1.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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 defendants-appellees.

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 co-appellee, Postmaster Enrico Palomar, notified the Bank of
America that money order No. 124688 attached to his letter had been found to have been irregularly
issued and that, in view thereof, the amount it represented had been deducted from the bank's clearing
account. For its part, on August 2 of the same year, the Bank of America debited appellant's account
with the same amount and gave it advice thereof by means of a debit memo.
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-% 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-% per annum from
September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.

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.

The Lawphil Project - Arellano Law Foundation

2.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein
by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court,
appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant
the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of
Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger,
that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute
and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired
replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit
of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were
issued in favor of said depositor (Defendant's Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others,
that he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and
after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the
said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the
same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of
the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of
Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's
Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of
the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on
August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be
ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued
interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as
attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

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

The instant petition is bereft of merit.

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

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

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

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY,
SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the
rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important
to note that after the word "BEARER" stamped on the space provided supposedly for the name of the
depositor, the words "has deposited" a certain amount follows. The document further provides that the
amount deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be
the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further
engages itself to pay said depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

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

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

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

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone
of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco,
Security Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to
in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in
these certificates states that it was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the
amount.

Atty. Calida:

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

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the
bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing may
be read in the light of surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of
the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide
that the amounts deposited shall be repayable to the depositor. And who, according to the document, is
the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and
that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the
CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import
of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law
and calls for the application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz,
as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to
deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex
Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela
Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and representations to
the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has,
by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager
could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides,
when respondent bank, as defendant in the court below, moved for a bill of particularity
therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with sufficient
definiteness or particularity (a) the due date or dates 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. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that
the CTDs were delivered as payment and not as security. Having opposed the motion, petitioner now
labors under the presumption that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless
of what language was used or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as
a pledge if the debt continues in inexistence and is not discharged by the transfer, and that accordingly
the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.
Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard
the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a
holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of
such security, in the event of non-payment of the principal obligation, must be contractually provided
for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral security,
he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by
the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal
rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and
the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective
against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank
was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless
it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of
its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments and
the issuance of replacement certificates therefor, on the ground that petitioner failed to raised that
issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. 29The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs
and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each
other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are
properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still
cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying
down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal
that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be
not paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate
be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part
of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of
a duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not
mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary
verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce,
on which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that
he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon
who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly,
none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

Footnotes

1 Per Justice Segundino G. Chua, with the concurrence of Justices Santiago M. Kapunan and Luis L.
Victor.

2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.

3 Rollo, 24-26.

4 Ibid., 12.

5 Exhibit A, Documentary Evidence for the Plaintiff, 8.

6 Rollo, 28.

7 TSN, February 9, 1987, 46-47.

8 Ibid., id., 152-153.

9 11 Am. Jur. 2d, Bills and Notes, 79.

10 Ibid., 86.

11 Ibid., 87-88.

12 Art. 1377, Civil Code.

13 Exhibit 563, Documentary Evidence for the Defendant, 442; Original Record, 211.

14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA 500 (1989).

15 Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680 (1990).

16 Section 2(a), Rule 131, Rules of Court.

17 Original Record, 152.

18 Ibid., 154.

19 Section 3(e), Rule 131, Rules of Court.

20 174 SCRA 295 (1989), jointly decided with Overseas Bank of Manila vs. Court of Appeals, et al., G.R.
No. 60907.

21 Sec. 30, Act No. 2031.

22 Sec. 191, id.

23 Sec. 27, id.; see also Art. 2118, Civil Code.

24 Commentaries and Jurisprudence on the Philippine Commercial Laws, T.C. Martin, 1985 Rev. Ed., Vol.
I, 134; Art. 18, Civil Code; Sec. 196, Act No. 2031.

25 Rollo, 25.

26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil. 596 (1916); Ocejo, Perez & Co.
vs. The International Banking Corporation, 37 Phil. 631 (1918); Te Pate vs. Ingersoll, 43 Phil. 394 (1922).

27 Rollo, 25.

28 Ibid., 15.

29 Joint Partial Stipulation of Facts and Statement of Issues, dated November 27, 1984; Original Record,
209.

30 Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).

31 Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of Appeals, et al., 102 SCRA 597 (1981);
Matienzo vs. Servidad, 107 SCRA 276 (1981); Aguinaldo Industries Corporation, etc. vs. Commissioner of
Internal Revenue, et al., 112 SCRA 136 (1982); Dulos Realty & Development Corporation vs. Court of
Appeals, et al., 157 SCRA 425 (1988).

