Resolution dated 19 March 1997 ordering petitioner Remedios Nota Sapiera to pay the private respondent Ramon Sua the remaining amount of P210. and when presented for payment. From the evidence. a customer since February 1987. Such reasoning fails to draw a clear line of demarcation between criminal liability and civil responsibility.00 already collected by private respondent pending appeal. that she sells can(ned) goods. the offense should be proved beyond reasonable doubt. 128 . . . . that she knows accused Arturo De Guzman. that de Guzman made the purchases and he issued the checks. that Ramon Sua asked her to sign subject checks as identification of the signature of Arturo de Guzman. therefore. Based on the above findings of the trial court. (b) and (c) of the next preceding section. . . When person deemed indorser. the exoneration of petitioner of the charges of estafa was based on the failure of the prosecution to present sufficient evidence showing conspiracy between her and the other accused Arturo de Guzman in defrauding private respondent. according to its tenor. he engages that. The two liabilities are separate and distinct from each other.00. the following rules of construction apply: . 17. that her purchase orders were in clean sheets of paper. it shall be accepted or paid or both. WHEREFORE. — Every indorser who indorses without qualification. and that counsel for Ramon Sua informed de Guzman and told him to pay . 66. This is one of those cases where confused thinking leads to unfortunate and deplorable consequences. (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign. warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a). .150. And. — A person placing his signature upon all instrument otherwise than as maker. . in addition. . . drawer or acceptor. by her own testimony. she is deemed to be an indorser thereof. civil liability cannot be demanded. that these purchases were paid with the four (4) subject checks issued by de Guzman. the petition is DENIED. and that if it be dishonored and the necessary proceedings on dishonor be duly taken. . as the case may be. or there are admissions therein. and to determine the logical result of the distinction.

concur. and ANACLETO R. Quisumbing and Buena. petitioner..SO ORDERED. INTERMEDIATE APPELLATE COURT. INC. J. vs.R. Mendoza. JJ. DAVIDE. JR. G. respondents. CHI.: 129 .. 1992 PRUDENTIAL BANK. 74886 December 8. No. PHILIPPINE RAYON MILLS.

if there is.000. Plaintiff's Folder of Exhibits. all the textile machineries in the defendant-appellant's factory were sold to AIC Development Corporation for P300.78 (Exhibit A.00 as attorney's fees. pp. 1). DPP-63762 for $128. 29). "X" (sic) to "X-11". the Prudential Bank opened Letter of Credit No. Chi the sum of P20. (c) finding that the solidary guaranty clause signed by Anacleto R. 1974 until fully paid. Chi that he is at least a simple guarantor of the said trust receipt obligation. petitioner was not justified in unilaterally paying the amounts stated therein. which were all paid by the Prudential Bank through its correspondent in Japan.R. the instant case is premature. Ibid. the trial court rendered its decision the dispositive portion of which reads: WHEREFORE. Ibid. 13). of Japan for textile machinery imported by the defendant. while the others were not (Exhibits X-2 to X-11. the complaint states no cause of action. 63. by prior arrangement with the Prudential Bank. To enable the defendant-appellant to take delivery of the machineries. The facts which gave rise to the instant controversy are summarized by the public respondent as follows: On August 8. Chi is concerned. V. the amounts due under Exhibits "X" & "X-1". No. Ltd.384. In their respective answers. two of these drafts (Exhibit X and X-1. As to the first and last assigned errors. Inc. pp. 4 In its decision.00 (Exhibit K.. Quezon City.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trust receipt (Exhibit "C"). viz.. To effect payment for said machineries. 65-66) were accepted by the defendant-appellant through its president. defendant-appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P200. to pay plaintiff the sum of P153. Chi. the defendant-appellant ceased business operation (sic). as the responsible officer of defendant corporation.. plaintiff's cause of action thereon has not accrued. Inc. p. Ibid. 62. Chi is not a guaranty at all.00 (Exhibit I. p. based on the assumption that Chi is a simple guarantor. 66 to 76).000. and (g) interpreting "sight" drafts as requiring acceptance by Philippine Rayon before the latter could be held liable thereon. The public respondent did not agree with the petitioner's claim that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. Inc. SO ORDERED. Chi. public respondent sustained the trial court in all respects. represented by co-defendant Anacleto R. the relationship existing between the petitioner and Philippine Rayon is governed by specific contracts. 1974 against the defendant-appellant and Anacleto R. pp. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No.. 1962. liable under Section 13 of P. p. defendant-appellant Philippine Rayon Mills. p. Ibid. With costs against defendant Philippine Rayon Mills.000. the promissory note. Insofar as defendant Anacleto R. the same has prescribed. Intermediate Appellate Court (now Court of Appeals). by the very terms and conditions thereof. now private respondent. with interest at 6% per annum beginning September 15. pp. the same not having been accepted by defendant Philippine Rayon Mills. Upon the arrival of the machineries. it ruled that the provision on unjust enrichment.645. At the back of the trust receipt is a printed form to be accomplished by two sureties who. The defendant-appellant was able to take delivery of the textile machineries and installed the same at its factory site at 69 Obudan Street. As indicated on their faces..95 was filed on October 3. of Japan for the importation of textile machineries under a five-year deferred payment plan (Exhibit B. 2060 and 2062 of the Civil Code and the related evidence and jurisprudence which provide that such liability had already attached. 22). it executed. On January 5.22. the defendants interposed identical special defenses. no valid demand for payment can be made. thereby violating the principle of the third party payor's right to reimbursement provided for in the second paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment. the drafts and the trust receipt. 1974. and W. 2 On 15 June 1978.Petitioner seeks to review and set aside the decision 1 of public respondent. p 2). 26). (b) refusing to hold Anacleto R. 1969. Anacleto R. Inc. Q-19312. Philippine Rayon Mills. X-1 to X-11. inclusive. Sometime in 1967. were to be jointly and severally liable to the Prudential Bank should the defendant-appellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. Ibid. Ibid. (d) controverting the judicial admissions of Anacleto R. the case is dismissed. Repeated formal demands (Exhibits U. Chi in his capacity as President (sic) of defendant-appellant company (Exhibit C. The lease was renewed on January 3.. dated 10 March 1986. hence.. The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid and unliquidated. Ltd. Inc. The latter involved an action instituted by the petitioner for the recovery of a sum of money representing the amount paid by it to the Nissho Company Ltd. Since the ten (10) drafts were not presented and accepted.. 1973 (Exhibit J. In the instant case. "X-l" to "X-11''). 3 Petitioner appealed the decision to the then Intermediate Appellate Court. Articles 2059. judgment is hereby rendered sentencing the defendant Philippine Rayon Mills. 64) for the payment of the said trust receipt yielded no result Hence. Article 2142 of the Civil Code. Ibid. 66 to 76). (f) contravening the judicial admissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved in the drafts (Exhibits "X". On December 29. the defendant-appellant applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Chi. the present action for the collection of the principal amount of P956. applies only if there is no express contract between the parties and there is a clear showing that the payment is justified. p. Against this letter of credit. By virtue of said application. and the plaintiff is guilty of laches. 130 . Plaintiff is ordered to pay defendant Anacleto R.. entered into a contract with Nissho Co. Ibid. petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private respondents for the entire unpaid balance of the imported machines. (e) contravening. namely the application for letters of credit. 65.. a trust receipt which was signed by Anacleto R.. in AC-G. Insofar as the amounts involved in drafts Exhs. the Bank of Tokyo.548. Ibid. (hereinafter Philippine Rayon). the Prudential Bank indorsed the shipping documents to the defendant-appellant which accepted delivery of the same.. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had not been presented to and were not accepted by Philippine Rayon. In urging the said court to reverse or modify the decision. Chi. the total amount of which was paid to the Nissho Company Ltd.. drafts were drawn and issued by Nissho (Exhibits X.

2. VI. plaintiff bank 10 was under obligation to pay through its correspondent bank in Japan the drafts that Nisso (sic) Company.. As to the first contention. V. VIII. defendant Philippine Rayon Mills. the issues may be reduced as follows: 1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE PAYMENT PETITIONER MADE TO NISSHO CO. A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. etc. pursuant to the terms and conditions stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A". Besides. . was obligated to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company. 12 In the instant case then. As to the second.D.D.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho Company. both parties were also required to submit their respective memoranda which they subsequently complied with. 115. X-1 TO X-11) AND TO WHAT EXTENT. RAYON RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13. respectively. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. VII. 5 Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June 1986. P. 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal issues: I. RAYON BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. In turn. Ltd. No. the last sentence of the same is incomplete and unsigned by witnesses. the obligation of a guarantor is merely accessory and subsidiary. against said plaintiff bank together with any accruing commercial charges. The liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11" inclusive) did not arise because the same were not presented for acceptance. Ltd. In short. Whether Philippine Rayon is liable on the basis of the trust receipt. 7 In the Resolution of 12 March 1990. whether he may be considered a guarantor. it expressed misgivings as to whether Chi's signature on the trust receipt made the latter automatically liable thereon because the so-called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone. We are unable to agree with this proposition. both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable to make the latter liable thereon. 8 this Court gave due course to the petition after the filing of the Comment thereto by private respondent Anacleto Chi and of the Reply to the latter by the petitioner. III. the public respondent ruled that the civil liability provided for in said Section 13 attaches only after conviction. Ltd. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. interest. periodically drew against said letter of credit from 1963 to 1968. because only these appear to have been accepted by the latter after due presentment. C).Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with Philippine Rayon pursuant to Section 13 of P. Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE THEREON AND TO WHAT EXTENT. It was to the latter that the drafts were presented for 131 . As provided for under Articles 2052 and 2054 of the Civil Code. in the latter situation. IV. Chi cannot be held liable therefor because the records fail to show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal remedies as required in Article 2058 of the Civil Code. AND IF SO. pursuant to plaintiff's contract with the defendant Philippine Rayon Mills. Chi's liability would therefore arise only when the principal debtor fails to comply with his obligation. 3. 11 Through a letter of credit. Exhibits "X" and "X-1". the bank merely substitutes its own promise to pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 115 and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt. even granting that it was executed and acknowledged before a notary public. C). As correctly ruled by the trial court in its Order of 6 March 1975: 9 . WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the obligation sought to be enforced and if not. but by two (2) persons. Inc. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. LTD. II. X. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT. the drawee was necessarily the herein petitioner. . RAYON IS LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. As We see it.. WHETHER OR NOT RESPONDENT PHIL. Inc. of Japan under a five-year deferred payment plan. Petitioner approved the application. The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128. By virtue of said Application and Agreement for Commercial Letter of Credit. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER ART. and it is not acknowledged before a notary public. whether the case should have been dismissed on the ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's properties. HAS HIS LIABILITY AS SUCH ALREADY ATTACHED. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR. Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST RECEIPT (EXH.548.

payment. or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. but by the petitioner. should receive the amplest protection. pursuant to Section 7 of the NIL. of credit. Nissho Company Ltd. thereby necessitating acceptance. 20 this Court explains the nature of a trust receipt by quoting In re Dunlap Carpet Co. X & X-1) were duly accepted as indicated on their face (sic). or (b) In which no time for payment in expressed. to the enterprise of foreign commerce. and the trial court explicitly ruled. it is. but they may not impede acceptance of drafts and payment by the issuing bank when the proper documents are presented. drafts are sight drafts. as regards the person so issuing. 18 The trial court and the public respondent. and he continues to hold that title as his indispensable security until the goods are sold in the United States and the vendee is called upon to pay for them. that the subject. (emphasis supplied) Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft. Said the latter: . during which interval great price changes may occur. and therefore it is of the first importance that the fundamental factor in the transaction. Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. the fact remains that until now they are still unpaid. respectively. accepting. vs. 13 The said section reads: Sec. was not even necessary in the first place because the drafts which were eventually issued were sight drafts And even if these were not sight drafts. payable on demand. he takes it as soon as the goods are bought and settled for by his payments or acceptances in the foreign country. Aron & Co. and moreover he is not able to deliver the possession. contemplate prior acceptance by Philippine Rayon. Section 7 provides: Sec. 14 this may be done in writing by the drawee in the bill itself. Disputes as to the merchandise shipped may arise and be litigated later between vendor and vendee. In fact. it would be the petitioner — and not Philippine Rayon — which had to accept the same for the latter was not the drawee. time within which to pay the same. Letters of credit meet this condition by affording celerity and certainty of payment. J. and the petitioner. or (b) Where the bill expressly stipulates that it shall be presented for acceptance. both the beneficiary and the issuer. 21 thus: By this arrangement a banker advances money to an intending importer. Where an instrument is issued. 15 The parties herein agree. When payable on demand. . Accordingly. or on presentation. These two drafts were not paid and although Philippine Rayon Mills ought to have paid the same. or of business facilities and agencies abroad. bill of exchange or indebtedness shall not be extinguished or modified" 17 does not. there was no need for acceptance as the issued drafts are sight drafts. Buyers and sellers struggle for the advantage of position. or indorsed when overdue. Exh. and upon such acceptance should have been paid forthwith. In the instant case the drafts being at sight. Much of this trade could hardly be carried on by any other means. the banker's advance of money and credit. and thereby lends the aid of capital. sight drafts do not require presentment for acceptance. they are. 19 thus: Commercial letters of credit have come into general use in international sales transactions where much time necessarily elapses between the sale and the receipt by a purchaser of the merchandise. however. or at sight. 143. Their purpose is to insure to a seller payment of a definite amount upon presentation of documents. The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that Philippine Rayon was liable thereon. for the importer has never owned the goods. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. The bank deals only with documents. The seller is desirous of being paid as surely and as soon as possible. therefore. erred in ruling that presentment for acceptance was an indispensable requisite for Philippine Rayon's liability on the drafts to attach. or in a separate instrument. where presentment for acceptance is necessary in order to fix the maturity of the instrument. It has nothing to do with the quality of the merchandise. Contrary to both courts' pronouncements. accepted. in order to secure that the banker shall be repaid at the critical point — that is. Acceptance.. when the imported goods finally reach the hands of the intended vendee — the banker takes the full title to the goods at the very beginning. Such is the essence of the letter of credit issued by the petitioner. The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. 16 Corollarily. — An instrument is payable on demand — (a) When so it is expressed to be payable on demand. or in any other case. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case. but the security is the complete title vested originally in the 132 . Obviously then. or indorsing it. 7. realizing that the vendee at a distant point has it in his power to reject on trivial grounds merchandise on arrival. and cause considerable hardship to the shipper. contrary to the holding of the public respondent. Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. The first two drafts (Annexes C & D. payable on demand. When presentment for acceptance must be made. This security is not an ordinary pledge by the importer to the banker. Inc.. . they are supposed to be payable upon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). Yu Chai Ho. The typical setting and purpose of a letter of credit are described in Hibernia Bank and Trust Co. In People vs. — Presentment for acceptance must be made: (a) Where the bill is payable after sight..

