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1. Selling of Shares of Stock
2. 2 Pacific Bank Manager’s Check
3. Tanlimco forged the contracts
4. WON Ong has course of action
5. NIL Sec. 191

 Eugene Ong maintained a current account with Westmont and sold certain shares of stocks through Island
Securities Corporation.

 To pay Ong, Island Securities purchased two Pacific Banking Corporation managers checks,[2] both dated May 4,
1976, issued in the name of Eugene Ong as payee.

 Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs signature and
deposited these with petitioner, where Tanlimco was also a depositor.

 Even though Ongs specimen signature was on file, petitioner accepted and credited both checks to the account of
Tanlimco, without verifying the signature indorsements appearing at the back thereof. Tanlimco then immediately
withdrew the money and absconded.

 Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimcos family
to recover the amount. Later, he reported the incident to the Central Bank, which unfortunately proved futile.

 5 months later from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay
the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted
that he did not deliver, negotiate, endorse or transfer to any person or entity the subject checks issued to him and
asserted that the signatures on the back were spurious. [3]

 The bank contended that since Ong claimed to have never received the originals of the two checks in question from
Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these
checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank then filed a demurrer
to evidence which was denied.

 RTC renders judgment for the plaintiff

 CA AFFIRMED in toto.[5]
ISSUES: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and (2) whether or not
Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor
did he authorize Tanlimco or any of the latters representative to demand, accept and receive the same. For this reason,
petitioner argues, respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law [6] it is only
when a person becomes a holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming
a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that since Section
191[7] of the Negotiable Instruments Law defines a holder as the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof, in order to be a holder, it is a requirement that he be in possession of the instrument or the
bearer thereof. Simply stated, since Ong never had possession of the checks nor did he authorize anybody, he did not
become a holder thereof hence he cannot sue in his own name. [8]
Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it is a managers check, is not legal
tender. Hence, the creditor cannot be compelled to accept payment thru this means. [10] It is petitioners position that for all
intents and purposes, Island Securities has not yet tendered payment to respondent Ong, thus, any action by Ong should
be directed towards collecting the amount from Island Securities. Petitioner claims that Ongs cause of action against it has
not ripened as of yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter between petitioner
and drawee-bank, Pacific Banking Corporation.[11]
For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of
Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable. [12] It
likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained
possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of
the check from the drawee is liable for the proceeds thereof to the payee. The theory of said rule is that the collecting banks
possession of such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals[14] which held that the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting
bank is also made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address
and history because he is a client. Hence, it is in a better position to detect forgery, fraud or irregularity in the
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable
Instruments Law which is a special law and only in the absence of specific provisions or deficiency in the special law may
the Civil Code be invoked.[16]
Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed
decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition.
Petitioners claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of
action is the act or omission by which a party violates a right of another.[17] The essential elements of a cause of action are:
(a) a legal right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the
defendant in violation of said legal right.[18]
The complaint filed before the trial court expressly alleged respondents right as payee of the managers checks to receive
the amount involved, petitioners correlative duty as collecting bank to ensure that the amount gets to the rightful payee or
his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondents
Under Section 23 of the Negotiable Instruments Law:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority.

Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in
favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be
allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the
payees endorsement was genuine before cashing the check. [20] As a general rule, a bank or corporation who has obtained
possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount
of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained. [21]
The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and
when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had
and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the
check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without
indorsement at all and the act of the bank amounts to conversion of the check. [22]
Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the checks,
respondents remedy is with the drawer and not with petitioner bank.Petitioner relies on the view to the effect that where
there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost
nothing because he never became the owner of the check and still retained his claim of debt against the drawer. [23] However,
another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. The
rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who
ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the
payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to
the payee or not.[24]
Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent
acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of petitioner
bank. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many
clients and depositors who transact business with them.[25] They have the obligation to treat their clients account
meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family. [26] In the present case, petitioner was held to be
grossly negligent in performing its duties. As found by the trial court:

xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by defendant bank,
defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them
(Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given the substantial face value of the two checks, totalling
P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should
have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements
thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiffs
specimen signatures in its files (Exhibit L-1 and M-1) it would have at once seen that the alleged indorsements were
falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or,
what is worse did so but, chose to disregard the obvious dissimilarity of the signatures.The first omission makes it guilty
of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in

