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versus Petitioner pleaded not guilty when arraigned, and trial proceeded.8
SCREENEX,1 INC, represented by ALEXANDER G, YU … Respondent

DECISION The MeTC found that the prosecution had indeed proved the first two elements of cases
involving violation of BP 22: i.e. the accused makes, draws or issues any check to apply
SERENO, CJ: to account or for value, and the check is subsequently dishonored by the drawee bank
for insufficiency of funds or credit; or the check would have been dishonored for the
This is a Petition2 for Review on Certiorari seeking to set aside the Decision3 and same reason had not the drawer, without any valid reason, ordered the bank to stop
Resolution4 rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP payment. The trial court pointed out, though, that the prosecution failed to prove the
No. 110680. third element; i.e. at the time of the issuance of the check to the payee, the latter did not
have sufficient funds in, or credit with, the drawee bank for payment of the check in full
ANTECEDENT FACTS upon its presentment.9 In the instant case, the court held that while prosecution witness
Alexander G. Yu declared that the lawyer had sent a demand letter to Evangelista, Yu
The facts as summarized by the CA are as follows: failed to prove that the letter had actually been received by addressee. Because there
was no way to determine when the five-day period should start to toll, there was a failure
Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which to establish prima facie evidence of knowledge of the insufficiency of funds on the part
issued two (2) checks to [Evangelista], The first check was UCPB Check No. 275345 for of Evangelista.10 Hence, the court acquitted him of the criminal charges.
P1,000,000 and the other one is China Banking Corporation Check No. BDO 8159110 for
P500,000. There were also vouchers of Screenex that were signed by the accused Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to
evidencing that he received the 2 checks in acceptance of the loan granted to him. having issued and delivered the checks to Gotuaco and to having fully paid the amounts
indicated therein, no evidence of payment Was presented.11 It further held that the
As security for the payment of the loan, [Evangelista] gave two (2) open-dated checks: creditor’s possession of the instrument of credit was sufficient evidence that the debt
UCPB Check Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the claimed had not yet been paid.12 In the er.d, Evangelista was declared liable for the
time the checks were issued by [Evangelista], they were held in safe keeping together corresponding civil obligation.13
with the other documents and papers of the company by Philip Gotuaco, Sr., father-in-
law of respondent Alexander Yu, until the former’s death on 19 November 2004. The dispositive portion of the Decision14 reads:

Before the checks were deposited, there was a personal demand from the family for WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA
[Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer.5 for failure of the prosecution to establish all the elements constituting the offense of
Violation of B.P. 22 for two (2) counts. However, accused is hereby ordered to pay his
On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. civil obligation to the private complainant in the total amount of ONE MILLION FIVE
22 in Criminal Case Nos. 343615-16 filed with the Metropolitan Trial Court (MeTC) of HUNDRED THOUSAND PESOS (P1,500,000) plus twelve (12%) percent interest per
Makati City, Branch 61.6 The Information reads: annum from the date of the filing of the two sets of Information until fully paid and to pay
the costs of suit.
That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the
jurisdiction of this Honorable Court, the above-named accused, did then and there, SO ORDERED.15
willfully, unlawfully and feloniously make out, draw, and issue to SCREENEX INC., herein
represented by ALEXANDER G. YU, to apply on account or for value the checks THE RULING OF THE RTC
described below:
Evangelista filed a timely Notice of Appeal16 and raised two errors of the MeTC before
Check No. Date Amount the Regional Trial Court (RTC) of Makati City, Branch 147. Docketed therein as Criminal
Case Nos. 08-1723 and 08-1724, the appeal posed the following issues: (1) the lower
United Coconut AGR 616656 12-22-04 P1,000,000.00 court erred in not appreciating the fact that the prosecution failed to prove the civil
liability of Evangelista to private complainant; and (2) any civil liability attributable to
Planters Bank AGR 616657 12-22-04 500,000.00 Evangelista had been extinguished and/or was barred by prescription.17