32 Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989).

33 Rollo, 58.

34 U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113 SCRA 794 (1982).

35 Luna vs. Abaya, 86 Phil. 472 (1950).

36 Philippine Law Dictionary, F.B. Moreno, Third Edition, 590.

37 Rollo, 59.

2. DIGESTED

212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General
Bearer Instrument Certificate of Time Deposit
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust
Company for the formers deposit with the said bank amounting to P1,120,000.00. The said CTDs are
couched in the following manner:

This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos, Philippine
Currency, repayable to said depositor _____ days. after date, upon presentation and surrender of this
certificate, with interest at the rate of ___ % per cent per annum.

Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex.

In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an affidavit of
loss and submitted it to the bank. The bank then issued another set of CTDs. In the same month, Angel
de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.

In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered
by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex the CTDs as
security for purchases he made with the latter. Security Bank refused to accept the CTDs and instead
required Caltex to present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.

In April 1983, de la Cruz loan with Security bank matured and no payment was made by de la Cruz.
Security Bank eventually set-off the time deposit to pay off the loan.

Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs
are not negotiable instruments even though the word bearer is written on their face because the
word bearer contained therein refer to depositor and only the depositor can encash the CTDs and no
one else.

ISSUE: Whether or not the certificates of time deposit are negotiable.

HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication that the
depositor is the bearer but as to who the depositor is, no one knows. It does not say on its face that the
depositor is Angel de la Cruz. If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in
the documents, instead of having the word BEARER stamped on the space provided for the name of
the depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof.

Thus, de la Cruz is the depositor insofar as the bank is concerned, but obviously other parties not privy
to the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs.

However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between Caltex and De la Cruz, requires both
delivery and indorsement. As discerned from the testimony of Caltex representative, the CTDs were
delivered to them by de la Cruz merely for guarantee or security and not as payment.

3.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of
all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by
the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to
have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries
and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants. 3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees
and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees
and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms
and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously
credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants
are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which
cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay
for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to
its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank
to determine the validity of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked
by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of
the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear
that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it
allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was 1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting.
Yet, despite the lack of such clearance and notwithstanding that it had not received a single centavo
from the proceeds of the treasury warrants, as it now repeatedly stresses it allowed Golden Savings
to withdraw not once, not twice, but thrice from the uncleared treasury warrants in the total
amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and
it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared
simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is
unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting
agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden Savings when
Gloria Castillo, as its Cashier, signed the deposit slips.

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

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged
'with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing Golden Savings to withdraw from its account not
only once or even twice but three times. The total withdrawal was in excess of its original balance before
the treasury warrants were deposited, which only added to its belief that the treasury warrants had
indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been
no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would
have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof
to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden Savings before it made its own
payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures
of the general manager and the auditor of the drawer corporation, has not been established. 9 This was
the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of
Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear,
positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this
is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the

following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;

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

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

xxx xxx xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within
the meaning of this Act though coupled with

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account
to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should
be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury
warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing
on its face the words "payable from the appropriation for food administration, is actually an Order for
payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential
requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel
this case is inapplicable to the present controversy.1wphi1 That case involved checks whereas this case
involves treasury warrants. Golden Savings never represented that the warrants were negotiable but
signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved
in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was
the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to
its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he
has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

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

SO ORDERED.

Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Footnotes
1
Rollo, pp. 12-13.
2
Ibid., p. 52.
3
Id., p. 14.
4
Id.
5
Through Judge Marciano T. Virola.
6
Penned by Ejercito, J., with Pe and Victor, JJ., concurring.
7
Rollo, p. 84.
8
TSN, July 29, 1983, p. 20.
9
Rollo, p. 61.
10
143 SCRA 20.
11
81 Phil. 359.
12
66 SCRA 29.F
3. DIGESTED

METROPOLITAN BANK V. CA

194 SCRA 169

FACTS:

Gomez opened an account with Golden Savings bank and deposited 38

treasury warrants. All these warrants were indorsed by the cashier of
Golden Savings, and deposited it to the savings account in a Metrobank
branch. They were sent later on for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. On persistent inquiries on whether the warrants have been cleared,
the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have been
dishonored.