27 Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. otherwise known an the Trust Receipts Law. we jointly and severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND TRUST COMPANY all sums of money which the said PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of or pertaining to. we have our misgivings as to whether the mere signature of defendant-appellee Chi of (sic) the guaranty agreement. No. the title is at bottom a security title. and this characteristic of the transaction has again and again been recognized and protected by the courts. documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods. The ownership of the merchandise continues to be vested in the owner thereof or in the person who has advanced payment. A perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. 22 trust receipts: . Viuda e Hijos de Angel Jose. or if the merchandise has already been sold. as it has sometimes been called. Under P. 115. Under Section 13 of the Trust Receipts Law. . It was signed only by defendant-appellee Chi. not consummated. . . but no one signed in that capacity. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. reads: In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing. who owns or holds absolute title or security interests' over certain specified goods. As further stated in National Bank vs. defendants have willfully violated their duty to account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease. But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged still defendant-appellee Chi cannot be held liable thereunder because the records show that the plaintiff-appellant had neither exhausted the property of the defendant-appellant nor had it resorted to all legal remedies against the said defendant-appellant as provided in Article 2058 of the Civil Code. that private respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon. but only after his advances have been fully repaid and after the importer has fulfilled the other terms of the contract. punishable under the provisions of Article 315. Of course. Chi's liability therein is solidary. no legal obstacle prevented it from enforcing the civil liability arising out of the trust. documents or instruments. whereby the entruster. in accordance with the terms and conditions specified in the trusts receipt. ." It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and have profited by its operation and/or disposition but very recent information that (sic) reached plaintiff bank that defendants already sold the machinery covered by the trust receipt to Yupangco Cotton Mills. Under Article 2058 of the Civil Code. which took effect on 29 January 1973. [I]n a certain manner. The obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and subsidiary under Article 2054 of the Civil Code. . fraud and physical injuries. defendants have fraudulently misapplied or converted to their own use any money realized from the lease. and the banker is always under the obligation to reconvey. In holding otherwise. 25 Under Article 33 of the Civil Code. a civil action for damages. . which petitioner describes as a "solidary guaranty clause". until he has been paid in full. such relief is covered by the general prayer for "such further and other relief as may be just and equitable on the premises. receipt in a separate civil action.bankers. or for other purposes substantially equivalent to any one of the following: . . and/or in any event connected with the default of and/or non-fulfillment in any respect of the undertaking of the aforesaid: PHILIPPINE RAYON MILLS. The last sentence of the guaranty clause is incomplete. the defense of exhaustion (excussion) may be 133 . the failure of an entrustee to turn over the proceeds of the sale of goods. therefore. Exhibit "C-1" was to be witnessed by two persons. . may be brought by the injured party in cases of defamation. releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein the entrustee binds himself to hold the designated goods. we jointly and severally agree and undertake . Therefore. and not for that adduced by the public respondent. entirely separate and distinct from the criminal action. the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest." 24 And although it is true that the petitioner commenced a criminal action for the violation of the Trust Receipts Law. sale. Exhibit "C-1". The statement at the dorsal portion of the said trust receipt. . nevertheless. and therefore acting in fiduciary (sic) capacity. All these show that the alleged guaranty provision was disregarded and. and another person referred to in this Decree as the entrustee. documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appear in the trust receipt or to return said goods. is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up.. specifically the clause ". . Estafa falls under fraud. documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods. partake of the nature of a conditional sale as provided by the Chattel Mortgage Law. the plaintiff-appellant also failed to have the purported guarantee clause acknowledged before a notary public." and the concluding sentence on exhaustion. will make it an actionable document. ." and that "as trustees of the property covered by the trust receipt." 23 While there is no specific prayer for the delivery to the petitioner by Philippine Rayon of the proceeds of the sale of the machinery covered by the trust receipt. paragraph 1(b) of the Revised Penal Code. sale or other disposition of the same that they may have made. We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any steps or exhaust its remedy against aforesaid: before making demand on me/us. instruments themselves if they are unsold or not otherwise disposed of. This is further bolstered by the last sentence which speaks of waiver of exhaustion. notwithstanding demands therefor. documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa. a trust receipt transaction is defined as "any transaction by and between a person referred to in this Decree as the entruster. . Petitioner insists that by virtue of the clear wording of the statement. the importer becomes absolute owner of the imported merchandise as soon an he has paid its price. We also conclude. which. Furthermore. INC.D. for the reason hereinafter discussed. the liability of the defendant-appellee arises only when the principal debtor fails to comply with his obligation. . the public respondent ratiocinates as follows: With respect to the second argument. . that is. and other disposition of said machinery.

The attestation by witnesses and the acknowledgement before a notary public are not required by law to make a party liable on the instrument. since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods. A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. or some note or memorandum thereof. The reason for this is obvious: corporations. their liability is not divisible as between them.. As a matter of fact. when the law requires that a contract be in some form in order that it may be valid or enforceable. whether jointly. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor. who shall be entitled. or in the alternative. Chi's participation therein is limited to the affixing of his signature thereon. except as otherwise provided in these rules. the penalty shall be imposed upon the directors. i. Simply stated. No. The trust receipt. or true intent of the solidary guaranty clause should be resolved against the petitioner. This is the import of the clause "without prejudice to the civil liabilities arising from the criminal offense. documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa. or that it be proved in a certain way. Inc. The said section reads: Sec. a contract of adhesion. on the theory that Chi is not liable on the trust receipt in any capacity — either as surety or as guarantor — because his signature at the dorsal portion thereof was useless. association or other juridical entities. officers. The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. it can be enforced to its full extent against any one of them. If the violation or offense is committed by a corporation. — All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist. the law merely requires that it. and even if he could be bound by such signature as a simple guarantor. provided all the essential requisites for their validity are present. Philippine Rayon. be in writing. 28 as such. it is these entities which are made liable for the civil liability arising from the criminal offense. Public respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice to the civil liability arising from the criminal offense. namely the criminal proceedings against the latter for the violation of P. 32 While the acknowledgement of a surety before a notary public is required to make the same a public document.raised by a guarantor before he may be held liable for the obligation. may. 29 Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary public. 6. In Southern Motors." And. and the respondent Court its affirmance thereof. be compelled to pay until after petitioner has exhausted and resorted to all legal remedies against the principal debtor. 115. join as plaintiffs or be joined as defendants in one complaint. the creditor may.e. We are not persuaded. 13. employees or other officials or persons therein responsible for the offense. this would have been correct if two (2) guarantors had signed it. However. 34 this Court stated: 4.D. and has resorted to all the legal remedies against the debtor." Both are wrong. documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods. together with the questioned solidary guaranty clause. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the aforementioned exhaustion. It reads: Sec. punishable under the provisions of Article Three hundred and fifteen. any doubt as to the import. 115. where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action. the fact that it was only Chi who signed the same did not make his act an idle ceremony or render the clause totally meaningless. but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest. the duration of which would depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code. Section 6. 30 With respect to a guaranty. partnership. 134 . vs. as We stated earlier.D. Petitioner likewise admits that the questioned provision is a solidary guaranty clause. prior thereto. No. pursuant to Article 2058 of the Civil Code. severally. however. under Article 1358 of the Civil Code. the clause ought to have been signed by two (2) guarantors. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It is. secure a judgment against said guarantor. Barbosa. Excussion is not a condition sine qua non for the institution of an action against a guarantor. however. association or other juridical entities. Petitioner claims that because of the said criminal proceedings. employees or other officials or persons therein responsible for the offense. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. described the guaranty as solidary between the guarantors. as amended. Otherwise. partnerships. otherwise known as the Revised Penal Code. Furthermore. that requirement is absolute and indispensable. to a deferment of the execution of said judgment against him until after the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the case. the penalty provided for in this Decree shall be imposed upon the directors. By his signing. it must be strictly construed against the party responsible for its preparation. it would be unenforceable unless ratified. The records fail to show that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which provides: Art. It. a contract of guaranty does not have to appear in a public document. Rule 3 of the Rules of Court on permissive joinder of parties explicitly allows it. It is clear that if the violation or offense is committed by a corporation. The trial court based the dismissal. The penalty referred to is imprisonment. associations and other juridical entities cannot be put in jail. is on a form drafted and prepared solely by the petitioner. officers. therefore. Chi became the sole guarantor. Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P. While indeed. thereby clearly distinguishing it from a contract of surety. however. paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen. there is as yet no cause of action against Chi. Permissive joinder of parties. partnership. 2056. And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi. petitioner was acting well within its rights in filing an independent civil action to enforce the civil liability arising therefrom against Philippine Rayon. There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case No. Elsewise stated. without prejudice to the civil liabilities arising from the criminal offense. The rule is that contracts shall be obligatory in whatever form they may have been entered into. Q-19312 before the trial court. he cannot. 31 which is a promise to answer for the debt or default of another.

375.000. 1994 of the Court of Appeals in C. Inc.. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby entered: 1. 2001 LUIS S.00 and P3. and to pay private respondent the amounts of P5. liable on the twelve drafts in question (Exhibits "X". he shall only be liable for those costs incurred after being judicially required to pay. the instant Petition is hereby GRANTED. being accessories of the principal obligation. SO ORDERED. Jr. should also be paid.384. with the legal rate of interest from the time of filing of the criminal charges. concur. Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs. P6. is returned unsatisfied. with interest thereon at six percent (6%) per annum from 16 September 1974 until it is fully paid. QUISUMBING. vs. that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No.00 if the writ of execution for the enforcement of the above awards against Philippine Rayon Mills. WONG. (b) a sum equal to ten percent (10%) of the aforesaid amount as attorney's fees. he can be held liable for the sum of P10. It will save the parties unnecessary work. Bidin.1âwphi1. Declaring private respondent Anacleto R.: For review on certiorari is the decision dated October 28. and sentencing him to imprisonment of four (4) months for each count.This is the equity rule relating to multifariousness. these..nêt 135 . and ordering it to pay petitioner: (a) the amounts due thereon in the total sum of P956.R. less whatever may have been applied thereto by virtue of foreclosure of mortgages.R. J. it would no longer necessary to discuss the other issues raised by the petitioner WHEREFORE. convicting petitioner on three (3) counts of Batas Pambansa Blg.000. 36 Interest and damages. respondents. shall run only from the date of the filing of the complaint. 35 However. 22 (the Bouncing Checks Law) violations. Declaring private respondent Philippine Rayon Mills. CV No. Chi secondarily liable on the trust receipt and ordering him to pay the face value thereof.00 as attorney's fees in favor of the petitioner.000. Thus. Inc. Attorney's fees may even be allowed in appropriate cases.95 as of 15 September 1974. 66733 and. 117857 February 2.500. however.R. trouble and expense.A. inclusive) and on the trust receipt (Exhibit "C"). the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. In the light of the foregoing. 2. Costs against private respondents. "X-1" to "X-11".00. It is based on trial convenience and is designed to permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. Gutierrez. Branch 17.00. No. and (c) the costs. The appealed Decision of 10 March 1986 of the public respondent in AC-G. if any. G. JJ. G. 37 In the instant case. CR 11856 1 which affirmed the decision of the Regional Trial Court of Cebu City. with respect to the latter.00 as attorney's fees. as well as to pay the costs. the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and condemning petitioner to pay him P20.410. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES. with interest at the legal rate. Romero and Melo. respectively. Q-19312 until the same is fully paid as well as the costs and attorney's fees in the sum of P10. necessarily. corresponding to the value of the checks involved. All things considered. commencing from the date of the filing of the complaint in Civil Case No. petitioner.