said accused well knowing that at the time of issue thereof, said accused did not have After the parties submitted their respective Memoranda,18 the RTC ruled that the checks
sufficient funds in or credit with the drawee bank for the payment in full of the face should be taken as evidence of Evangelista’s indebtedness to Gotuaco, such that even if
amount of such check upon its presentment which check when presented for payment the criminal aspect of the charge had not been established, the obligation subsisted.19
within ninety (90) days from the date thereof, was subsequently dishonored by the Also, the alleged payment by Evangelista was an affirmative defense that he had the
drawee bank for the reason “ACCOUNT CLOSED” and despite receipt of notice of such burden of proving, but that he failed to discharge.20 With respect to the defense of
dishonor, the said accused failed to pay said payee the face amount of said checks or to prescription, the RTC ruled in this wise:
make arrangement for full payment thereof within five (5) banking days after receiving
notice. As to the defense of prescription, the same cannot be successfully invoked in this
appeal. The 10-year prescriptive period of the action under Art. 1144 of the New Civil
Code is computed from the time the right of action accrues. The terms and conditions of WHEREFORE, premises considered, the petition is DENIED. The assailed August 19,
the loan obligation have not been shown, as only the checks evidence the same. It has 2009 Order of the Regional Trial Court, Branch 147, Makati City, denying petitioner’s
not been shown when the loan obligation was to mature such that there is no basis to Motion for Reconsideration of the Court’s December 18, 2008 Decision in Crim. Case
show or from which to infer, when the cause of action (non-payment of the loan) which Nos. 08-1723 and OS-1724 are AFFIRMED.
would give the obligee the right to seek redress for the non-payment of the obligation,
accrued. In other words, the reckoning point of prescription has not been established. SO ORDERED.40

Prosecution witness Alexander G. Yu was not competent to state that the loan was Petitioner filed a Motion for Reconsideration,41 which was similarly denied in a
contracted in 1991 as in fact, Yu admitted that it was a few months before his father-in- Resolution42 dated 27 February 2014.
law (Philip Gotuaco) died when the latter told him about accused’s failure to pay his
obligation. That was a few months before November 19, 2004, date of death of his Hence, this Petition,43 in which petitioner contends that the lower court erred in
father-in-law. ordering the accused to pay his alleged civil obligation to private complainant. In
particular, he argues that the court did not consider the prosecution’s failure to prove
At any rate, the right of action in this case is not upon a written contract, for which his civil liability to respondent, and that any civil liability there might have been was
reason, Art. 1144, New Civil Code, on prescription does not apply.21 already extinguished and/or barred by prescription.44

In a Decision22 dated 18 December 2008, the RTC dismissed the appeal and affirmed the Meanwhile, respondent filed its Comment,45 arguing that the date of prescription was
MeTC decision in toto,23 The Motion for Reconsideration24 was likewise denied in an reckoned from the date of the check, 22 December 2004. So when the complaint was
Order25 dated 19 August 2009. filed on 25 August 2005, it was supposedly well within the prescriptive period of ten (10)
years under Article 1144 of the New Civil Code.46
Evangelista filed a petition for review26 before the CA insisting that the lower court erred
in finding him liable to pay the sum with interest at 12% per annum from the date of filing With petitioner’s acquittal of the criminal charges for violation of BP 22, the only issue to
until full payment. He further alleged that witness Yu was not competent to testily on the be resolved in this petition is whether the CA committed a reversiole error in holding
loan transaction; that the insertion of the date on the checks without the knowledge of that petitioner is still liable for the total amount of P1.5 million indicated in the two
the accused was an alteration that avoided the checks; and that the obligation had been checks.
extinguished by prescription.27
We rule in favor of petitioner.
Screenex, Inc., represented by Yu, filed its Comment.28 Yu claimed that he had testified
on the basis of his personal dealings with his father-in-law, whom Evangelista dealt with A check is discharged by any other act which will discharge a simple contract for the
in obtaining the loan. He further claimed that during the trial, petitioner never raised the payment of money.
competence of the witness as an issue.29 Moreover, Yu argued that prescription set in
from the accrual of the obligation; hence, while the loan was transacted in 1991, the In BP 22 cases, the action for the corresponding civil obligation is deemed instituted
demand was made in February 2005, which was within the 10-year prescriptive period.30 with the criminal action.47 The criminal action for violation of BP 22 necessarily includes
Yu also argued that while Evangelista claimed under oath that the loan had been paid in the corresponding civil action, and no reservation to file such civil action separately
1992, he was not able to present any proof of payment. 31 Meanwhile, Yu insisted that the shall be allowed or recognized.48
material alteration invoked by Evangelista was unavailing, since the checks were
undated; hence, nothing had been altered.32 Finally, Yu argued that Evangelista should The rationale for this rule has been elucidated in this wise:
not be allowed to invoke prescription, which he was raising for the first time on appeal,
and for which no evidence was adduced in the court of origin.33 Generally, no filing fees are required for criminal cases, but because of the inclusion of
the civil action in complaints for violation of B.P. 22, the Rules require the payment of
The CA denied the petition.34 It held that (1) the reckoning time for the prescriptive docket fees upon the filing of the complaint. This rule was enacted to help declog court
period began when the instrument was issued and the corresponding check returned by dockets which are filled with B.P. 22 cases as creditors actually use the courts as
the bank to its depositor;35 (2) the issue of prescription was raised for the first time on collectors. Because ordinarily no filing fee is charged in criminal cases for actual
appeal with the RTC;36 (3) the writing of the date on the check cannot be considered as damages, the payee uses the intimidating effect of a criminal charge to collect his credit
an alteration, as the checks were undated, so there was nothing to change to begin gratis and sometimes, upon being paid, the trial court is not even informed thereof. The
with;37 (4) the loan obligation was never denied by petitioner, who claimed that it was inclusion of the civil action in the criminal case is expected to significantly lower the
settled in 1992, but failed to show any proof of payment.38 Quoting the MeTC Decision, number of cases filed before the courts for collection based on dishonored checks. It is
the CA declared: also expected to expedite the disposition of these cases. Instead of instituting two
separate cases, one for criminal and another for civil, only a single suit shall be filed and
[t]he mere possession of a document evidencing an obligation by the person in whose tried. It should be stressed that the policy laid down by the Rules is to discourage the
favor it was executed, merely raises a presumption of nonpayment which may be separate filing of the civil action. The Rules even prohibit the reservation of a separate
overcome by proof of payment, or by satisfactory explanation of the fact that the civil action, which means that one can no longer file a separate civil case after the
instrument is found in the hands of the original creditor not inconsistent with the fact of criminal complaint is filed in court. The only instance when separate proceedings are
payment.39 allowed is when the civil action is filed ahead of the criminal case. Even then, the Rules
encourage the consolidation of the civil and criminal cases. We have previously
The dispositive portion reads: observed that a separate civil action for the purpose of recovering the amount of the
dishonored checks would only prove to be costly, burdensome and time-consuming for Given the foregoing, the cause of action on the checks has become stale, hence, time-
both parties and would further delay the final disposition of the case. This multiplicity of barred. No written extrajudicial or judicial demand was shown to have been made within
suits must be avoided.49 (Citations omitted) 10 years which could have tolled the period. Prescription has indeed set in.