HELD:

The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was non-
negotiable and of equal significance is the
indication that they are payable from a particular fund, Fund 501. This
indication as the source of payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themselves non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were
genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL. The
simple reason is that the law isnt applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with
Metrobank for clearing. It was in fact Metrobank which stamped on the back of the warrants:
All prior indorsements and/or lack of endorsements guaranteed

4.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 117438 June 8, 1995

RAUL SESBREO, petitioner,

vs.
HON, COURT OF APPEALS, and PATRICIA GIAN, SOTERO BRANZUELA, ANDRES C. YPIL, SANTIAGO
BACAYO, BRIGIDO COHITMINGAO, VICTORINO DINOY, GUILLERMO MONTEJO and EMILIO
RETUBADO, respondents.

ROMERO, J.:

Of interest to all law practitioners is the issue at bench, namely, whether the Court of Appeals had the
authority to reduce the amount of attorney's fees awarded to petitioner Atty. Raul H. Sesbreo,
notwithstanding the contract for professional services signed by private respondents.

The antecedent facts of the case follow.

Fifty-two employees sued the Province of Cebu and then Governor Rene Espina for reinstatement and
backwages. 1 Herein petitioner, Raul H. Sesbreo, replaced the employees' former counsel Atty. Catalino
Pacquiao.

Thirty-two of the fifty-two employees signed two documents whereby the former agreed to pay
petitioner 30% as attorney's fees and 20% as expenses to be taken from their back salaries.

On September 12, 1974, the trial court rendered a decision ordering the Province of Cebu to reinstate
the petitioning employees and pay them back salaries. Said decision became final and executory after it
was affirmed in toto by the Court of Appeals and the petition to review the appellate decision, denied by
this Court in 1978. 2

A compromise agreement was entered into by the parties below in April 1979 whereby the former
employees waived their right to reinstatement among others. Likewise, pursuant to said compromise
agreement, the Province of Cebu released P2,300,000.00 to the petitioning employees through
petitioner as "Partial Satisfaction of Judgment." The amount represented back salaries, terminal leave
pay and gratuity pay due to the employees.

Sometime November and December 1979, ten employees, herein private respondents, 3 filed
manifestations before the trial court asserting that they agreed to pay petitioner 40% to be
taken only from their back salaries.

The lower court issued two orders, with which petitioner complied, requiring him to release P10,000.00
to each of the ten private respondents and to retain 40% of the back salaries pertaining to the latter out
of the P2,300,000.00 released to him.

On March 28, 1980, the trial court fixed petitioner's attorney's fees at 40% of back salaries, terminal
leave, gratuity pay and retirement benefits and 20% as expenses, or a total of 60% of all monies paid to
the employees.
Private respondents' motion for reconsideration was granted and on June 10, 1980, the trial court
modified the award after noting that petitioner's attorney's lien was inadvertently placed as 60% when
it should have been only 50%. The dispositive portion of the order reads:

WHEREFORE, in view of all the foregoing the order of this Court fixing 60% as attorney's fee[s] of Atty.
Sesbreo should be 50% of all monies which the petitioners (Suico, et al.) may receive from the
Provincial Government.

Obviously not satisfied with the attorney's fees fixed by the trial court, petitioner appealed to the Court
of Appeals claiming additional fees for legal services before the Supreme Court, reimbursement for
expenses and a clear statement that the fee be likewise taken from retirement pay awarded to his
clients. Unfortunately, the respondent appellate court did not agree with him as the generous award
was further reduced. 4

The appellate court noted that in this jurisdiction, attorney 's fees are always subject to judicial control
and deemed the award of 20% of the back salaries awarded to private respondents as a fair, equitable
and reasonable amount of attorney's fee. The decretal portion of the decision reads:

WHEREFORE, the questioned order is MODIFIED. The attorney's fees due Atty. Raul Sesbreo is fixed at
an amount equivalent to 20% of all back salaries which the Province of Cebu has awarded to herein 10
petitioners. 5

Hence this petition for review where he claims that attorney's fees amounting to 50% of all monies
awarded to his clients as contingent fees should be upheld for being consistent with prevailing case law
and the contract of professional services between the parties. He adds that since private respondents
did not appeal, they are not entitled to affirmative relief other than that granted in the regional trial
court.

We find no reversible error in the decision of the Court of Appeals and vote to deny the petition.

Respondent court found that the contract of professional services entered into by the
parties 6 authorized petitioner to take a total of 50% from the employees' back salaries only. The trial
court, however, fixed the lawyer's fee on the basis of all monies to be awarded to private respondents.

Fifty per cent of all monies which private respondents may receive from the provincial government,
according to the Court of Appeals, is excessive and unconscionable, not to say, contrary to the contract
of professional services. 7After considering the facts and the nature of the case, as well as the length of
time and effort exerted by petitioner, respondent court reduced the amount of attorney's fees due him.