3 LPI waived the P52.375. but to guarantee the orders of his customers. 1986.375. make or draw Allied Banking Corporation Check No. Inc. (4) ABC Check No. the same was dishonored for reason ‘ACCOUNT CLOSED’ and despite notice and demands made to redeem or make good said check. "G"). After printing the calendars.375. knowing at the time of issue of the check she/he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.00). The agents would get the purchase orders of customers and forward them to LPI. Petitioner failed to make arrangements for payment within five (5) banking days. Instead. Cuesta Enterprises (P540. On June 20. In fact." The dishonor of the checks was evidenced by the RCBC return slip. PA660143463-C for P3. Manuel T. as follows: (1) Allied Banking Corporation (ABC) Check No. LPI would print sample calendars. (3) ABC Check No. On November 6.00 (Exh. premises considered.025. upon advice of counsel. LPI refused to accept the checks as guarantees. with intent of gain and of causing damage. (P6.077. Before the maturity of the checks. Pelrico Marketing (P1.500. petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. all dated December 30.00). In early December 1985.410. 660143460-C for P540. LPI would ship the calendars directly to the customers. Limtong which check was issued in payment of an obligation of said accused. CBU-12055 reads as follows:6 That on or about the 30th day of December.5 The Information in Criminal Case No. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks.100.500.410.00 (Exh. but when the said check was presented with said bank.500. 660143464-C for P6. Limtong in the amount of P5. Golden Friendship Supermarket.375. but failed to do so.00).00 (Exh. the parties agreed to apply the checks to the payment of petitioner’s unremitted collections for 1984 amounting to P18.00 Philippine Currency. a manufacturer of calendars. petitioner was charged with three (3) counts of violation of B. Limtong. Limtong averred that he refused to accept the personal checks of petitioner since it was against company policy to accept personal checks from agents. Hence. Petitioner was similarly charged in Criminal Case No. on June 5. namely.00. in the City of Cebu. 1985 and drawn payable to the order of LPI. testified on behalf of the company. Hence. According to Limtong.00. 1986. The checks were returned for the reason "account closed. According to petitioner. complainant through counsel notified the petitioner of the dishonor. and New China Restaurant (P1. the trial court issued its decision.00. (2) ABC Check No. he and petitioner simply agreed to use the checks to pay petitioner’s unremitted collections to LPI. did then and there issue. Although these customers had already paid their respective orders. Hence.07.500. Inc. general manager of LPI. (5) ABC Check No.100. 1987. However. Wong GUILTY beyond reasonable doubt of the offense of Violations of Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for 136 .P. this Court finds the accused Luis S.00). 660143451 dated 12-30-85 in the amount of P5. 1990. 22 4 under three separate Informations for the three checks amounting to P5.The factual antecedents of the case are as follows: Petitioner Wong was an agent of Limtong Press. Both cases were raffled to the same trial court. Petitioner. then give them to agents to present to customers. and within the jurisdiction of this Honorable Court.07 difference. PA660143451-C for P5. petitioner’s customers were required to issue postdated checks before LPI would accept their purchase orders. he issued the checks not as payment for any obligation. petitioner reneged on his promise. Trial ensued.410. "D").00. New Asia Restaurant P3. "C"). "E"). New Society Rice and Corn Mill (P5. 12057 for ABC Check No. (6) ABC Check No.2 Hence.00). LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). 1985 and for sometime subsequent thereto. following company policy. 660143464 for P6. a few days before maturity of the checks. disposing as follows: 7 "Wherefore. and up to the present time still fails and refuses to do so. 660143463 in the amount of P3. PA660143465-C for P1.00 (Exh.410.100. he deposited the checks which were subsequently returned on the ground of "account closed. On August 30.00). petitioner claimed LPI did not return the said checks to him. said accused failed and refused. and P6. however. "B"). PA660143452-C for P1. which he duly acknowledged in a confirmation receipt he co-signed with his wife. had a history of unremitted collections.00 payable to Manuel T. the face value of the six (6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers of the accused. to the damage and prejudice of said Manuel T. Thereafter.00 (Exh. P3. the agents would come around to collect the payments. Upon arraignment." The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985 calendar bookings of his customers. 12058 for ABC Check No.00.500. However. (LPI). Wong pleaded not guilty.00. Blg. with deliberate intent. Wong issued six (6) postdated checks totaling P18. Contrary to law. the said accused.00 (Exh. Wong requested him to defer the deposit of said checks for lack of funds.100. and in Criminal Case No. "F"). Wong promised to replace them within thirty days. Philippines.

"8 Petitioner appealed his conviction to the Court of Appeals. private respondent should have returned the checks to him. 22 under the first situation. the same must stand. 66[0]143464 and 660143463 all issued on December 30. drawing and issuance of any check to apply for account or for value. the maker’s knowledge is presumed from the dishonor of the check for insufficiency of funds. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation on record.P. 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded. As repeatedly held. pertinent to the present case.15 Moreover. 22. Court of Appeals. The mere act of issuing a worthless check is malum prohibitum. There are two (2) ways of violating B. will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes. 22 creates a presumption juris tantum that the second element prima facie exists when the first and third elements of the offense are present. for what B. the RTC and CA having both ruled that the checks were in payment for unremitted collections. So what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. Blg." Nothing herein persuades us to hold otherwise. his testimony was found sufficient to prove all the elements of the offense charged. 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance.00) Pesos. 21 137 . Blg. Said factual issue has been settled by the trial court and Court of Appeals. 1985 together with the legal rate of interest from the time of the filing of the criminal charges in Court and pay the costs. the parties had agreed that the checks would be used to pay off petitioner’s unremitted collections. This flawed argument has no factual basis. 17 The elements of B. Blg. ordered the bank to stop payment.P. and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer." Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. In cases elevated from the Court of Appeals.12 the Solicitor General concedes that the checks might have been initially intended by petitioner to guarantee payments due from customers. Petitioner’s contention that he did not demand the return of the checks because he trusted LPI’s good faith is contrary to human nature and sound business practice.P. or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.if there is no more consideration or price or value – ever the binding tie that it is in contracts in general and in negotiable instruments in particular – behind the checks? – if even before he deposits the checks. or the terms and conditions for their issuance.410. the present petition. 660143451. in Llamado v. without any valid cause.16 we held that "[t]o determine the reason for which checks are issued. 22 case by claiming that the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. our review is confined to allege errors of law. Blg. B.P.14 The lack of accounting between the parties is not the issue in this case. 19 As to the second element.10 Petitioner raises the following questions of law -11 May a complainant successfully prosecute a case under BP 22 --. anymore" and "We have no more record.P. Instead of depositing the checks. Although initially intended to be used as guarantee for the purchase orders of customers.9 Hence.375." In his Comment. the argument has no legal basis. this Court is not a trier of facts. are: 18 "(1) The making. but upon the refusal of LPI to accept said personal checks per company policy. and bring about havoc in trade and in banking communities. The only issue for our resolution now is whether or not the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under B.P. 13 We find no cogent reason to depart from findings of both the trial and appellate courts. according to the Solicitor General. still bound under BP 22 to maintain his account long after 90 days from maturity of the checks? May the prosecution apply the prima facie presumption of "knowledge of lack of funds" against the drawer if the checks were belatedly deposited by the complainant 157 days after maturity.each count. or will it be then necessary for the prosecution to show actual proof of "lack of funds" during the 90-day term? Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders (PO’s) of his customers.00) Pesos and Three Thousand Three Hundred Seventy-Five (P3. Blg. He contends that private respondent is not a "holder for value" considering that the checks were deposited by private respondent after the customers already paid their orders. to pay Private Complainant Manuel T. He attempts to distinguish his situation from the usual "cut-and-dried" B. he has ceased to be a holder for value because the purchase orders (PO’s) guaranteed by the checks were already paid? Given the fact that the checks lost their reason for being.20 Thus. they found the checks were eventually used to settle the remaining obligations of petitioner with LPI. Its findings of fact are generally conclusive. and not as guarantee. is it not then the duty of complainant – knowing he is no longer a holder for value – to return the checks and not to deposit them ever? Upon what legal basis then may such a holder deposit them and get paid twice? Is petitioner. Likewise.500. Petitioner further assails the credibility of complainant considering that his answers to cross-examination questions included: "I cannot recall. Limtong the sums of Five Thousand Five Hundred (P5. drawer. 1994. The issue as to whether the checks were issued merely as guarantee or for payment of petitioner’s unremitted collections is a factual issue involving as it does the credibility of witnesses. it affirmed the trial court’s decision in toto. (2) The knowledge of the maker.00) Pesos corresponding to the amounts indicated in Allied Banking Checks Nos. Six Thousand Four Hundred Ten (P6. and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days. as above stated. On October 28. as the drawer of the guarantee checks which lost their reason for being. Although Manuel Limtong was the sole witness for the prosecution.

00. we find no error in the respondent court’s affirmance of his conviction by the trial court for violations of the Bouncing Checks Law. sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of dishonor. equivalent to double the amount of the check involved in Criminal Case No.00. There is. 1986. a check becomes stale after more than six (6) months. Consequently. Blg. 22 but the penalty imposed on him is hereby MODIFIED so that the sentence of imprisonment is deleted. Finally. 1995. 658-95 for "Sum of Money with Prayer for a Writ of Replevin"1 before the Metropolitan Trial Court of Pasay City. shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon. respondents. the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1) presentment within 90 days from date of the check. the Bank's Assistant 138 . In consideration thereof. Hence said checks cannot be considered stale.000. vs. drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank. 22 provides: Evidence of knowledge of insufficient funds. and (3) P11. Mendoza. the Bank filed on August 7.23 or 180 days. 1989 Model.: The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car ." By current banking practice.025. (2) P12. Jr..1âwphi1.1âwphi1. KAPUNAN. or 157 days after the December 30. GUECO and MA. as well as to pay the costs. Private respondent herein deposited the checks 157 days after the date of the check. pursuant to the policy guidelines in Administrative Circular No. GUECO. CBU-12058. Wong is found liable for violation of Batas Pambansa Blg. and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. Buena. 2000. Upon his failure to do so." To mitigate the harshness of the law in its application. G. No. the presumption of knowledge of lack of funds under Section 2 of B. but such knowledge could still be proven by direct or circumstantial evidence. private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. 1995 a civil action docketed as Civil Case No. After the checks were dishonored. As found by the trial court. Section 2 of B.P. J.22 Contrary to petitioner’s assertions. SPS. 22 should not apply to him. WHEREFORE. Only the presumption of knowledge of insufficiency of funds was lost. – The making. CBU-12057.. which took effect on November 21. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises.750.820.Petitioner avers that since the complainant deposited the checks on June 5. or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Bellosillo. Petitioner Luis S. An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. petitioner. with subsidiary imprisonment24 in case of insolvency to pay the aforesaid fines. when presented within ninety (90) days from the date of the check. concur. That the check must be deposited within ninety (90) days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. Dr. JJ.nêt SO ORDERED. petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check. LUZ E. And despite petitioner’s insistent plea of innocence. Under Section 186 of the Negotiable Instruments Law. "a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.nêt The Spouses defaulted in payment of installments. on record. 1985 maturity date. the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within ninety (90) days from the date of the check. 12-2000.P. LPI was constrained to deposit the said checks. equivalent to double the amount of the check involved in Criminal Case No. FRANCIS S. equivalent to double the amount of the check involved in Criminal Case No. Since this involves a state of mind difficult to establish. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Desi Tomas. as civil indemnity. Blg. and De Leon.a Nissan Sentra 1600 4DR. He further claims that he should not be expected to keep his bank account active and funded beyond the ninety-day period.00. CBU-12055. petitioner is also ordered to pay to LPI the face value of said checks totaling P18.2 On August 25. It is not an element of the offense.00 with legal interest thereon from the time of filing the criminal charges in court. nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. the petition is DENIED. the penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of the checks that were dishonored. 2001 THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES). Rather. However. Branch 45. 141968 February 12.R. Petitioner is ORDERED to pay a FINE of (1) P6.