These findings are binding and conclusive on the appellate and the reviewing courts.
On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery
from the bank as soon as he discovered the scam. The lapse of five months before he went to seek relief from the bank,
according to petitioner, constitutes laches.
In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the contrary, the
established facts of the case as found by the trial court and affirmed by the Court of Appeals are that respondent left no
stone unturned to obtain relief from his predicament.
On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May
4, 1976, and on the very next day, May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented
for payment to Pacific Banking Corporation. So even if the theft of the checks were discovered and reported earlier,
respondent argues, it would not have altered the situation as the encashment of the checks was consummated within twenty
four hours and facilitated by the gross negligence of the petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which,
by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled thereto has either abandoned or declined to assert it. [29] It
concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be
barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is
sought to be enforced.[30]
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the
forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and
recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter
amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place,
did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value
of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect
responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to
stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular
banking procedures in clearing checks.[31] As we had earlier ruled, the one who had the last clear opportunity to avoid the
impending harm but failed to do so is chargeable with the consequences thereof.[32]
Vicente Go vs. Metropolitan bank and trust co


1. 32 checks with Hope Pharmacy as payee, that were not endorsed by him but were deposited under the personal
account of Chua with respondent bank
2. 32 checks
3. WON bank is liable
4. No.

 Go filed 2 separate cases before RTC of Cebu.

 Civil Case No. CEB-9713 was filed by petitioner against Ma. Teresa Chua and Glyndah Tabaag for a sum of money
with preliminary attachment.
 Civil Case No. CEB-9866 was filed by petitioner for a sum of money with damages against herein respondent
Metropolitan Bank and Trust Company and Chua.
 In both cases, petitioner alleged that he was doing business under the name Hope Pharmacy which sells medicine
and other pharmaceutical products in the City of Cebu. Petitioner had in his employ Chua as his pharmacist and
trustee or caretaker of the business; Tabaag, on the other hand, took care of the receipts and invoices and assisted
Chua in making deposits for petitioners accounts in the business operations of Hope Pharmacy.
 In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made by Chua and Tabaag
in the total amount of P109,433.30.
 In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying
sums, amounting to One Million Four Hundred Ninety-Two Thousand Five Hundred Ninety-Five Pesos and Six
Centavos (P1,492,595.06), that were not endorsed by him but were deposited under the personal account of Chua
with respondent bank
 Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without the
participation and connivance of respondent bank, the checks could not have been accepted for deposit to any other
account, except petitioners account.[8]
 Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and severally, to pay the
principal amount of P1,492,595.06, plus interest at 12% from the dates of the checks, until the obligation shall have
been fully paid; moral damages of Five Hundred Thousand Pesos (P500,000.00); exemplary damages
of P500,000.00; and attorneys fees and costs in the amount of P500,000.00.[9]
 RTC renders judgment dismissing plaintiff Vicente Gos complaint against the defendant Ma. Teresa Chua and
Glyndah Tabaag in Civil Case No. CEB-9713, as well as plaintiffs complaint against the same defendant Ma. Teresa
Chua in Civil Case No. CEB-9866.
 The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in CEB-9866 were
payments of petitioner for his loans or borrowings from the parents of Ma. Teresa Chua, through Ma. Teresa, who
was given the total discretion by petitioner to transfer money from the offices of Hope Pharmacy to pay the
advances and other obligations of the drugstore; she was also given the full discretion where to source the funds to
cover the daily overdrafts, even to the extent of borrowing money with interest from other persons.[13]
ISSUE: WON the bank is liable

HELD: no
A check is a bill of exchange drawn on a bank payable on demand. [17] There are different kinds of checks. In this case,
crossed checks are the subject of the controversy. A crossed check is one where two parallel lines are drawn across its
face or across the corner thereof. It may be crossed generally or specially. [18]

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn.
It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel
lines, as in this case. It may be issued so that presentment can be made only by a bank.[19]

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder in due course.[20]

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner
means that it could only be deposited and not converted into cash. The effect of crossing a check,

thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein.[21] The crossing of a check is a warning that the check should be deposited only in the
account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payees account

In the instant case, there is no dispute that the subject 32 checks with the total amount of P1,492,595.06 were crossed checks
with petitioner as the named payee. It is the submission of petitioner that respondent bank should be held accountable for
the entire amount of the checks because it accepted the checks for deposit under Chuas account despite the fact that the
checks were crossed and that the payee named therein was not Chua.