It is a settled rule that what a lawyer may charge and receive as attorney's fees is always subject to
judicial control. 8 A lawyer is primarily an officer of the court charged with the duty of assisting the court
in administering impartial justice between the parties. When he takes his oath, he submits himself to
the authority of the court and subjects his professional fees to judicial control. 9

As stated by the Court in the case of Sumaong v. Judge: 10

A lawyer is not merely the defender of his client's cause and a trustee of his client in respect of the
client's cause of action and assets; he is also, and first and foremost, an officer of the court and
participates in the fundamental function of administering justice in society. It follows that a lawyer's
compensation for professional services rendered are subject to the supervision of the court, not just to
guarantee that the fees he charges and receives remain reasonable and commensurate with the services
rendered, but also to maintain the dignity and integrity of the legal profession to which he belongs.
Upon taking his attorney 's oath as an officer of the court, a lawyer submits himself to the authority of
the courts to regulate his right to professional fees. 11

In the case at bench, the parties entered into a contingent fee contract. The Agreement provides:

WE, the undersigned petitioners in the case of POLICRONIO BELACHO, ET AL., VS. RENE ESPINA ET
AL., hereby agree to pay Atty. Sesbreo, our lawyer, the following to be taken from our back salaries:

30% as attorney's fees

20% as expenses

That we enter into agreement in order to be paid our back salaries as early as possible and so that we
may be reinstated as early as possible.

A stipulation on a lawyer's compensation in a written contract for professional services ordinarily

controls the amount of fees that the contracting lawyer may be allowed, unless the court finds such
stipulated amount unreasonable unconscionable. 12

A contingent fee arrangement is valid in this jurisdiction 13 and is generally recognized as valid and
binding but must be laid down in an express contract. 14 The amount of contingent fees agreed upon by
the parties is subject to the stipulation that counsel will be paid for his legal services only if the suit or
litigation prospers. A much higher compensation is allowed as contingent fees in consideration of the
risk that the lawyer may get nothing if the suit fails.

Contingent fee contracts are under the supervision and close scrutiny of the court in order that clients
may be protected from unjust charges. 15 Its validity depends in large measure on the reasonableness of
the stipulated fees under the circumstances of each case. 16

When the courts find that the stipulated amount is excessive or the contract is unreasonable or
unconscionable, or found to have been marred by fraud, mistake, undue influence or suppression of
facts on the part of the attorney, public policy demands that said contract be disregarded to protect the
client from unreasonable exaction. 17

Stipulated attorney's fees are unconscionable whenever the amount is by far so disproportionate
compared to the value of the services rendered as to amount to fraud perpetrated upon the client. This
means to say that the amount of the fee contracted for, standing alone and unexplained would be
sufficient to show that an unfair advantage had been taken of the client, or that a legal fraud had been
perpetrated on him. 18

The decree of unconscionability or unreasonableness of a stipulated amount in a contingent fee

contract, will not however, preclude recovery. It merely justifies the court's fixing a reasonable amount
for the lawyer's services.

Courts may always ascertain, if the attorney's fees are found to be excessive, what is reasonable under
the circumstances. Quantum meruit, meaning "as much as he deserves," is used as the basis for
determining the lawyer's professional fees in the absence of a contract. Factors such as the time spent
and extent of services rendered; novelty and difficulty of the questions involved; importance of the
subject matter; skill demanded; probability of losing other employment as a result of acceptance of the
proffered case; customary charges for similar services; amount involved in the controversy and the
benefits resulting to the client; certainty of compensation; character of employment; and professional
standing of the lawyer, are considered in determining his fees. 19

There is nothing irregular about the respondent court's finding that the 50% fee of petitioner is
unconscionable As aptly put by the court:

It effectively deprives the appellees of a meaningful victory of the suit they have passionately pursued.
Balancing the allocation of the monetary award, 50% of all monies to the lawyer and the other 50% to
be allocated among all his 52 clients, is too lop-sided in favor of the lawyer. The ratio makes the practice
of law a commercial venture, rather than a noble profession.