This notwithstanding, the civil action deemed instituted with the criminal action is Prescription allows the court to dismiss the case motu proprio.
treated as an “independent civil liability based on contract.”50
We therefore have no other recourse but to grant the instant petition on the ground of
By definition, a check is a bill of exchange drawn on a bank payable on demand.51 It is a prescription. Even if that defense was belatedly raised before the RTC for the first time
negotiable instrument-written and signed by a drawer containing an unconditional order on appeal from the ruling of the MeTC, we nonetheless dismiss the complaint, seeking to
to pay on demand a sum certain in money.52 It is an undertaking that the drawer will pay enforce the civil liability of Evangelista based on the undated checks, by applying
the amount indicated thereon. Section 119 of the NIL, however, states that a negotiable Section 1 of Rule 9 of the Rules of Court, to wit:
instrument like a check may be discharged by any other act which will discharge a
simple contract for the payment of money, to wit: Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. However, when it
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: appears from the pleadings or the evidence on record that the court has no jurisdiction
over the subject matter, that there is another action pending between the same parties
(a) By payment in due course by or on behalf of the principal debtor; for the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim.
(b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation; While it was on appeal before the RTC that petitioner invoked the defense of
prescription, we find that the pleadings and the evidence on record indubitably
(c) By the intentional cancellation thereof by the holder; establish that the action to hold petitioner liable for the two checks has already
(d) By any other act which will discharge a simple contract for the payment of money;
The delivery of the check produces the effect of payment when through the fault of the
(e) When the principal debtor becomes the holder of the instrument at or after maturity creditor they have been impaired
in his own right. (Emphasis supplied)
It is a settled rule that the creditor’s possession of the evidence of debt is proof that the
A check therefore is subject to prescription of actions upon a written contract. Article debt has not been discharged by payment.55 It is likewise an established tenet that a
1144 of the Civil Code provides: negotiable instrument is only a substitute for money and not money, and the delivery of
such an instrument does not, by itself, operate as payment56. Thus, in BPI v. Spouses
Article 1144. The following actions must be brought within ten years from the time the Royeca,57 we ruled that despite the lapse of three years from the time the checks were
right of action accrues: issued, the obligation still subsisted and was merely suspended until the payment by
commercial document could actually be realized.58
1) Upon a written contract;
However, payment is deemed effected and the obligation for which the check was given
2) Upon an obligation created by law; as conditional payment is treated discharged, if a period of 10 years or more has
elapsed from the date indicated on the check until the date of encashment or
3) Upon a judgment. (Emphasis supplied) presentment for payment. The failure to encash the checks within a reasonable time
after issue, or more than 10 years in this instance, not only results in the checks
Barring any extrajudicial or judicial demand that may toll the 10-year prescription period becoming stale but also in the obligation to pay being deemed fulfilled by operation of
and any evidence which may indicate any other time when the obligation to pay is due, law.
the cause of action based on a check is reckoned from the date indicated on the check.
Art. 1249 of the Civil Code specifically provides that checks should be presented for
If the check is undated, however, as in the present petition, the cause of action is payment within a reasonable period after their issuance, to wit:
reckoned from the date of the issuance of the check. This is so because regardless of
the omission of the date indicated on the check, Section 17 53 of the Negotiable Art. 1249. The payment of debts in money shall be made in the currency stipulated, and
Instruments Law instructs that an undated check is presumed dated as of the time of its if it is not possible to deliver such currency, then in the currency which is legal tender in
issuance. the Philippines.