In its decision. for lack of any reversible error. Appellee may deposit the Manager's check . the decision of the Metropolitan Trial Court was reversed.secure said Manager's Check. The Metropolitan Trial Court dismissed the complaint for lack of merit. 1995 included the stipulation that the parties would jointly file a motion to dismiss. 3 On appeal to the Regional Trial Court. to pay the cost of suit.4 The case was elevated to the Court of Appeals. and 3. notwithstanding. Being an affirmative allegation. over which appellants have no control. The negotiations resulted in the further reduction of the outstanding loan to P150. the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City. 2.00 as moral damages. the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. On August 28. Branch 227 of Quezon City. even the Metropolitan Trial Court. SO ORDERED.Vice President demanded payment of the amount of P184. Gueco delivered a manager's check in amount of P150.000. The Court of Appeals made the factual findings in this wise: 139 . and P25. especially when affirmed by the Court of Appeals. Dr. Branch 33. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. Branch 227. Costs against petitioner. The court further ordered the bank: 1. the petitioner's claim to the contrary. Jefferson Rivera. to return immediately the subject car to the appellants in good working condition. petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28. Notably. III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS.000. in Civil Case No. as a result of the non-payment of the reduced amount on that date. 1995. to pay the appellants the sum of P50. whereas the funds have long been paid by appellants to .00 which represents the unpaid balance for the car loan. is AFFIRMED in toto. did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss.00.00.7 While there are exceptions to this rule. Dr. counterclaims or suits for damages. WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE.the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance. the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City. while ruling in favor of the petitioner and thereby dismissing the complaint.000. the decretal portion of which reads: WHEREFORE.000.00 as attorney's fees. Q-97-31176. After some negotiations and computation. the amount was lowered to P154.5 The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. P25. which on February 17. This petitioner failed to do. raising the following assigned errors: I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. 1995. Auto Loans/Credit Card Collection Head. Gueco went to the bank and talked with its Administrative Support. It is well settled that the findings of fact of the lower court. However. insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims. On August 29. 2000. premises considered. In other respect. The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court. After several demand letters and meetings with bank representatives. the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.000. 6 As to the first issue. however. It is the contention of the Gueco spouses and their counsel that Dr. issued the assailed decision. the car was detained inside the bank's compound.000. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.8 the present case does not fall under anyone of them. are binding upon this Court. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. we find for the respondents. Petitioner.00 as exemplary damages.000.

the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. whereby the original claim of the bank of P184. 7 [1992]). as well as attorney's fees. 15) The Court has noted. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. 1995. 1995 meeting. whose factual findings are entitled to respect since it has the 'opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies' (People vs. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. he will pay his obligation to the bank on its reduced amount of P150. hence 'xxx On August 28. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. et al.00 to P150. as a result of the withholding of his car by petitioner. 1995? (sic) [I]s a question whereby the answer up to now eludes this Court's comprehension. in its findings of facts. knowing and intending the effects which naturally and necessarily arise from such act or omission. 1996. are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith. Rollo. plaintiffs' claim for damages is unavailing. Gueco was not given a copy of the joint motion that day of August 28. the dismissal of the case. And third. 12) The lower court.000." 13 140 . Jefferson Rivera who related that respondent Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28. However. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants' substantive right. The trial court opined. Gueco from P184. Gueco in the August 28. the case against him will be dismissed. Respondents.In support of its claim. upon being shown the Joint Motion to Dismiss. In fact. p. thus: 'As regards the third issue.000. Fraud has been defined as the deliberate intention to cause damage or prejudice. 1995.' (Rollo.00 and that upon payment of which. or a willful omission. 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28. moral damages may only be awarded when the breach was attended by fraud or bad faith. p. 17-21. 1995.00 is indicative of its good faith and sincere desire to settle the case. October 23. likewise. 1995 was merely for the lowering of the price. True.00 instead of its original claim of P184. pp.985. It is the voluntary execution of a wrongful act.12 The law presumes good faith. This part of the theory of appellee is too complicated for any simple oral agreement. however.9 We see no reason to reverse. 'This Court is not convinced by the appellees' posturing. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin. Plaintiffs. 32). 1995. the dismissal of the case against him is for his own good and benefit. that the trial court. bolstering his claim that its signing was never put into consideration in reaching a compromise. oppressive or malevolent. the claim for exemplary damages must fait. he has only himself to blame. for his family or legal counsel to see to be brought signed.the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. Necessarily. 1995 (Rollo. 216 SCRA 1.00 in manager's check form to be submitted on the following day on August 29. as the case filed by petitioner against it before the lower court would be dismissed with prejudice. we find the claim of petitioner meritorious.' (Rollo. maintained that no such condition was ever discussed during their meeting of August 28. he will recover his car. In no way. expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss. thus: 'If it is true. pp. together with the P150. hence. the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation. Gueco had fully settled his obligation. be noted that in cases of breach of contract. The appellees would like this Court to believe that Dr Gueco was informed by Mr. Gueco. however. petitioner may have been remiss in informing Dr.09. In finding the petitioner liable for damages. that the signing of the joint motion was a condition sine qua non for the reduction of the appellants' obligation.11 We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. First.000. this can not in anyway have prejudiced Dr. Such claim rests on too slender a frame.09 was reduced to P150. Yadao. 18. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Petitioner's act of requiring Dr.000. Gueco. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. it is more in accord with human experience to expect Dr. The only logical explanation for this inaction is that Dr. The motion to dismiss was in fact also for the benefit of Dr.' xxx. The trial court. clearly indicated that the agreement of the parties on August 28. Rivera Rivera of the bank requirement of signing the joint motion on August 28. the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages. likewise. First. on the other hand. for after all. as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check. Fraud under Article 1170 of the Civil Code of the Philippines. 5). 1995. If respondent did suffer any damage. It should. plaintiff was informed that the subject motor vehicle would be released to him. failed to make a categorical finding on the issue. (TSN. the act of petitioner bank in lowering the debt of Dr. Second. petitioner presented the testimony of Mr. p. Gueco. In fact.10 We disagree. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. In dismissing petitioner's claim. Dr. Gueco failed to present an iota of evidence to overcome this presumption. the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. fraudulent. The whole point of the parties entering into the compromise agreement was in order that Dr.000. Why Dr.985. the lower court declared. being inconsistent with human experience. Anent the issue of award of damages. as the appellees allege. to refuse to pay the Manager's Check and for the bank to refuse to accept the manager's check. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29. it is only reasonable and logical to assume that the joint motion should have been shown to Dr. both . may the conduct of petitioner be characterized as "wanton. it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. reckless. bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement. In dismissing the claim of damages of the respondents.

If treated as promissory note." regard is to be had to the nature of the instrument. A cashier's check is a check of the bank's cashier on his own or another check. 26 Thus.00. 29 It is really the bank's own check and may be treated as a promissory note with the bank as a maker. vice president of the bank. Respondents are further ordered to pay the original obligation amounting to P150. Davide. 16 While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners. and Ynares-Santiago. a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check. 33 In the case at bar. JJ. SO ORDERED. a representative of respondent bank. if the check had become stale. Said check was given to Mr. 23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. 17 it appears from the pleadings that said check has not been encashed.15 to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. In this case. thus. should suffer the loss occasioned by the fact that the check had become stale. vs. the legal situation amounts to an acknowledgment of liability in the sum stated in the check. We see no bad faith or negligence in this position taken by the Bank. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. likewise. does not totally wipe out all liability.14 Subsequently. failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay..00 to the petitioner upon surrender or cancellation of the manager's check in the latter's possession.the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance. When the instrument is payable on demand.. respondents. it becomes imperative that the circumstances that caused its non-presentment be determined. It is similar to a cashier's check both as to effect and use.18 Respondents would make us hold that petitioner should return the car or its value and that the latter. 101163 January 11. petitioner. It is valueless and. however. should not be paid.000. and accepted in advance by the act of its issuance. concur. J. Dr. No. 1995. Pardo. Jr.30 The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. premises considered. whereas the funds have long been paid by appellants to secure said Manager's Check over which appellants have no control.We. petitioner is to return the subject motor vehicle in good working condition. In the meeting of August 29.32 Failure to present on time. Rudimentary sense of justice and fair play would not countenance respondents' position. Gueco refused to sign the joint motion to dismiss. Under the negotiable instruments law.nêt WHEREFORE. to return immediately the subject car to the appellants in good working condition.000.: 141 .31 Even assuming that presentment is needed.. Appellee may deposit the Manager's Check . Gueco anytime. thus. an instrument not payable on demand must be presented for payment on the day it falls due. in a letter addressed to Ms. G. the petition for review is given due course. respondent Dr. petitioner was negligent in opting not to deposit or use said check. the original obligation to pay certainly has not been erased. the Gueco spouses have not alleged. Gueco delivered a manager's check representing the reduced amount of P150. Escober. A stale check is one which has not been presented for payment within a reasonable time after its issue. In a case. afterwhich. since Dr. the usage of trade or business with respect to such instruments. because of its own negligence.21 A check must be presented for payment within a reasonable time after its issue. It has been held that. In fact. which was affirmed in toto by the Court of Appeals. even a delay of one (1) week27 or two (2) days. A manager's check is one drawn by the bank's manager upon the bank itself. dated September 4. presentment must be made within a reasonable time after its issue. much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment.24 This is because the nature and theory behind the use of a check points to its immediate use and payability.1âwphi1. and the facts of the particular case. In effect. Rivera.22 and in determining what is a "reasonable time. COURT OF APPEALS and NORA B. Martin D. 1995. Alon & Associates for petitioner. the check involved is not an ordinary bill of exchange but a manager's check.25 Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. he was made to execute a statement to the effect that he was withholding the payment of the check. In the case of a bill of exchange. find for the petitioner with respect to the third assigned error. MOULIC. therefore. it is a bill of exchange drawn by the cashier of a bank upon the bank itself. the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. 1993 STATE INVESTMENT HOUSE. presentment is sufficient if made within a reasonable time after the last negotiation thereof. The mere issuance of it is considered an acceptance thereof. Desi Tomas. orders the petitioner: 1. Gueco instructed the bank to disregard the 'hold order" letter and demanded the immediate release of his car. BELLOSILLO. In the case at bar. INC. However. Puno. Pantaleon for private respondents. Definitely.28 under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. The decision of the Regional Trial Court.R. there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss.19 It is their position that delivery of the manager's check produced the effect of payment 20 and.

ceased to serve their purpose as security for the jewelry. On 20 December 1979.000. it holds the instruments free from any defect of title of prior parties. 119 does not specify what these acts are. In her Answer. Art. Indubitably. 119 of the Negotiable Instruments Law: Sec. What constitutes a holder in due course. a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. 1 In this regard. who later assumed full responsibility for the checks. the payee. Private respondent Nora B. therefore. Corazon Victoriano.00 for attorney's fees. Consequently. 52. MOULIC withdrew her funds from the drawee bank. 30 September 1979. e. 119. The checks. Moulic issued to Corazon Victoriano. 6 or writing the word "cancelled" on the instrument. are the issues in this Petition for Review of the Decision of respondent Court of Appeals. before their due dates. where the instrument is made or accepted for his accommodation. The negotiability of the checks is not in dispute. (c) That he took it in good faith and for value. Sec. how discharged. and from defenses available to prior parties among themselves. Inc. That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these checks from the payee. In this regard. On 6 October 1983. The act of destroying the instrument must also be made by the holder of the instrument intentionally. She also instituted a Third-Party Complaint against Corazon Victoriano. if such was the fact. MOULIC can only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course. the checks were dishonored for insufficiency of funds. We are not persuaded. two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50. although MOULIC avers that no such notice was given her.The liability to a holder in due course of the drawer of checks issued to another merely as security. As such. and. (b) By payment in due course by the party accommodated. Consequently. at the pre-trial. MOULIC failed. 5 burning it. 142 . but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have been presented for payment. Again. was no longer MOULIC's creditor at the time the jewelry was returned. the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. one dated 30 August 1979 and the other. Since MOULIC failed to get back possession of the post-dated checks. 52 of the Negotiable Instruments Law provides — Sec.. But. therefore. and ordered STATE to pay MOULIC P3. 2 Consequently. (b) That he became the holder of it before it was overdue. — A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor. Upon presentment for payment. Instrument. On 26 May 1988. 4 MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. so she returned them to the payee before maturity of the checks. before their maturity dates. the parties agreed to limit the issue to whether or not STATE was a holder of the checks in due course. the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up. and without notice that it was previously dishonored. In the present action. On the other hand. (d) By any other act which will discharge a simple contract for the payment of money. STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation. MOULIC failed to sell the pieces of jewelry. Corazon Victoriano. For the only grounds are those outlined in Sec. enforce full payment of the checks. STATE elevated the order of dismissal to the Court of Appeals. and the right of a real estate mortgagee after extrajudicial foreclosure to recover the balance of the obligation. The sale of the jewelry was never effected. however. — A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face. could no longer be retrieved as they had already been negotiated. 1231 of the Civil Code 7 which enumerates the modes of extinguishing obligations.g. they were negotiable.00) each. the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Sec. MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. (STATE). (c) By the intentional cancellation thereof by the holder. Obviously. STATE may. MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. the payee negotiated the checks to petitioner State Investment House. the trial court dismissed the Complaint as well as the Third-Party Complaint. (d) petitioner was never informed nor made aware that these checks were merely issued to payee as security and not for value. Thereafter. STATE is indeed a holder in due course. 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. Culled from the foregoing.000. as security for pieces of jewelry to be sold on commission. (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. the intentional cancellation of the said checks is altogether impossible. (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. albeit at a discounted price. 3 (c) petitioner took these checks in good faith and for value. none of the modes outlined therein is applicable in the instant case as Sec. the checks. STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead. After all.