. . . Also, the 52 employees who are the plaintiffs in the aforementioned civil case were dismissed from
employment, their means of livelihood. All 52 hired claimant-appellant as counsel so that they could be
reinstated and their source of income restored. It would, verily be ironic if the counsel whom they had
hired to help would appropriate for himself 50% or even 60% of the total amount collectible by these
employees. Here is an instance where the courts should intervene. 20

Considering the nature of the case, which is a labor case, the amount recovered and petitioner's
participation in the case, an award of 50% of back salaries of his 52 clients indeed strikes us as excessive.
Under the circumstances, a fee of 20% of back salaries would be a fair settlement in this case. In any
event, this award pertains only to the ten private respondents herein. Petitioner has already been
compensated in the amount of 50% of all monies received, by the rest of his clients in the case below.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision AFFIRMED.

SO ORDERED.

Melo, Vitug and Francisco, JJ., concur.

Feliciano, J., is on leave.

Footnotes

1 Policronio Belacho, et al. v. Gov. Rene Espina, et al., Civil Case No. R-11204, Court of First Instance,
Branch VI, Cebu City.

2 G.R. No. L-49076, November 22, 1978 cited in Province of Cebu v. Torres, G.R. No. L-76950, December
15, 1988, 168 SCRA 493.

3 Jose Suico, Emilio Retubado, Patricio Gian, Sotero Branzuela, Andres Ypil, Santiago Bacayo, Brigido
Cohitmingao, Victorino Dinoy, Guillermo Montejo and Timoteo Montejo.

4 Decision dated January 31, 1994, in CA G.R. CV No. 26226, penned by Justice Buenaventura J. Guerrero
and concurred in by Justices Cezar D. Francisco and Manuel C. Herrerra; Rollo, p. 34.

5 Rollo, p. 40.
6 Rollo, p. 38, citing Exhibits "F" and "G".

7 Rollo, pp. 38-39.

8 Roldan v. CA, G.R. No. 97006, February 9, 1993, 218 SCRA 713; Ramos v. Bidin, G.R. No. L-53650 &
55460, May 28, 1988, 161 SCRA 561; Mambulao Lumber v. PNB, G.R. No. 22973, January 30, 1968;
Gorospe v. Gochangco, 106 Phil. 425.

9 Cruz v. CIR, G.R. No. L-18277, August 31, 1963, 8 SCRA 826.

10 G.R. No. 78173, October 26, 1993, 215 SCRA 136 citing Ramos v. Bidin, supra and Gorospe v.
Gochangco, supra.

11 Ibid., at pp. 143-144.

12 Rule 138, Section 24, Revised Rules of Court; Francisco v. Matias, G.R. No. 16349, January 31, 1964,
10 SCRA 89; Lopez v. Pan American Airways, G.R. No. L-22415, March 30, 1966, 16 SCRA 431.

13 Armovit v. CA, G.R. No. 90983, September 27, 1991, 202 SCRA 16.

14 Corpus v. CA, G.R. No. L-40424, June 30, 1980, 98 SCRA 424.

15 Canons of Professional Ethics, Section 13, adopted by the Philippine Bar Association in 1917 and in
1946; Dir. of Lands v. Ababa, G.R. No. L-26092, February 27, 1979, 88 SCRA 513; Integrated Construction
Services v. Relova, G.R. No. L-36424, July 31, 1975, 65 SCRA 638; Ulanday v. MRR, 45 Phil. 540.

16 Amalgamated Laborers Association v. CIR, G.R. No. L-23467, March 27, 1968, 22 SCRA 1266; Recto v.
Harden, 100 Phil. 427.

17 Ulanday v. MRR, supra; Felices v. Madrilejos, 51 Phil. 24; Jayme v. Bualan, 58 Phil. 422; Gorospe v.
Gochangco, supra.

18 High Point Casket Co. v. Wheelers, 19 A.L.R. 391, cited in ANNOTATIONS ON LEGAL ETHICS 244 (1st
ed., 1983).

19 Code of Professional Responsibility, Canon 20, Rule 20.1 promulgated June 21, 1988.

20 Rollo, pp. 38-39.

4. DIGESTED

SESBRENO V. CA

222 SCRA 466

FACTS:

Petitioner made a placement with Philfinance. The latter delivered to him documents, some of which
was a promissory note from Delta Motors and a post-dated check. The post-dated checks were
dishonored. This prompted petitioner to ask for the promissory note from DMC and it was discovered
that the note issued by DMC was marked as non-negotiable. As Sesbreno failed to recover his money,
he filed case against DMC and Philfinance.

HELD:

The non-negotiability of the instrument doesnt mean that it is non-assignable or transferable. It

may still be assigned or transferred in whole or in part, even without the consent of the promissory
note, since consent is not necessary for the validity of the assignment.

In assignment, the assignee is merely placed in the position of the

assignors and acquires the instrument subject to all the defenses that
might have been set up against the original payee.