While the space for the date on a check may also be filled, it must, however, be filled up The delivery of promissory notes payable to order, or bills of exchange or other
strictly in accordance with the authority given and within a reasonable time.54 Assuming mercantile documents shall produce the effect of payment only when they have been
that Yu had authority to insert the dates in the checks, the fact that he did so after a cashed, or when through the fault of the creditor they have been impaired.
lapse of more than 10 years from their issuance certainly cannot qualify as changes
made within a reasonable time. In the meantime, the action derived from the original obligation shall be held in the
abeyance. (Emphasis supplied)

This rule is similarly stated in the Negotiable Instruments Law as follows:

Sec. 186. Within what time a check must be presented. - A check must be presented for Rafael S. Santayana for Mary Cheng Uy.
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. (Emphasis supplied)

These provisions were the very same ones we cited when we discharged a check by
reason of the creditor’s unreasonable or unexplained delay in encashing it. In Papa v. CAMPOS, JR., J.:
Valencia,59 the respondents supposedly paid the petitioner the purchase price of the
lots in cash and in check. The latter disputed this claim and argued that he had never
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a
encashed the checks, and that he could no longer recall the transaction that happened
10 years earlier. This Court ruled: complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary
Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for
Granting that petitioner had never encashed the check, his failure to do so for more than short) and the Producers Bank of the Philippines, on two causes of action:
ten (10) years undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay. (1) To enforce payment of the balance of P1,032,450.02 on a
promissory note executed by respondent Sima Wei on June 9, 1983;
While it is true that the delivery of a check produces the effect of payment only when it is and
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a
check implies an undertaking of due diligence in presenting it for payment, and if he (2) To enforce payment of two checks executed by Sima Wei, payable
from whom it is received sustains loss by want of such diligence, it will be held to to petitioner, and drawn against the China Banking Corporation, to
operate as actual payment of the debt or obligation for which it was given. It has, pay the balance due on the promissory note.
likewise, been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury unless presentment is otherwise excused. This is in Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a
harmony with Article 1249 of the Civil Code under which payment by way of check or common ground that the complaint states no cause of action. The trial court granted the
other negotiable instrument is conditioned on its being cashed, except when through defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which
the fault of the creditor, the instrument is impaired. The payee of a check would be a the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by
creditor under this provision and if its nopayment is caused by his negligence, payment Certiorari, assigning the following as the alleged errors of the Court of Appeals:1
will be deemed effected and the obligation for which the check was given as conditional
payment will be discharged.60 (Citations omitted and emphasis supplied)
Similarly in this case, we find that the delivery of the checks, despite the subsequent PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST
failure to encash them within a period of 10 years or more, had the effect of payment. DEFENDANTS-RESPONDENTS HEREIN.
Petitioner is considered discharged from his obligation to pay and can no longer be
pronounced civilly liable for the amounts indicated thereon. (2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13,
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-
Resolution dated 27 February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The RESPONDENTS.
Complaint against petitioner is hereby DISMISSED.

The antecedent facts of this case are as follows:

G.R. No. 85419 March 9, 1993

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, latter executed and delivered to the former a promissory note, engaging to pay the
vs. petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN interest at 32% per annum. Sima Wei made partial payments on the note, leaving a
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES, balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks
defendants-respondents. payable to petitioner Bank drawn against China Banking Corporation, bearing
respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for
Yngson & Associates for petitioner. the amount of P500,000.00. The said checks were allegedly issued in full settlement of
the drawer's account evidenced by the promissory note. These two checks were not
delivered to the petitioner-payee or to any of its authorized representatives. For reasons
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation. not shown, these checks came into the possession of respondent Lee Kian Huat, who
deposited the checks without the petitioner-payee's indorsement (forged or otherwise)
Eduardo G. Castelo for Sima Wei. to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan
City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung, President of
Monsod, Tamargo & Associates for Producers Bank. Plastic Corporation, that the transaction was legal and regular, instructed the cashier of
Producers Bank to accept the checks for deposit and to credit them to the account of
said Plastic Corporation, inspite of the fact that the checks were crossed and payable to agreed to by her. Her allegation that she has paid the balance of her loan with the two
petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the checks payable to petitioner Bank has no merit for, as We have earlier explained, these
complaint as aforestated. checks were never delivered to petitioner Bank. And even granting, without admitting,
that there was delivery to petitioner Bank, the delivery of checks in payment of an
obligation does not constitute payment unless they are cashed or their value is impaired
The main issue before Us is whether petitioner Bank has a cause of action against any
through the fault of the creditor.6 None of these exceptions were alleged by respondent
or all of the defendants, in the alternative or otherwise.
Sima Wei.