. she was responsible for the dishonor of her checks. while Act 3135. INC. the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. upon proper proceedings taken. the Negotiable Instruments Law was enacted for the purpose of facilitating. prohibiting recovery. WHEREFORE. STATE could not expect payment as MOULIC left no funds with the drawee bank to meet her obligation on the checks. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. liable to STATE. when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation. She did not retrieve the checks when she returned the jewelry. P3. or a thing sold on installment basis. Romelito Caoili. Cruz and Griño-Aquino. does not discuss the mortgagee's right to recover such deficiency. it so expressly provides. there was no need to serve her Notice of Dishonor. 8 In addition. the fact that a specified instrument. When notice need not be given to drawer. as amended. In fine. with respect to pledges. Likewise. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course. testified that the obligation of Corazon Victoriano and her husband at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1. the bid price at public auction was only P1 million. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. as amended. for the value of EBC Checks Nos. This is error. it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage. For instance. 16 It is clear then that in the absence of a similar provision in Act No. Costs against private respondent. 12 Thus.. without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been declared as in default. Thus.00. not hindering or hampering transactions in commercial paper. in the event of foreclosure. without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants. expressly or impliedly. SO ORDERED.Correspondingly. In other words. respectively. The decision appealed from is REVERSED and a new one entered declaring private respondent NORA B. either verbally or by writing. After withdrawing her funds. The need for such notice is not absolute. hence. MOULIC'S actuations leave much to be desired. In the instant case. in the case of a chattel mortgage. Nora B. (e) Where the drawer had countermanded payment. STATE. Nor should it be brushed aside in order to meet the necessities in a single case. Under the facts of this case. 10 Consequently. Moulic. 30089658 and 30089660 in the total amount of P100. Inc. the mortgagee is entitled to claim the deficiency from the debtor. Padilla. and the costs of suit.. a holder in due course of the checks. and that the party notified is expected to pay it. as drawer. 143 .000. concur. (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. J. is liable for the value of the checks she issued to the holder in due course. the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. 9 The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. Indeed. (b) When the drawee is a fictitious person or a person not having capacity to contract. In this jurisdiction. The record shows that Mr. there are exceptions under Sec. — Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person. JJ. 13 The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for the whole debt. MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. MOULIC. 17 The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO spouses. an Account Assistant. the value of the property foreclosed was not even enough to pay the debt in full.00 as attorney's fees. such withdrawal renders the drawer. Any agreement to the contrary will be void". Art. took no part. is just another means of recovering the unpaid balance of the debt of the VICTORIANOs. Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage. the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. the petition is GRANTED.9 million. 114 of the Negotiable Instruments Law: Sec. 11 so that Notice of Dishonor would be futile. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. the said statute should not be tampered with haphazardly or lightly. The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE Investment House. 14 For. Moreover. 3135. has not been accepted or has not been paid. it does not contain any provision either. she could not have expected her checks to be honored.000. MOULIC liable to petitioner STATE INVESTMENT HOUSE. 2115 of the Civil Code 15 does not allow the creditor to recover the deficiency from the sale of the thing pledged. 114. which is simply bringing to the knowledge of the drawer or indorser of the instrument.

respondents. vs. petitioner. THE COURT OF APPEALS and STATE INVESTMENT HOUSE. NOCON. Teresita Gandiongco Oledan for petitioner.: 144 . INC. Acaban & Sabado for private respondent. No. J.R. INC. 93048 March 3. 1994 BATAAN CIGAR AND CIGARETTE FACTORY..G..

. Inc. The trial court pronounced SIHI as having a valid claim being a holder in due course. Inc.For our review is the decision of the Court of Appeals in the case entitled "State Investment House. 1978. v. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. the burden is on the holder to prove that he or some person under whom he claims.500 bales of tobacco leaves. In order to preserve the credit worthiness of checks. Petitioner. 4 During these times. Bataan Cigar & Cigarette Factory Inc." although Article 541 9 of the Code of Commerce refers to such instruments. payable sometime in September 1979. or if it is specially crossed. (hereinafter referred to as SIHI) for collection on three unpaid checks issued by Bataan Cigar & Cigarette Factory. In the Philippine business setting. (hereinafter referred to as BCCFI). he is not a holder in due course.100. It may be issued so that the presentment can be made only by a bank. 1979. It may be crossed generally or specially. BCCFI. a holder of crossed checks. drawn by petitioner in favor of George King. despite the supplier's failure to deliver in accordance with their earlier agreement. a corporation involved in the manufacturing of cigarettes. The main issue then is whether SIHI. drawn by petitioner. (BCCFI). thus: Sec. According to commentators.000. It may legally be negotiated from one person to another as long as the one who encashes the check with the drawee bank is another bank. Inc. The facts in this present case are on all fours to the case of State Investment House. the private respondent in this case. the more popular of which are the memorandum check. and so forth that banks have become quite guarded in encashing checks. Again petitioner issued post dated crossed checks in the total amount of P1. cashier's check. Intermediate Appellate Court 7 wherein we made a discourse on the effects of crossing of checks. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in this case. 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820. naming only BCCFI as party defendant.00. King Tim Pua George (herein after referred to as George King).00. A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. is a holder in due course. (the very respondent in this case) v. George King was simultaneously dealing with private respondent SIHI. Bataan Cigar & Cigarette Factory. 6 both in the amount of P100. post dated September 15 & 30. a check is defined by law as a bill of exchange drawn on a bank payable on demand. when it is shown that the title of any person who has negotiated the instrument was defective.00.000. to deliver 2. and without notice that it had been previously dishonored. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks. forging of checks. including check TCBT 551826. (c) That he took it in good faith and for value.000. Efforts of SIHI to collect from BCCFI having failed. stop payment was also ordered on checks TCBT Nos. otherwise. Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course.000 bales of tobacco leaf starting October 1978. respectively. Emanating from the records are the following facts. 1978. a bank will not even accept second indorsements on checks. whether specially or generally. the negotiability of a check is not affected by its being crossed. On July 19. he sold at a discount check TCBT 551826 5 bearing an amount of P164. Inc. post dated March 31. 10 This is specially true in England where the Negotiable Instrument Law originated. (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. 11 145 . since he. 52 — A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face.00. 608967 & 608968 on September 14 & 28. petitioner agreed to purchase additional 2. As preliminary. 8 There are a variety of checks. 1979. 1979 respectively. traveler's check and crossed check. Inc. The Negotiable Instruments Law states what constitutes a holder in due course. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. (b) That he became the holder of it before it was overdue. engaged one of its suppliers. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank.000. In consideration thereof. However. by the bank mentioned between the parallel lines. (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Subsequently. on July 13. acquired the title as holder in due course. we used to be beset with bouncing checks. BCCFI issued on March 30." 1 affirming the decision of the Regional Trial Court 2 in a complaint filed by the State Investment House. it instituted the present case. if such was the fact. (b) the check may be negotiated only once — to one who has an account with a bank. 1979. however. a second indorser. 1978. 608967 & 608968. BCCFI. Unless one is a valued client. particularly those which name a specific payee. The foregoing decisions unanimously ruled in favor of SIHI. 3 Relying on the supplier's representation that he would complete delivery within three months from December 5. is not an indispensable party. On December 19 and 26. to be able to collect from the drawer. he again sold to respondent checks TCBT Nos. due to George King's failure to deliver the tobacco leaves. as payee. naming George King as payee to SIHI. a stop payment order on all checks payable to George King. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand.

Basco. finding that the court a quo erred in the application of law. David B. in this case. Padilla. Agcaoili and Associates for petitioner.R. the holder is declared guilty of gross negligence amounting to legal absence of good faith. that respondent could not recover from the checks. Narvasa. considering that petitioner is not the proper party authorized to make presentment of the checks in question. Humberto B. SO ORDERED. C. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. JJ. Failing in this respect. 146 . supra.The foregoing was adopted in the case of SIHI v. and the liability did not attach to the drawer. 14 Hence. respondent can collect from the immediate indorser.. THE INTERMEDIATE APPELLATE COURT and EMME HERRERO. private respondent wife (Anita). 84281 May 27. which could only mean that the drawer had intended the same for deposit only by the rightful person. the instant petition is hereby GRANTED. 12 It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession. Consequently. respondents. collaborating counsel for private respondent.. Consequently. took no part. The decision of the Regional Trial Court as affirmed by the Court of Appeals is hereby REVERSED. BCCFI's defense in stopping payment is as good to SIHI as it is to George King. No. issued by Anita Peña Chua naming as payee New Sikatuna Wood Industries. xxx xxx xxx That the subject checks had been issued subject to the condition that private respondents (Anita and her husband) on due date would make the back up deposit for said checks but which condition apparently was not made. BCCFI cannot be obliged to pay the checks. 1994 CITYTRUST BANKING CORPORATION. Cost against private respondent. J. SIHI is not a holder in due course. however. Because. really. constitutes a good defense against petitioner who is not a holder in due course. Inc. in the absence of due presentment. the payee named therein. Regalado and Puno. there was no proper presentment. There being failure of consideration. 13 and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. In the present case. The foregoing does not mean. concur. vs. also sold at a discount to SIHI three post dated crossed checks. Apparently. Agoncillo for private respondent. the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. the drawer did not become liable. IAC. it was not the payee who presented the same for payment and therefore. 52(c) of the Negotiable Instruments Law. George King. In that case.J.. New Sikatuna Wood Industries. Inc. thus resulting in the nonconsummation of the loan intended to be granted by private respondents to New Sikatuna Wood Industries.. Ruling that SIHI was not a holder in due course. we then said: The three checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries. WHEREFORE. i. no right of recourse is available to petitioner (SIHI) against the drawer of the subject checks. Inc. Thus.e. G. Inc. contrary to Sec. petitioner.

it contained only seven (7) digits instead of eight (8). it rendered judgment. Amount 007383 — P1. viz: Check No. We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. obviously.716. After all. it contends. dismissed the complaint for lack of merit. Herrero. Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which are sufficiently funded. We are not persuaded that defendant bank was not free from blame for the fiasco.000. the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip which. For then she could have readily detected that the account number in the name of "Emma E.VITUG. but. particularly businessmen. The Regional Trial Court (Branch XXXIV) of Calamba. in its answer. plaintiff is hereby adjudged to pay the defendant reasonable attorney's fee in the amount of FIVE THOUSAND PESOS (P5. J. private respondent averred that she.e. on 27 February 1984. made the following findings and conclusions: 1 We cannot uphold the position of defendant. yet." The last check No. The appellate court ruled: WHEREFORE.: This case emanated from a complaint filed by private respondent Emme Herrero for damages against petitioner Citytrust Banking Corporation. the judgment appealed from is REVERSED and a new one entered thereby ordering defendant to pay plaintiff nominal damages of P2. on 15 July 1988. For.281. which. with costs against him. The counterclaim of defendant is dismissed for lack of merit. Herrero" was erroneous and would be rejected by the computer. in cash. and it is its duty to protect in return its many clients and depositors who transact business with it. "B").00 007387 — 2.00. and attorney's fees of P4. contained in its "brochures" governing current account deposits.00). like plaintiff.262.204. she deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31. and that the deposit was made in her name. 147 . all the checks were dishonored due to "insufficient funds. which found the appeal meritorious. private respondent has also the duty to use her account in accordance with the rules of petitioner bank to which she has contractually acceded. On 15 May 1980. could have been avoided at the first instance had the teller of defendant bank performed her duties efficiently and well. it is a fact that her name. it does not earn interest. in her deposit slip. and withdrawing therefrom. In the case before Us. In her complaint. Plaintiff's account is a "current account" which should immediately be posted. At least. This. indeed. In the first place. It averred that instead of stating her correct account number. the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. earning interest thereon. temperate and moderate damages of P5. if any. "B"). Herrero". efficient and satisfactory service.00 007492 — 6. The bank is engaged in business impressed with public interest. This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult to remember. starting September of 1979.00) plus cost of suit. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers.000. defendant's teller should not have fed her deposit slip to the computer knowing that her account number written thereon was wrong as it contained only seven (7) digits. "Emme E. "Emma E. 007400.299.00 When presented for encashment upon maturity. according to defendant. part of the training and standard operating procedure of the bank's employees. the forbearance should be commensurated with prompt. Hence. reversing the trial court's decision." In fact. was personally redeemed by private respondent in cash before it could be redeposited. in order to amply cover six (6) postdated checks she issued. asserted that it was due to private respondent's fault that her checks were dishonored. Exactly the same issue was addressed by the appellate court. i. as pointed out by defendant. . she inaccurately wrote 2900823.00 007387 — 4. Among such rules. made regular deposits. was erroneous because. who are supposed to be always "on-the-go". Laguna. Petitioner. or should be. kindly insure accuracy in filing said deposit slip forms as we hold ourselves free of any liability for loss due to an incorrect account number indicated in the deposit slip although the name of the depositor is correctly written.507.500. On the other hand. is clearly written on said deposit slip (Exh. Private respondent went to the Court of Appeals. plaintiff's deposit had to be consigned to the suspense accounts pending verification. the depositors are not concerned with banking procedure. thus: WHEREFORE. That is the responsibility of the bank and its employees. after its deliberations.00. Depositors are only concerned with the facility of depositing their money. however. especially a number with eight (8) digits as the account numbers of defendant's depositors. with petitioner Citytrust Banking Corporation at its Burgos branch in Calamba. Second. That is. Petitioner Citytrust Banking Corporation is now before us in this petition for review on certiorari. This is controlling in determining in whose account the deposit is made or should be posted. DISMISSING the complaint for lack of merit. As it happened.. is the following printed provision: In making a deposit . There could be no mistaking in her name. lending out money and collecting interests. It should not be a matter of the bank alone receiving deposits. . Laguna. a businesswoman.000. even if it be true that there was error on the part of the plaintiff in omitting a "zero" in her account number.00 007400 — 4.00.000.00 007384 — 1. judgment is hereby rendered in favor of the defendant and against the plaintiff. 29000823.