5.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2516 September 25, 1950

ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.

Laurel, Sabido, Almario and Laurel for petitioner.

Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.

BENGZON, J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of
Manila. The Court of Appeals affirmed the verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946,
the check Exhibits A upon the China Banking Corporation for the sum of P4,000, payable to the order of
"cash". He delivered it to Lee Hua Hong in exchange for money which the latter handed in act. On
November 18, 1946, the next business day, the check was presented by Lee Hua Hong to the drawee
bank for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek
Lian on both dates being P335 only.

The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946,
appellant went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange
Exhibit A which he (appellant) then brought with him with cash alleging that he needed badly the
sum of P4,000 represented by the check, but could not withdraw it from the bank, it being then already
closed; that in view of this request and relying upon appellant's assurance that he had sufficient funds in
the blank to meet Exhibit A, and because they used to borrow money from each other, even before the
war, and appellant owns a hotel and restaurant known as the North Bay Hotel, said complainant
delivered to him, on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify
him that the check had been dishonored by the bank, appellant could not be located any-where, until he
was summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection
therewith; and that appellant has not paid as yet the amount of the check, or any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is
whether under the facts found, estafa had been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By
post dating a check, or issuing such check in payment of an obligation the offender knowing that at the
time he had no funds in the bank, or the funds deposited by him in the bank were not sufficient to cover
the amount of the check, and without informing the payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it
must be stated that, as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing
either a postdated check or an ordinary check to accomplish the deceit.

It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by
Ang Tek Lian, the defendant is not guilty of the offense charged. Based on the proposition that "by
uniform practice of all banks in the Philippines a check so drawn is invariably dishonored," the following
line of reasoning is advanced in support of the argument:

. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did
so with full knowledge that it would be dishonored upon presentment. In that sense, the appellant could
not be said to have acted fraudulently because the complainant, in so accepting the check as it was
drawn, must be considered, by every rational consideration, to have done so fully aware of the risk he
was running thereby." (Brief for the appellant, p. 11.)

We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the
Bank required the indorsement of the drawer before honoring a check payable to "cash." But cases
there are too, where no such requirement had been made . It depends upon the circumstances of each
transaction.

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to the person presenting it for payment without the
drawer's indorsement.

A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York
(1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N.
Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App.,
1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.

Where a check is made payable to the order of "cash", the word cash "does not purport to be the name
of any person", and hence the instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement. . . .
(Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p. 494.)

Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand
identification and /or assurance against possible complications, for instance, (a) forgery of drawer's
signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. The bank
may therefore require, for its protection, that the indorsement of the drawer or of some other
person known to it be obtained. But where the Bank is satisfied of the identity and /or the economic
standing of the bearer who tenders the check for collection, it will pay the instrument without further
question; and it would incur no liability to the drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and
is payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment,
need not have the holder identified, and is not negligent in falling to do so. . . . (Michie on Banks and
Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily
have the holder identified and ordinarily may not be charged with negligence in failing to do so. See
Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for suspecting any irregularity, it will be
protected in paying a bearer check, "no matter what facts unknown to it may have occurred prior to the
presentment." 1 Morse, Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely
reasonable for the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest,
Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected
with its dishonor. The Court of Appeals declared that it was returned unsatisfied because the drawer had
insufficient funds not because the drawer's indorsement was lacking.

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

Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.

5. DIGESTED

ANG TEK LIAN V. CA

87 PHIL 383

FACTS:

Knowing he had insufficient funds, Ang Tek Lian issued a check for P4000,
payable to cash. This was given to Lee Hua Hong in exchange for cash. Upon presentment of t
he check, it was dishonored for having insufficient funds. It is argued that the check, being payable
to cash, wasnt indorsed by the defendant, and thus, isnt guilty of the crime charged.

HELD:

A check drawn to the order of cash is payable to bearer, and the bank
may pay it to the person presenting it for payment without the drawers indorsement. Of course,
if the bank is not sure of the bearers identity or
financial solvency, it has the right to demand for identification and/or
assurance against possible complicationsfor instance, forgery of the
drawers signature, loss of the check by the rightful owner, raising the amount payable, etc. The
bank therefore, requires for its protection that the indorsement of the drawer
or some other persons known to itbe
obtained. A check payable to bearer is authority for payment to the holder. Where a check is in
the ordinary form and is payable to bearer so
that no indorsement is required, a bank to which it is presented for payment need not have the
holder identified, and is not negligent in failing to do so.