A cause of action is defined as an act or omission of one party in violation of the legal
Therefore, unless respondent Sima Wei proves that she has been relieved from liability
right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2)
on the promissory note by some other cause, petitioner Bank has a right of action
correlative obligation of the defendant; and (3) an act or omission of the defendant in
against her for the balance due thereon.
violation of said legal right.2

However, insofar as the other respondents are concerned, petitioner Bank has no
The normal parties to a check are the drawer, the payee and the drawee bank. Courts
privity with them. Since petitioner Bank never received the checks on which it based its
have long recognized the business custom of using printed checks where blanks are
action against said respondents, it never owned them (the checks) nor did it acquire any
provided for the date of issuance, the name of the payee, the amount payable and the
interest therein. Thus, anything which the respondents may have done with respect to
drawer's signature. All the drawer has to do when he wishes to issue a check is to
said checks could not have prejudiced petitioner Bank. It had no right or interest in the
properly fill up the blanks and sign it. However, the mere fact that he has done these
checks which could have been violated by said respondents. Petitioner Bank has
does not give rise to any liability on his part, until and unless the check is delivered to
therefore no cause of action against said respondents, in the alternative or otherwise. If
the payee or his representative. A negotiable instrument, of which a check is, is not only
at all, it is Sima Wei, the drawer, who would have a cause of action against her
a written evidence of a contract right but is also a species of property. Just as a deed to
co-respondents, if the allegations in the complaint are found to be true.
a piece of land must be delivered in order to convey title to the grantee, so must a
negotiable instrument be delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, With respect to the second assignment of error raised by petitioner Bank regarding the
provides in part: applicability of Section 13, Rule 3 of the Rules of Court, 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
Every contract on a negotiable instrument is incomplete and
against the respondents, in the alternative or otherwise.
revocable until delivery of the instrument for the purpose of giving
effect thereto. . . .
In the light of the foregoing, the judgment of the Court of Appeals dismissing the
petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned.
Thus, the payee of a negotiable instrument acquires no interest with respect thereto
On the first cause of action, the case is REMANDED to the trial court for a trial on the
until its delivery to him.3 Delivery of an instrument means transfer of possession, actual
merits, consistent with this decision, in order to determine whether respondent Sima
or constructive, from one person to another.4 Without the initial delivery of the
Wei is liable to the Development Bank of Rizal for any amount under the promissory note
instrument from the drawer to the payee, there can be no liability on the instrument.
allegedly signed by her.
Moreover, such delivery must be intended to give effect to the instrument.

G.R. No. 154469 December 6, 2006

The allegations of the petitioner in the original complaint show that the two (2) China
Bank checks, numbered 384934 and 384935, were not delivered to the payee, the
petitioner herein. Without the delivery of said checks to petitioner-payee, the former did METROPOLITAN BANK AND TRUST COMPANY, petitioners,
not acquire any right or interest therein and cannot therefore assert any cause of vs.
action, founded on said checks, whether against the drawer Sima Wei or against the RENATO D. CABILZO, respondent.
Producers Bank or any of the other respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the
promissory note, and the alternative defendants, including Sima Wei, on the two checks.
On appeal from the orders of dismissal of the Regional Trial Court, 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. This was Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan
clearly an attempt by the petitioner Bank to change not only the theory of its case but Bank and Trust Company (Metrobank) seeking to reverse and set aside the Decision1 of
the basis of his cause of action. It is well-settled that a party cannot change his theory the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming
on appeal, as this would in effect deprive the other party of his day in court. 5 the Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September
1998. The dispositive portion of the Court of Appeals Decision reads:
Notwithstanding the above, 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
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED superimpositions or intercalations thereon, but none was noted. After verifying the
with modifications (sic) that the awards for exemplary damages and attorney’s authenticity and propriety of the aforesaid entries, including the indorsement of the
fees are hereby deleted. collecting bank located at the dorsal side of the check which stated that, "all prior
indorsements and lack of indorsement guaranteed," Metrobank cleared the check. 10
Petitioner Metrobank is a banking institution duly organized and existing as such under
Philippine laws.2 Anent thereto, Metrobank claimed that as a collecting bank and the last indorser,
Westmont Bank should be held liable for the value of the check. Westmont Bank indorsed
the check as the an unqualified indorser, by virtue of which it assumed the liability of a
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained
general indorser, and thus, among others, warranted that the instrument is genuine and
a current account with Metrobank Pasong Tamo Branch.3
in all respect what it purports to be.