Quisumbing. THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION. Ali & Bello Law Offices for petitioner. prom. Intermediate Appellate Court. may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot. we similarly said.Bank clients are supposed to rely on the services extended by the bank. J. the appealed decision is MODIFIED by deleting the award of temperate or moderate damages. As proof thereof plaintiff alludes to five particular incidents where plaintiff admittedly wrongly indicated her account number in her deposit slips (Exhs. on the other hand. 2221. which has been violated or invaded by the defendant. KAPUNAN. CV No. temperate or moderate damages. "O" and "P"). along with nominal damages. 4-5. Feliciano. Far East Bank & Trust Co. Temperate or moderate damages. Manila Banking Corp. in cautioning depository banks on their fiduciary responsibility. For. The bank must record every single transaction accurately. No. Nov. Siguion Reyna. SO ORDERED. No costs in this instance. even in computerized systems of accounts. respondents. confident that the bank will deliver it as and to whomever he directs. quoting the court a quo in an almost identical set of facts. vs. 131 SCRA 271). Montecillo & Ongsiako for private respondent. 1994 RAMON TAN. . "L". that it is wrong to award. They add that failure on the part of the defendant to do so is negligence for which they are liable. that — Having accepted a deposit in the course of its business transactions. In Simex International (Manila). In the instant case. Yulo. Intermediate Appellate Court. Court of Appeals. To post a deposit in somebody else's name despite the name of the depositor clearly written on the deposit slip is indeed sheer negligence which could have easily been avoided if defendant bank exercised due diligence and circumspection in the acceptance and posting of plaintiff's deposit. be proved with reasonable certainty (Art. it behooved upon defendant bank to see to it and without recklessness — that the depositor was accurately credited therefor.R.: 148 . that — In every case. whether such account consists only of a few hundred pesos or of millions. and we accordingly agree with the Court of Appeals in granting to her nominal damages but not in similarly awarding temperate or moderate damages. 2. vs. AC-G. may be vindicated or recognized. We agree with petitioner. The point is that as a business affected with public interest and because of the nature of its functions. the appellate court's decision is AFFIRMED. which are more than nominal but less than compensatory damages. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit. always having in mind the fiduciary nature of their relationship. We agree with plaintiff that — . WHEREFORE. We have already ruled in Mundin v. In all other respects.R. concur. 183 SCRA 360. "N".. and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Art. G. 03639. JJ. Inc. such as the dishonor of a check without good reason. and as promptly as possible. ways and means are available whereby deposits with erroneous account numbers are properly credited depositor's correct account numbers.. from the nature of the case. Bidin. The two awards are incompatible and cannot be granted concurrently. Torres. New Civil Code. petitioner. reiterated in Bank of Philippine Islands vs. 2224. we also find need for vindicating the wrong done on private respondent. the depositor expects the bank to treat his account with utmost fidelity. the bank is under obligation to treat the accounts of its depositors with meticulous care. down to the last centavo. "J". however. 206 SCRA 408. 108555 December 20. but were nevertheless properly credited her deposit (pp. New Civil Code). We subscribe to the above disquisitions of the appellate court. . Nominal damages are given in order that a right of the plaintiff. including the assurance that their deposits will be duly credited them as soon as they are made. A blunder on the part of the bank. can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. vs. any delay in crediting their account can be embarrassing to them as in the case of plaintiff. Decision). Romero and Melo. 1985.

it is a matter of policy to prohibit the drawing against uncollected deposits (DAUDS) except when the drawings are made against uncollected deposits representing bank manager's/cashier's/treasurer's checks. is not included in the areas required to be cleared by the Central Bank.00 against petitioner's account since under Resolution No. 1990 ordering respondent bank Rizal Commercial Banking Corporation (RCBC). a trader-businessman and community leader in Puerto Princesa. March 16. 12 RCBC alleged that it complied strictly with accepted banking practice when it debited the amount of P30. On the same day." 1 The next day." thus he should bear the consequence. 31083. 17 The Assistant Branch Accountant of RCBC Binondo Branch testified that the first telephone number in the card had been deleted from the phone company's list and that when RCBC tried to contact petitioner's daughter Evelyn Tan-Banzon thru a certain telephone number and when they asked for Evelyn Tan. petitioner's balance before and after was Two Thousand Seven Hundred Ninety-Two Pesos and the (P2. RCBC added that petitioner had no bills purchase (BP) line which allows a depositor to receive or draw from proceeds of a check without waiting it to be cleared.This petition seeks to set aside the decision of the Court of Appeals dated January 12. put the blame for the "misrouting" on the petitioner for using the wrong check deposit slip. he secured a Cashier's Check No. 3 more than 30 days from petitioner's deposit date of the cashier's check.000. 9 Fifth.792. Check No. Puerto Princesa. to avoid carrying cash while enroute to Manila. 6 Second. L 406000126 from the Philippine Commercial Industrial Bank (PCIB). to protect its client's interest. a fact known to the banking world and surely to the respondent bank. had maintained since 1976 Current Account No. as it should. Besides. 040719 in the name of Go Lac for Five Thousand Five Hundred (P5. Binondo Branch. 5 During the trial. 1988.00) PESOS. member of Palawan Chamber of Commerce and Industry. 109058068 with respondent bank's Binondo branch. despite its debiting without delay the amount covered by the check from the account of the petitioner and hastily charging the latter service fees immediately after the return of the "missent checks". that the usual banking practice that local checks are cleared within three (3) working days and regional checks within seven (7) working days. On March 11. Respondent bank at this time had not informed the petitioner of its action which the latter claims he learned of only 42 days after. His community standing as a business-socio-civic leader was a source of pride for him in his old age of 70. 18 149 . 16 Finally.5000. 4 Petitioner. it dishonored the two (2) checks amounting to P11. RCBC maintained. alleging to have suffered humiliation and loss of face in the business sector due to the bounced checks. that it was RCBC's responsibility to call his attention there and then that he had erroneously filled the wrong deposit slip at the time he deposited the cashier's check with the respondent bank's teller and it was negligence on RCBC's part not to have done so. 10 and Finally. member of the Monitoring Team of the Palawan Integrated Area Development Project. twenty-two days after the day the cashier's check was deposited for insufficiency of funds.000. plaintiffappellee. Palawan.00) Pesos was presented on April 25. 13 Without crediting the P30. instead of a regional check deposit slip. when he received the bank's debit memo. RCBC disowning any negligence. and the fact that the cashier's check was accepted. had it forwarded the Cashier's Check to PCIB Puerto Princesa. that the source of the check. Check No. nine (9) days from his deposit date and again on April 26. that the bounced checks resulting from RCBC's "misclearing" had put in doubt his credibility among his business peers and sullied his reputation as a community leader which he had painstakingly cultivated for years. 14 Thus. 040718 in the name of MS Development Trading Corporation for Six Thousand Fifty-Three Pesos and Seventy Centavos (P6.00) Pesos. He deposited the check in his account with RCBC Binondo on March 15. 2101.00 deposit. that RCBC upon knowing of its error in "missending" the cashier's check to the Central Bank did not attempt to rectify its "misclearing" error by clearing it seasonably with PCIB. petitioner issued two (2) personal checks both dated March 18. that RCBC failed to inform petitioner promptly that the check had not been cleared. PCIB. 2 Relying on the common knowledge that a cashier's check was as good as cash. 1993 in CA-G. payable to his order. defendant-appellant. RCBC erroneously sent the same cashier's check for clearing to the Central Bank which was returned for having been "missent" or "misrouted.88) Eighty-Eight Centavos. thus it cannot be liable. they were told there was no such person.000. CV No. Puerto Princesa branch. postal money orders and duly funded "on us" checks which may be permitted at the discretion of each bank. treasury warrants. He cited being Chairman of Palawan Boy Scout Council.R. Rizal Commercial Banking Corporation. triggered the "misrouting" by RCBC of the cashier's check to the Central Bank and it was petitioner's negligent "misuse" of a local deposit slip which was the proximate cause of the "misrouting. 1979 of the Monetary Board. it would take at least twenty (20) working days for the cashier's check to be cleared and it would take the same length of time to clear the two (2) personal checks of Tan. Branch 47. that as an old client. reversing the decision of the Regional Trial Court dated December 28. thru its own RCBC Puerto Princesa Branch with whom it had direct radio contact. 15 RCBC further asseverated it was merely acting as petitioner's collecting agent and it assumed no responsibility beyond care in selecting correspondents under the theory that where a check is deposited with a collecting bank the relationship created is that of agency and not creditor-debtor. specifically on March 16. vs. that RCBC had been remiss in the performance of its obligation to the petitioner when it "missent" the cashier's check to the Central Bank knowing. Philippine Rifle Pistol Association and the Saturday Health Club to justify his claim for moral damages. member of Lion's Club. 2-term President of the Rotary Club of Puerto Princesa. The following are the uncontroverted facts: Petitioner Ramon Tan. 11 In its defense.035. 7 Third. 8 Fourth. with twelve (12) years of good standing then. RCBC debited the amount covered by the same cashier's check from the account of the petitioner. docketed as Civil Case No. It insisted that the misuse of a local check deposit slip. entitled Ramon Tan.000. petitioner sought to prove: First.70) was returned twice on March 24. to pay petitioner damages and attorney's fees in the amount of ONE MILLION THIRTY FIVE THOUSAND (P1. 2202 dated December 21.70 since they were drawn against insufficient funds. Puerto Princesa. Puerto Princesa Branch. respondent claimed that serious attempts were made to contact petitioner through the telephone numbers in the signature specimen card of petitioner but to no avail. in the amount of Thirty Thousand (P30. filed a complaint against RCBC for damages in the Regional Trial Court of Palawan and Puerto Princesa.553.053. RCBC should have given him more consideration by exerting greater diligence in clearing the check with PCIB.

Evelyn Tan also could not be contacted at the number supposed to pertain to her as appeared in the specimen signature card.00. 22 involving damages against City Trust Banking Corporation. it had been emphatically declared as a matter of policy that no drawings should be made against uncollected deposits except when the drawings are made against uncollected deposits representing bank manager's/cashier's/treasurer's checks.70 had to be dishonored since they were drawn against insufficient funds. He raises the following errors: 1.000. before issuing the two (2) checks. the depositor. Upon review.00 which is 15% of the sum herein awarded to plaintiff. instead of stating her correct account number 29000823 inaccurately wrote 2900823. The Court of Appeals. Because of this error.000. treasury warrants.000. In a most recent case decided by this Court. What the plaintiff should have done.035. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN FINDING THAT THE RESPONDENT BANK HAD NOT BEEN REMISS IN THE PERFORMANCE OF ITS OBLIGATIONS TO HEREIN PETITIONER. the plaintiff's account appeared to be only in the amount of P2. however.792. There was an instruction on the part of the plaintiff for the bank to contact his daughter. broken down as follows: P700.000. premises considered. that said telephone number was no longer active or was already deleted from the list of telephone numbers.00 as exemplary damages. the facts indicate that the refusal of RCBC to credit the amount of P30. 1990 in petitioner's favor. Evelyn Tan Banzon and according to the plaintiff. It is clear that immediate payment without awaiting clearance of a cashier's check is discretionary with the bank to whom the check is presented and such being the case. Binondo Branch. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR AND GRAVE ABUSE OF DISCRETION IN NOT AWARDING ATTORNEY'S FEES TO PETITIONER. temperate and moderate damages of P5. In the instant case. and upon all the foregoing.00 to the plaintiff's current account is consistent with the accepted banking practice. P135. as attorney's fees and to pay costs of suit. plaintiff having proven the allegations of his verified complaint by preponderance of evidence.98. was not contacted as per his instruction.00. The Regional Trial Court dismissed the complaint for lack of merit. The evidence indicated that the defendant bank thru its personnel had called him up thru telephone in the number (No. IT IS SO ORDERED. 2. the refusal to allow it as in this case is not to be equated with negligence in the basic perception that discretion is not demandable as a right. however.553. But the claim of the plaintiff that he was not advised that the Cashier's check was missent does not seem to be correct. plaintiff's claim for actual damage is denied for lack of merit. All in all.00 as moral damages. 2202 dated December 21.000.00. RCBC appealed to the Court of Appeals contending that the trial court erred in holding RCBC liable to petitioner on account of its alleged negligence and in awarding petitioner moral and exemplary damages and attorney's fees. 3.00 she issued were dishonored for insufficiency of funds. In other words while there was compliance with the instructions given by the plaintiff but said instructions were faulty. to pay him damages and attorney's fees in the total amount of P1. As the defendant bank had claimed. was to await the clearance of the Cashier's check and his failure to do so is a fault not ascribable to the defendant who appeared under the circumstance merely to have followed the usual banking practice. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR AND GRAVE ABUSE OF DISCRETION IN REVERSING THE AWARD OF MORAL AND EXEMPLARY DAMAGES TO THE PETITIONER. and duly funded "on-us" checks as may be permitted at the discretion of each bank. the court hereby renders judgment ordering defendant bank.000. So the two (2) checks issued by the plaintiff amounting to P11. 1979 of the Monetary Board.000.000. 60-45-23) which he gave in his specimen signature card. Mrs. postal money orders. But it came out. under Resolution No.00 Philippine Currency. indicated that Ms.The trial court rendered a decision on December 28. The plaintiff as a customer of the bank is under obligation to inform the defendant of any changes in the telephone numbers to be contacted in the event of any exigency.000. prior to the deposit of P30. The Court of Appeals on January 12. For having failed to prove by any receipt or writing to underpin it. 4.209. this Court quoted with favor the disquisition of the appellate court: 150 . Manila. six postdated checks amounting to P20. City Trust Corporation v. The evidence.00 and attorney's fees of P4. P200. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR IN CONCLUDING THAT THE NEGLIGENCE WAS ASCRIBABLE TO HEREIN PETITIONER. The Intermediate Appellate Court. found the appeal meritorious and ordered the bank to pay nominal damages of P2. she too. the decision of the court below is REVERSED and this complaint is DISMISSED without pronouncement as to cost. Petitioner now seeks to reverse the decision of the Court of Appeals and affirm that of the lower court. The Court of Appeals' decision is based on the following findings: 21 What appeared to have caused the unfortunate incident was that the plaintiff filled up the wrong deposit slip which led to the sending of the check to the Central Bank when the clearing should have been made elsewhere. the dispositive portion 19 of which reads: WHEREFORE. 1993 rendered a decision 20 with the following decretal portion: WHEREFORE.

Emma E. First. what was presented for deposit in the instant cases was not just an ordinary check but a cashier's check payable to the account of the depositor himself. There could be no mistaking in her name. A cashier's check by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents. For. earning interest thereon. indeed. An ordinary check is not a mere undertaking to pay an amount of money. we are not persuaded that defendant bank was not free from blame for the fiasco. their and the bank's sworn profession of diligence and meticulousness in giving irreproachable service. That is. in this instance. 27 By its very nature. like plaintiff. Any practice that destroys that confidence will impair the usefulness of the check as a currency substitute and create havoc in trade circles and the banking community. even if it be true that there was error on the part of the plaintiff in omitting a zero in her account number. As soon as their deposits are accepted by the bank teller. and it is its duty to protect in return its many clients and depositors who transact business with it. Bank clients are supposed to rely on the services extended by the bank. the depositors are not concerned with banking procedure. Plaintiff's account is a current account which should immediately be posted. if any. We draw attention to the fact that the two dishonored checks issued by petitioner. 040719 and Check No. the forbearance should be commensurated with prompt. 28 In this case. For then she could have readily detected that the account number in the name of Emma E. The point is that as a business affected with public interest and because of the nature of its functions.We cannot uphold the position of defendant. plaintiff's deposit had to be consigned to the suspense accounts pending verification. Second. We find this disturbing and unfortunate. and that the deposit was made in her name. according to defendant. Instead. the teller should not have accepted the local deposit slip with the cashier's check that on its face was clearly a regional check without calling the depositor's attention to the mistake at the very moment this was presented to her. to say the least. as pointed out by defendant. Neither should everyone else down the line who processed the same check for clearing have allowed the check to be sent to Central Bank. could have been avoided at the first instance had the teller of defendant bank performed her duties efficiently and well. As it happened. 26 Now. yet. as well as to itself. . A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere issuance. always having in mind the fiduciary nature of their relationship. or should be. RCBC promptly debited the amount of P30. efficient and satisfactory service. Depositors do not pretend to be past master of banking technicalities. it contained only seven (7) digits instead of eight (8). That is the responsibility of the bank and its employees. There is an element of certainty or assurance that it will be paid upon presentation that is why it is perceived as a convenient substitute for currency in commercial and financial transactions. Emma E. lending out money and collecting interests. Such posture is disingenuous. therefore. any delay in crediting their account can be embarrassing to them as in the case of plaintiff. At least. where the conclusion is inevitable that respondent RCBC had been remiss in the performance of its duty and obligation to its client. PCIB by issuing the check created an unconditional credit in favor of any collecting bank. it does not earn interest. and withdrawing therefrom. Herrero. We do not subscribe to RCBC's assertion that petitioner's use of the wrong deposit slip was the proximate cause of the clearing fiasco and so. In the light of the above-cited case. This is controlling in determining in whose account the deposit is made or should be posted. 040718 were presented for payment 24 more than 45 days from the day the cashier's check was deposited. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers. Check No. For. its refusal to immediately pay the cashier's check in this case is not to be equated with negligence on its part. This gave RCBC more than ample time to have cleared the cashier's check had it corrected its "missending" the same upon return from Central Bank using the correct slip this time so it can be cleared properly. On the other hand. particularly businessmen. integrity and honor behind the check. that RCBC inquired about an Evelyn Tan but no Evelyn Tan-Banzon as specifically instructed in the same signature card. 151 . the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip which.000. as correctly observed by respondent Appellate Court. is clearly written on said deposit slip (Exh. including the assurance that their deposits will be duly credited them as soon as they are made. . petitioner must bear the consequence. who are supposed to be always on-the-go. (Emphasis supplied) 25 RCBC insists that immediate payment without awaiting clearance of a cashier's check is discretionary with the bank to whom the check is presented and such being the case. We observe. This. In the instant case. was erroneous because.00 against petitioner's account and left it at that. B). We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. v. much more of clearing procedures. So it is in the instance case. bank transactions pass through a succession of bank personnel whose duty is to check and countercheck transactions for possible errors. likewise. (Emphasis supplied). The bank is engaged in business impressed with public interests. defendant's teller should not have fed her deposit slip to the computer knowing that her account number written thereon was wrong as it contained only seven (7) digits. After all. The basis of the perception being confidence. This is so because it is not likely to commit an error in one's name that merely relying on numbers which are difficult to remember. the officials and employees tasked to do that did not perform their duties with due care. it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Second. part of the training and standard operating procedure of the bank's employees. In Pilipinas Bank. obviously. 23 this Court said: The bank is not expected to be infallible but. It should not be a matter of the bank alone receiving deposits. especially a number with eight (8) digits as the account numbers of defendant's depositors. the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. . it is a fact that her name. In the case before Us. the respondent bank cannot exculpate itself from liability by claiming that its depositor "impliedly instructed" the bank to clear his check with the Central Bank by filling a local check deposit slip. they wholly repose trust in the bank personnel's mastery of banking. CA. Depositors are only concerned with the facility of depositing their money. Apparently. In the first place. In fact. B). the bank is under obligation to treat the accounts of its depositors with meticulous care. committing in effect its total resources. a cashier's check is the bank's order to pay drawn upon itself. Herrero. Herrero was erroneous and would be rejected by the computer. why would RCBC follow a patently erroneous act born of ignorance or inattention or both.

Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with modification the decision of the trial court.00 as moral damages excessive and. REYES & AMANDA SANTOS. for which he is entitled to recover. respondents. JJ. temperate.00) pesos. Jr. Padilla.U. Binondo Branch. 29 we held: While petitioner was not in bad faith.000. the instant case is not among those enumerated. VALENCIA and CO. which denied petitioner's motion for reconsideration of the above decision. In American Express International. and 2) the Resolution dated 22 April 1992 of the same court. We see no reason thus why this so-called discretion was not exercised in favor of petitioner. RCBC argues. 2220. it is imperative that the party acted in bad faith or fraudulently as provided for in Art. and DELFIN JAO. SO ORDERED. INC. serious anxiety. 2220 of the Civil Code. No.. For an award of moral damages in a breach of contract.00) pesos as attorney's fees. Bellosillo and Quiason. RCBC contends that moral damages cannot be recovered in an action for breach of contract since under Article 2219 of the New Civil Code.000. in addition to the moral. FELIX PEÑARROYO. to pay petitioner the amount of one hundred thousand (P100. 152 . 105188 January 23. liquidated or compensatory damages.. It is only intended to alleviate the moral suffering he has undergone. In Zenith Insurance Corporation v. CA. In the absence of moral damages. Davide. embarrassment and humiliation. vs. accordingly. 30 we also said that moral damages are not meant to enrich a complainant at the expense of defendant.000. tradition. On the third and fourth issue. and principle. as it is rooted in practice. KAPUNAN. plus costs. In the instant case.000.All these considered. Willful injury to property may be a legal ground for awarding moral damages if the court should find that. to wit: Art. reduce it to one hundred thousand (P100. PAPA. we find the award of P700.00 unjustified in the absence of malice. 31 The award of reasonable attorney's fees is proper for the petitioner was compelled to litigate to protect his interest. Inc. ARSENIO B. 32 IN VIEW WHEREOF. RCBC could surely rely on the solvency of PCIB when the latter issued its cashier's check. 2225 of the same Code which states: Exemplary damages or corrective damages are imposed. G. we REVERSE the decision of respondent Court of Appeals and hereby order private respondent RCBC. IAC. SPS. exemplary damages cannot be awarded under Art. concur. petitioner's reliance on the layman's perception that a cashier's check is as good as cash is not entirely misplaced. 2217.. petitioner. We find the award of exemplary damages of P200. 1998 MYRON C. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. J. specially since PCIB and RCBC are members of the same clearing house group relying on each other's solvency. Butte. such damages are justly due.R.000. v. bad faith or gross negligence. petitioner Myron C. We hold that petitioner has the right to recover moral damages even if the bank's negligence may not have been attended with malice and bad faith. Civil Code). under the circumstances. reasonable moral damages (Art. A. by way of example or correction for the public good.00) pesos as moral damages and the sum of fifty thousand (P50. Administrator of the Testate Estate of Angela M. its negligence caused the private respondent to suffer mental anguish.: In this petition for review on certiorari under Rule 45 of the Rules of Court.