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH"
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving
and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00).
spaces on the check, which, made the fraudulent insertion of the amount and figures
The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch
thereon, possible. On account of his negligence in the preparation and issuance of the
under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr.
check, which according to Metrobank, was the proximate cause of the loss, Cabilzo
Marquez, as his sales commission.4
cannot thereafter claim indemnity by virtue of the doctrine of equitable estoppel.

Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank,
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00
in turn, indorsed the check to Metrobank for appropriate clearing. After the entries
which represents the cost of litigation and attorney’s fees, for allegedly bringing a
thereon were examined, including the availability of funds and the authenticity of the
frivolous and baseless suit. 11
signature of the drawer, Metrobank cleared the check for encashment in accordance with
the Philippine Clearing House Corporation (PCHC) Rules.
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on
account of its unqualified indorsement stamped at the dorsal side of the check which the
On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch
former relied upon in clearing what turned out to be a materially altered check.
to make some transaction when he was asked by a bank personnel if Cabilzo had issued
a check in the amount of P91,000.00 to which the former replied in the negative. On the
afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by
issue a check in the amount of P91,000.00 and requested that the questioned check be Westmont bank because another case involving the same cause of action was pending
returned to him for verification, to which Metrobank complied.5 before a different court. The said case arose from an action for reimbursement filed by
Metrobank before the Arbitration Committee of the PCHC against Westmont Bank, and
now the subject of a Petition for Review before the RTC of Manila, Branch 19.
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which
he issued on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and
the date 24 November 1994 was changed to 14 November 1994. 6 In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the
Third-Party Complaint on the ground of litis pendentia.
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his
account. Metrobank, however, refused reasoning that it has to refer the matter first to its On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby
Legal Division for appropriate action. Repeated verbal demands followed but Metrobank ordered Metrobank to pay the sum of P90,000.00, the amount of the check. In stressing
still failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7 the fiduciary nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent alteration on the check,
the trial court ordered for the payment of exemplary damages, attorney’s fees and cost
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the
of litigation. The dispositive portion of the Decision reads:
payment of P90,000.00, after deducting the original value of the check in the amount of
P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation. WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank
and Trust Company to pay plaintiff Renato Cabilzo the sum of P90,000 with
legal interest of 6 percent per annum from November 16, 1994 until payment is
Consequently, Cabilzo instituted a civil action for damages against Metrobank before the
made plus P20,000 attorney’s fees, exemplary damages of P50,000, and costs
RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato
of the suit.16
D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his
claim for reimbursement, actual and moral damages plus costs of the suit be awarded in
his favor.9 Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating
its previous argument that as the last indorser, Westmont Bank shall bear the loss
occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained
For its part, Metrobank countered that upon the receipt of the said check through the
that by reason of its unqualified indorsement, Westmont Bank warranted that the check
PCHC on 14 November 1994, it examined the genuineness and the authenticity of the
in question is genuine, valid and subsisting and that upon presentment the check shall be
drawer’s signature appearing thereon and the technical entries on the check including
accepted according to its tenor.
the amount in figures and in words to determine if there were alterations, erasures,
Even more, Metrobank argued that in clearing the check, it was not remiss in the Also pertinent is the following provision in the Negotiable Instrument Law which states:
performance of its duty as the drawee bank, but rather, it exercised the highest degree
of diligence in accordance with the generally accepted banking practice. It further
Section 125. What constitutes material alteration. – Any alteration which
insisted that the entries in the check were regular and authentic and alteration could not
be determined even upon close examination.

(a) The date;

In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the
Decision of the court a quo, similarly finding Metrobank liable for the amount of the check,
without prejudice, however, to the outcome of the case between Metrobank and (b) The sum payable, either for principal or interest;
Westmont Bank which was pending before another tribunal. The decretal portion of the
Decision reads:
(c) The time or place of payment;

WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED

(d) The number or the relation of the parties;
with the modifications (sic) that the awards for exemplary damages and
attorney’s fees are hereby deleted.18
(e) The medium or currency in which payment is to be made;
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by
the appellate court in its Resolution19 issued on 26 July 2002, for lack of merit. Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect is a material alteration.
Metrobank now poses before this Court this sole issue:

In the case at bar, the check was altered so that the amount was increased from
P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14
November 1994. Apparently, since the entries altered were among those enumerated
under Section 1 and 125, namely, the sum of money payable and the date of the check,
the instant controversy therefore squarely falls within the purview of material alteration.