000. Angela M. Upon his motion.00.000. that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said Angela M. 28993 of the Register of Deeds of Quezon City. and. on 12 April 1977. free from any liens and encumbrances. and that they were willing to add a reasonable amount or a minimum of P55. respondent Jao alleged that the subject lot which had been sold to respondent Peñarroyo through respondent Valencia was in turn sold to him on 20 August 1973 for the sum of P71.. Inc. 1980.U.000. He. Jr. to turn over to the latter the sum of P72. since the subject property was still registered in the name of the late Angela M. He averred.-6118/T-28993. to pay respondents the sum of P20.000. therefore. located at corner Retiro and Cadiz Streets. a parcel of land. Butte. only respondent Peñarroyo testified. Quezon City. A-17910 before the Probate Court in Quezon City. Respondent Jao.00 from the tenants of the property. Butte. Butte. Butte passed away. had been mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank). for a measly sum of P14. Butte was the owner of the subject property.E. respondents Valencia and Peñarroyo filed a complaint for specific performance.00 as attorney's fees.60 square meters. as administrator of the Testate Estate of Angela M. that respondents Valencia and Peñarroyo had sued petitioner Papa as administrator of the estate of Angela M. claimed that he could not recall in detail the transaction which allegedly occurred in 1973. the payment of attorney's fees and costs. he suffered mental anguish and serious anxiety for which he sought payment of moral damages.00 plus legal interest of 12% thereon from January 21. praying that petitioner be ordered to deliver to respondent Peñarroyo the title to the subject property (TCT 28993). and that. that he did not have TCT No. On 29 June 1987. and. La Loma. the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering the property in question and to turn over to him the rentals which aforesaid respondents sought to collect from petitioner Myron V. Butte were also redeemed. filed with the Regional Trial Court of Pasig.00.00. (hereinafter referred to as respondent Valencia. Thereupon. a complaint for specific performance against herein petitioner Myron C. that respondents Valencia and Peñarroyo discovered that the mortgage rights of the bank had been assigned to one Tomas L. as special administrator of the Estate of Ramon Papa. that since then.00. that after the alleged sale. restoring the subject property to him upon payment by him to said respondent Reyes spouses of the amount of P14. The complaint alleged that on 15 June 1973. that the same aforenamed respondents had acknowledged that the price paid by them was insufficient. for short). likewise. and to pay the costs of the suit. consisting of 286.000. if as alleged in the complaint. petitioner Myron C. that despite repeated demands from said respondents. sometime in April 1977. together with several other parcels of land likewise owned by Angela M. the bank refused to release it unless and until all the mortgaged properties of the late Angela M. the said property. Petitioner. the dispositive portion of which reads: WHEREUPON. Butte. for brevity) and Felix Peñarroyo (hereinafter called respondent Peñarroyo).000.00 as accrued rentals as of April 1982. petitioner.000.000. 1973. Jr. inscribed on 18 January 1997. likewise. that the case amounted to a claim against the Estate of Angela M. Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to redeem the property. Should this not be possible. Branch 151. In his Answer. Parpana (now deceased). the property had been assigned to Tomas L. he was compelled to hire the services of counsel for a fee of P20. petitioner refused and failed to deliver the title to the property.000. plus legal interest. Valencia and Co. that it was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth P143. Making common cause with respondents Valencia and Peñarroyo. petitioner asseverated that as a result of the filing of the case. for any reason not attributable to defendant. Petitioner prayed that judgment be rendered canceling the tax sale to respondent Reyes spouses. spouses Arsenio B. Finally. that due to non-payment of real estate tax said property was sold at public auction the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of P14.500. respondent Peñarroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. among other's that the late Angela M.. acting as attorney-in-fact of Angela M. as special administrator of the Estate of Ramon Papa. additionally.00. 153 . that the real property in interest was the Testate Estate of Angela M. For his part. averred that as a result of petitioner's refusal to deliver the title to the property to respondents Valencia and Peñarroyo. for the delivery of the title to the property. said estate should be impleaded. Butte. Parpana.00 plus legal interest of 12% from June 15. said defendant is ordered to pay to plaintiff Felix Peñarroyo the sum of P45. filed a third-party complaint against herein private respondents. but before the title to the subject property had been released. the trial court rendered a decision. P. ordering respondents Valencia and Peñarroyo to pay him at least P55.00 plus everything they might have to pay the Reyes spouses in recovering the property. herein petitioner had been collecting monthly rentals in the amount of P800.000.The antecedent facts of this case are as follows: Sometime in June 1982. Papa. and covered by Transfer Certificate of Title No.000. by paying the sum of P14. The complaint further alleged that it was only upon the release of the title to the property. considering that the same was estimated to be worth P143. upon his paying earnest money in the amount of P5. Butte. At the trial.00 until the property is delivered to respondent Peñarroyo. sold to respondent Peñarroyo.00 for which respondents should be held liable. Butte. however.000.000.00. that prior to the alleged sale. Papa. that in order to protect his rights and interests over the property. All the other parties only submitted documentary proof. herein private respondent Delfin Jao was allowed to intervene in the case. 28993 in his possession. and the monthly rental of P800. 2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Peñarroyo covering the property in question and to deliver peaceful possession and enjoyment of the said property to the said plaintiff. prayed that judgment be rendered in favor of respondents.. that petitioner was willing to reimburse respondents Reyes spouses whatever amount they might have paid for taxes and other charges. Papa. who in turn failed to deliver the said title to him. that the one-year period of redemption had expired. Reyes and Amanda Santos (respondent Reyes spouses. petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now Associated Citizens Bank). herein private respondents A. knowing that said property had already been sold to private respondents on 15 June 1973. that the complaint did not state a cause of action. in his capacity as administrator of the Testate Estate of one Angela M.00. which should have been joined as a party defendant. Butte. Butte and should have been filed in Special Proceedings No.00 to the price upon delivery of the property. He contended. through respondent Valencia. judgment is hereby rendered as follows: 1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the former to redeem the property in question. that despite representations made by herein respondents to the bank to release the title to the property sold to respondent Peñarroyo.

He avers that there must be a showing that said check had been encashed. 5 Respondent court observed that the conditions under which the mortgage rights of the bank were assigned are not clear. AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE. 7 Petitioner insists that he never cashed said check. Jr. respondent court held that contrary to petitioner's claim that he did not encash the aforesaid check. However. Section 3 of the Rules of Court. ARE INDISPENSABLE PARTIES IN THIS CASE. 1973. any obligation which the estate of Angela M. 761025 duly stamped received by the payee. and. In any case. Papa. On the other hand. respondent Peñarroyo testified in court that petitioner Papa had received the amount of P45. but in his capacity as the administrator of the Testate Estate of Angela M. Butte. On 27 January 1992. the second paragraph of the dispositive portion of the appealed decision is MODIFIED. which provides. according to petitioner. Likewise. According to respondent court. JR. 28993 of Angela M. 1249 of the Civil Code. For the fact is that Ramon Papa. or at least its microfilm copy. Butte should have been joined in the action as the real party in interest. was not a party to the Deed of Absolute Sale. such being the case. BUTTE AND THE ESTATE OF RAMON PAPA. likewise." 3 On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of the owner. Petitioner. the estate of Ramon Papa.000. the consideration for the sale was still in the hands of respondents Valencia and Peñarroyo. Butte. this petition wherein petitioner raises the following issues: I. in his Answer.00) had been cashed. appealed the above decision. or his estate. and it is basic law that contracts bind only those who are parties thereto.00) given by respondents Valencia and Peñarroyo in payment of the full purchase price of the subject lot. Costs against defendant-appellant Myron C. if the owner's duplicate certificate cannot be produced.500. respondent court held that pursuant to Rule 3. is strictly between them. Jr. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE. plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of P5. there was no evidence at all that petitioner did not. Petitioner finally avers that. 2 In affirming the trial court's decision. Butte and the peaceful possession and enjoyment of the lot in question or. 761025 in the amount of P40. JR. 6 Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the subject property had been consummated. its delivery never produced the effect of payment. Section 7 of the same Rules. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. especially since the payment by check was not denied by defendant-appellant (herein petitioner) who. the decision appealed from is AFFIRMED. 4 On petitioner's contention that the estate of Angela M. SO ORDERED. CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA.00. He maintained that what said respondent had actually paid was only the amount of P5. do not prove payment. by ordering the defendantappellant to deliver to plaintiff-appellees the owner's duplicate of TCT No. while admitting that he had issued receipts for the payments. the check had been encashed. Jr. citing Art. III.00 and issued receipts therefor. alleging among others that the sale was never "consummated" as he did not encash the check (in the amount of P40. ERRED BECAUSE IT.000. Respondent Reyes spouses. and therefore. in part. II. the Court of Appeals rendered a decision. If. IN MODIFYING THE DECISION OF THE TRIAL COURT. affirming with modification the trial court's decision. to authorize the Register of Deeds to cancel it and issue a certificate of title in the name of Felix Peñarroyo.000. in part: 154 . respondent Peñarroyo should have presented PCIB Check No. SO ORDERED. He contends that such a conclusion is based on the erroneous presumption that the check (in the amount of P40. their appeal was dismissed because of failure to file their appellant's brief. Petitioner filed a motion for reconsideration of the above decision. Angela M. Respondents Valencia and Peñarroyo are not bound by any such obligation. 1 Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals. is not an indispensable party under Rule 3. respondent court held that such contention is without merit. Should this not be possible. Hence.000. encash said check.00. In all other respects.. the sale was not consummated. that payment by checks shall produce the effect of payment only when they have been cashed or when through the fault of the creditor they have been impaired. Butte does not have to be joined in the action.000.000.00 plus legal interest of 12% from August 23. which motion was denied by respondent Court of Appeals. IN EFFECT. the estate of Angela M. the presumption is that the check was encashed. and 4) Ordering defendant to pay plaintiffs the amount of P5. Butte might have to the estate of Ramon Papa.000. asserts that said receipts. in fact. thus: WHEREFORE.00 (in cash) as earnest money..00 for and as attorney's fees and litigation expenses.3) Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed of absolute sale over the same property. in fact. THE COURT OF APPEALS. as evidenced by a letter addressed to him in which said respondents wrote. WHICH IS NOT A PARTY IN THIS CASE. upon the latter's payment to the former of the balance of the purchase price of P71. merely alleged that he "can no longer recall the transaction which is supposed to have happened 10 years ago. particularly the receipt of PCIB Check No. This action was not brought against him in his personal capacity.

13 Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price. Whatever prior and subsisting mortgage rights the estate of Ramon Papa. Finally. Indeed. may have to enforce whatever rights or liens it has on the property by reason of its being an alleged assignee of the bank's rights of mortgage. pursuant to Art. Jr. has over the property may still be enforced regardless of the change in ownership thereof. The money is with me and if it is alright with you. JJ. said respondents. or a party authorized by statute. a guardian. and if he from whom it is received sustains loss by want of such diligence. Ramon Papa. 9 and having issued receipts therefor. Please be informed that I had been authorized by Dr. Jr." After more than ten (10) years from the payment in party by cash and in part by check. . the petition for review is hereby DENIED and the Decision of the Court of Appeals. With regard to the alleged assignment of mortgage rights. While it is true that the delivery of a check produces the effect of payment only when it is cashed. Jr. the instrument is impaired. payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed. the drawer cannot be held liable irrespective of loss or injury 12 unless presentment is otherwise excused. I would like to tender the payment as soon as possible. 14 This much is admitted by petitioner himself in his answer to respondent's complaint as well as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Granting that petitioner had never encashed the check. Davide. therefore. the presumption is that the check had been encashed. Bellosillo and Vitug. What is certain is that despite the said assignment of mortgage rights. the estate may file the appropriate action to enforce such lien.000. likewise. the title to the subject property has remained in the name of the late Angela M. 28993 of Angela M. order such beneficiary to be made a party. it will be held to operate as actual payment of the debt or obligation for which it was given. his failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. 16 Neither is the estate of Ramon Papa. The payee of a check would be a creditor under this provision and if its no-payment is caused by his negligence. As already stated. — A trustee of an express trust. .. Jr.000. dated 27 January 1992 is AFFIRMED. may sue or be sued without joining the party for whose benefit the action is presented or defended. 10 Petitioner's assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that "he can no longer recall the transaction which is supposed to have happened 10 years ago. a perusal of the original records of the case would show that there is nothing there that could shed light on the transactions leading to the said assignment of rights. an executor or administrator may sue or be sued without joining the party for whose benefit the action is presented or defended.00 for the release and cancellation of subject property's mortgage. had the right to compel petitioner to deliver to them the owner's duplicate of TCT No. WHEREFORE. 3. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal. Jr. 11 It has. he even waived the presentation of oral evidence. The cause of action for specific performance which respondents Valencia and Peñarroyo have against petitioner is different from the cause of action which the estate of Ramon Papa. 8 We find no merit in petitioner's arguments. Papa the amounts of Five Thousand Pesos (P5. concur 155 . Angela M.. in payment of the purchase price of the subject lot. the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of Court. . heir of Mrs. respondent Court of Appeals has found that the conditions under which said mortgage rights of the bank were assigned are not clear. been held that if no presentment is made at all. Reyes and Amanda Santos. no final determination of the action can be had. Jr. 15 Assuming arquendo that the mortgage rights of the Associated Citizens Bank had been assigned to the estate of Ramon Papa. The acceptance of a check implies an undertaking of due diligence in presenting it for payment. . 1249 of the Civil Code. an indispensable party without whom. Petitioner himself admits having received said amounts. the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. Butte. SO ORDERED. and granting that the assigned mortgage rights validly exists and constitute a lien on the property.00) in cash on 24 May 1973. nor is there any evidence on record of the conditions under which said mortgage rights were assigned..000. Butte to pay you the aforementioned amount of P75. executor or administrator. except when through the fault of the creditor.00) in check on 15 June 1973. Butte and the peaceful possession and enjoyment of the lot in question. Representative parties. thus: Sec... . and Forty Thousand Pesos (P40. It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C. but the court may. at any stage of the proceedings.

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