We resolve to deny the petition.

Now, having laid the premise that the present petition is a case of material alteration, it is
now necessary for us to determine the effect of a materially altered instrument, as well as
An alteration is said to be material if it changes the effect of the instrument. It means that the rights and obligations of the parties thereunder. The following provision of the
an unauthorized change in an instrument that purports to modify in any respect the Negotiable Instrument Law will shed us some light in threshing out this issue:
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.20 In other words, a material
Section 124. Alteration of instrument; effect of. – Where a negotiable
alteration is one which changes the items which are required to be stated under Section
instrument is materially altered without the assent of all parties liable thereon,
1 of the Negotiable Instruments Law.
it is avoided, except as against a party who has himself made, authorized, and
assented to the alteration and subsequent indorsers.
Section 1 of the Negotiable Instruments Law provides:
But when the instrument has been materially altered and is in the hands of a
Section 1. Form of negotiable instruments. - An instrument to be negotiable holder in due course not a party to the alteration, he may enforce the payment
must conform to the following requirements: thereof according to its original tenor. (Emphasis ours.)

(a) It must be in writing and signed by the maker or drawer; Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did
he assent to the alteration by his express or implied acts. There is no showing that he
failed to exercise such reasonable degree of diligence required of a prudent man which
(b) Must contain an unconditional promise or order to pay a sum certain in
could have otherwise prevented the loss. As correctly ruled by the appellate court,
Cabilzo was never remiss in the preparation and issuance of the check, and there were
no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks
(c) Must be payable on demand or at a fixed determinable future time; before and after the amount in words and figures in order to forewarn the subsequent
holders that nothing follows before and after the amount indicated other than the one
specified between the asterisks.
(d) Must be payable to order or to bearer; and

The degree of diligence required of a reasonable man in the exercise of his tasks and the
(e) Where the instrument is addressed to a drawee, he must be named or
performance of his duties has been faithfully complied with by Cabilzo. In fact, he was
otherwise indicated therein with reasonable certainty.
wary enough that he filled with asterisks the spaces between and after the amounts, not In the present case, it is obvious that Metrobank was remiss in that duty and violated that
only those stated in words, but also those in numerical figures, in order to prevent any relationship. As observed by the Court of Appeals, there are material alterations on the
fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed check that are visible to the naked eye. Thus:
by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator
of the fraud, to the damage and prejudice of Cabilzo.
x x x The number "1" in the date is clearly imposed on a white figure in the
shape of the number "2". The appellant’s employees who examined the said
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore check should have likewise been put on guard as to why at the end of the
prevented from asserting his rights under the doctrine of equitable estoppel when the amount in words, i.e., after the word "ONLY", there are 4 asterisks, while at the
facts on record are bare of evidence to support such conclusion. The doctrine of beginning of the line or before said phrase, there is none, even as 4 asterisks
equitable estoppel states that when one of the two innocent persons, each guiltless of any have been placed before and after the word "CASH" in the space for payee. In
intentional or moral wrong, must suffer a loss, it must be borne by the one whose addition, the 4 asterisks before the words "ONE THOUSAND PESOS ONLY"
erroneous conduct, either by omission or commission, was the cause of injury. 21 have noticeably been erased with typing correction paper, leaving white
Metrobank’s reliance on this dictum, is misplaced. For one, Metrobank’s representation marks, over which the word "NINETY" was superimposed. The same can be
that it is an innocent party is flimsy and evidently, misleading. At the same time, said of the numeral "9" in the amount "91,000", which is superimposed over a
Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the whitish mark, obviously an erasure, in lieu of the asterisk which was deleted to
proximate cause22 of the loss in the absence of even a scintilla proof to buttress such insert the said figure. The appellant’s employees should have again noticed
claim. Negligence is not presumed but must be proven by the one who alleges it.23 why only 2 asterisks were placed before the amount in figures, while 3
asterisks were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words "ONE
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an
THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise a
ordinary businessman who, in order to facilitate his business transactions, entrusted his
little bigger when compared with the letters of the words "ONE THOUSAND
money with a bank, not knowing that the latter would yield a substantial amount of his
deposit to fraud, for which Cabilzo can never be faulted.

Surprisingly, however, Metrobank failed to detect the above alterations which could not
We never fail to stress the remarkable significance of a banking institution to commercial
escape the attention of even an ordinary person. This negligence was exacerbated by the
transactions, in particular, and to the country’s economy in general. The banking system
fact that, as found by the trial court, the check in question was examined by the cash
is an indispensable institution in the modern world and plays a vital role in the economic
custodian whose functions do not include the examinations of checks indorsed for
life of every civilized nation. Whether as mere passive entities for the safekeeping and
payment against drawer’s accounts.29 Obviously, the employee allowed by Metrobank to
saving of money or as active instruments of business and commerce, banks have become
examine the check was not verse and competent to handle such duty. These factual
an ubiquitous presence among the people, who have come to regard them with respect
findings of the trial court is conclusive upon this court especially when such findings was
and even gratitude and, most of all, confidence.24
affirmed the appellate court.30

Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the
Apropos thereto, we need to reiterate that by the very nature of their work the degree of
bank of his choice, knowing that they will be safe in its custody and will even earn some
responsibility, care and trustworthiness expected of their employees and officials is far
interest for him. The ordinary person, with equal faith, usually maintains a modest
better than those of ordinary clerks and employees. Banks are expected to exercise the
checking account for security and convenience in the settling of his monthly bills and the
highest degree of diligence in the selection and supervision of their employees.31
payment of ordinary expenses. As for a businessman like the respondent, the bank is a
trusted and active associate that can help in the running of his affairs, not only in the form
of loans when needed but more often in the conduct of their day-to-day transactions like In addition, the bank on which the check is drawn, known as the drawee bank, is under
the issuance or encashment of checks.25 strict liability to pay to the order of the payee in accordance with the drawer’s instructions
as reflected on the face and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the instruction of the drawer.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as When the drawee bank pays a materially altered check, it violates the terms of the check,
possible. This has to be done if the account is to reflect at any given time the amount of as well as its duty to charge its client’s account only for bona fide disbursements he had
money the depositor can dispose of as he sees fit, confident that the bank will deliver it made. Since the drawee bank, in the instant case, did not pay according to the original
as and to whomever he directs.26 tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it
made from the drawer’s account which it was expected to treat with utmost fidelity.
The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. The Metrobank vigorously asserts that the entries in the check were carefully examined: The
appropriate degree of diligence required of a bank must be a high degree of diligence, if date of the instrument, the amount in words and figures, as well as the drawer’s signature,
not the utmost diligence.27 which after verification, were found to be proper and authentic and was thus cleared. We
are not persuaded. Metrobank’s negligence consisted in the omission of that degree of
diligence required of a bank owing to the fiduciary nature of its relationship with its client.
Article 1173 of the Civil Code 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
circumstances of the persons, of the time and of the place. x x x.

Beyond question, Metrobank failed to comply with the degree required by the nature of
its business as provided by law and jurisprudence. If indeed it was not remiss in its
obligation, then it would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the intricacies of the banking
business. This Court is not completely unaware of banks’ practices of employing devices
and techniques in order to detect forgeries, insertions, intercalations, superimpositions
and alterations in checks and other negotiable instruments so as to safeguard their
authenticity and negotiability. Metrobank cannot now feign ignorance nor claim diligence;
neither can it point its finger at the collecting bank, in order to evade liability.

Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall
bear the loss. Without ruling on the matter between the drawee bank and the collecting
bank, which is already under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check. The corollary liability
of such indorsement, if any, is separate and independent from the liability of Metrobank
to Cabilzo.

The reliance made by Metrobank on Westmont Bank’s indorsement is clearly

inconsistent, if not totally offensive to the dictum that being impressed with public
interest, banks should exercise the highest degree of diligence, if not utmost diligence in
dealing with the accounts of its own clients. It owes the highest degree fidelity to its
clients and should not therefore lightly rely on the judgment of other banks on occasions
where its clients money were involve, no matter how small or substantial the amount at

Metrobank’s contention that it relied on the strength of collecting bank’s indorsement

may be merely a lame excuse to evade liability, or may be indeed an actual banking
practice. In either case, such act constitutes a deplorable banking practice and could not
be allowed by this Court bearing in mind that the confidence of public in general is of
paramount importance in banking business.

What is even more deplorable is that, having been informed of the alteration, Metrobank
did not immediately re-credit the amount that was erroneously debited from Cabilzo’s
account but permitted a full blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run after the one who made
the alteration or with the collecting bank, which it had already done. It bears repeating
that the records are bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately reimburse his account.
Such ineptness comes within the concept of wanton manner contemplated under the Civil
Code which warrants the imposition of exemplary damages, "by way of example or
correction for the public good," in the words of the law. It is expected that this ruling will
serve as a stern warning in order to deter the repetition of similar acts of negligence, lest
the confidence of the public in the banking system be further eroded. 32

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8
March 2002 and the Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED
with modification that exemplary damages in the amount of P50,000.00 be awarded.
Costs against the petitioner.