In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total sum of P1,492,595.06
from either Maria Teresa Chua or respondent bank because petitioner was not damaged thereby. [23]

Respondent banks contention is meritorious. Respondent bank should not be held liable for the entire amount of the checks
considering that, as found by the RTC and affirmed by the CA, the checks were actually given to Chua as payments by
petitioner for loans obtained from the parents of Chua. Furthermore, petitioners non-inclusion of Chua and Tabaag in the
petition before this Court is, in effect, an admission by the petitioner that Chua, in representation of her parents, had rightful
claim to the proceeds of the checks, as payments by petitioner for money he borrowed from the parents of Chua. Therefore,
petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.
However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and
encashment of the crossed checks without the proper indorsement. An indorsement is necessary for the proper
negotiation of checks specially if the payee named therein or holder thereof is not the one depositing or encashing it.
Knowing fully well that the subject checks were crossed, that the payee was not the holder and that the checks contained
no indorsement, respondent bank should have taken reasonable steps in order to determine the validity of the
representations made by Chua. Respondent bank was amiss in its duty as an agent of the payee. Prudence dictates that
respondent bank should not have merely relied on the assurances given by Chua.

Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the officer-in-charge and ranked
second to the assistant vice president of the bank at the time material to this case. Davis testimony was summarized by the
RTC as follows:

Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this litigation which
were payable to Hope Pharmacy. According to him, it was a privilege given to valued customers on a
highly selective case to case basis, for marketing purposes, based on trust and confidence, because Ma.
Teresa [Chua] told him that those checks belonged to her as payment for the advances she extended to Mr.
Go/Hope Pharmacy. x x x

Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check she deposited
with Metrobank, the same would be credited outright to her account, meaning that she could immediately
make use of the amount credited; this arrangement went on for about three years, without any complaint
from Mr. Go/Hope Pharmacy, and Ma. Teresa Chua made warranty that she would reimburse Metrobank
if Mr. Go complained. He did not however call or inform Mr. Go about this arrangement, because their
bank being a Chinese bank, transactions are based on trust and confidence, and for him to inform Mr.
Vicente Go about it, was tantamount to questioning the integrity of their client, Ma. Teresa Chua. Besides,
this special privilege or arrangement would not bring any monetary gain to the bank. [24]

Negligence was committed by respondent bank in accepting for deposit the crossed checks without indorsement and in not
verifying the authenticity of the negotiation of the checks. The law imposes a duty of extraordinary diligence on the
collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. [25] As
a business affected with public interest and because of the nature of its functions, the banks are under obligation to treat
the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of the relationship. [26] The
fact that this arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising any objection does
not detract from the duty of the bank to exercise extraordinary diligence. Thus, the Decision of the RTC, as affirmed by the
CA, holding respondent bank liable for moral damages is sufficient to remind it of its responsibility to exercise
extraordinary diligence in the course of its business which is imbued with public interest.


1. Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to
cover the former's contract to purchase and import loom and textile machinery from Nissho Company
2. Philippine Rayon could be held liable for the two (2) drafts
3. No. Sec. 143 NIL


 Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile
machineries under a five-year deferred payment plan. To effect payment for said machineries, the defendant-
appellant applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of
Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78.
Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank
through its correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts were
accepted by the defendant-appellant through its president, Anacleto R. Chi, while the others were not
 Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-
appellant which accepted delivery of the same. To enable the defendant-appellant to take delivery of the
machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by
Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company
 At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and
conditions thereof, were to be jointly and severally liable to the Prudential Bank should the defendant-appellant
fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. The
defendant-appellant was able to take delivery of the textile machineries and installed the same at its factory site at
69 Obudan Street, Quezon City.
 Sometime in 1967, the defendant-appellant ceased business operation (sic). On December 29, 1969, defendant-
appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P200,000.00. The lease was
renewed on January 3, 1973. On January 5, 1974, all the textile machineries in the defendant-appellant's factory
were sold to AIC Development Corporation for P300,000.00.
 The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid
and unliquidated. Repeated formal demands for the payment of the said trust receipt yielded no result Hence, the
present action for the collection of the principal amount of P956,384.95 was filed on October 3, 1974 against the
defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants interposed identical special
defenses, viz., the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is
guilty of laches. 2
 RTC rendered judgment sentencing the defendant Philippine Rayon Mills, Inc. to pay plaintiff the sum of
 CA - In its decision, public respondent sustained the trial court in all respects

ISSUES: 1. Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon;

2. Whether Philippine Rayon is liable on the basis of the trust receipt;

3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the obligation sought to be
enforced and if not, whether he may be considered a guarantor; in the latter situation, whether the case should have been
dismissed on the ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's properties.

Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts,
Exhibits "X" and "X-1", because only these appear to have been accepted by the latter after due presentment. The liability
for the remaining ten (10) drafts (Exhibits "X-2" to "X-11" inclusive) did not arise because the same were not presented for
acceptance. In short, both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable to make
the latter liable thereon. We are unable to agree with this proposition. The transaction in the case at bar stemmed from
Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to cover
the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a
five-year deferred payment plan. Petitioner approved the application. As correctly ruled by the trial court in its Order of 6
March 1975: 9

. . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff bank 10 was
under obligation to pay through its correspondent bank in Japan the drafts that Nisso (sic) Company,
Ltd., periodically drew against said letter of credit from 1963 to 1968, pursuant to plaintiff's contract with
the defendant Philippine Rayon Mills, Inc. In turn, defendant Philippine Rayon Mills, Inc., was obligated
to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company, Ltd. against said plaintiff
bank together with any accruing commercial charges, interest, etc. pursuant to the terms and conditions
stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A".

A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the
credit. 11Through a letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in
return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees
mutually agreed upon. 12 In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter
that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight
drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL). 13 The said section reads:

Sec. 143. When presentment for acceptance must be made. — Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of
the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or

(c) Where the bill is drawn payable elsewhere than at the residence or
place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; 14 this may be done in
writing by the drawee in the bill itself, or in a separate instrument. 15

The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter:

. . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless
plaintiff bank has given the Philippine Rayon Mills Inc. time within which to pay the same. The first two
drafts (Annexes C & D, Exh. X & X-1) were duly accepted as indicated on their face (sic), and upon such
acceptance should have been paid forthwith. These two drafts were not paid and although Philippine
Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16

Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:

Sec. 7. When payable on demand. — An instrument is payable on demand —

(a) When so it is expressed to be payable on demand, or at sight, or on

presentation; or

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so
issuing, accepting, or indorsing it, payable on demand. (emphasis supplied)

Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft,
bill of exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the
public respondent, contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance,
however, was not even necessary in the first place because the drafts which were eventually issued were sight
drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner — and
not Philippine Rayon — which had to accept the same for the latter was not the drawee. Presentment for
acceptance is defined an the production of a bill of exchange to a drawee for acceptance. 18The trial court and the
public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable requisite for
Philippine Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements, Philippine Rayon
immediately became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit
issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of
credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the
petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received
the imported machinery and the petitioner had fully paid for it. The typical setting and purpose of a letter of
credit are described in Hibernia Bank and Trust Co.vs. J. Aron & Co., Inc., 19 thus:

Commercial letters of credit have come into general use in international sales transactions where much
time necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during
which interval great price changes may occur. Buyers and sellers struggle for the advantage of position.
The seller is desirous of being paid as surely and as soon as possible, realizing that the vendee at a distant
point has it in his power to reject on trivial grounds merchandise on arrival, and cause considerable
hardship to the shipper. Letters of credit meet this condition by affording celerity and certainty of
payment. Their purpose is to insure to a seller payment of a definite amount upon presentation of
documents. The bank deals only with documents. It has nothing to do with the quality of the
merchandise. Disputes as to the merchandise shipped may arise and be litigated later between vendor
and vendee, but they may not impede acceptance of drafts and payment by the issuing bank when the
proper documents are presented.

The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that
Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by
quoting In re Dunlap Carpet Co., 21 thus:

By this arrangement a banker advances money to an intending importer, and thereby lends the aid of
capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce.
Much of this trade could hardly be carried on by any other means, and therefore it is of the first
importance that the fundamental factor in the transaction, the banker's advance of money and credit,
should receive the amplest protection. Accordingly, in order to secure that the banker shall be repaid at
the critical point — that is, when the imported goods finally reach the hands of the intended vendee —
the banker takes the full title to the goods at the very beginning; he takes it as soon as the goods are
bought and settled for by his payments or acceptances in the foreign country, and he continues to hold
that title as his indispensable security until the goods are sold in the United States and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to the banker, for the
importer has never owned the goods, and moreover he is not able to deliver the possession; but the
security is the complete title vested originally in the bankers, and this characteristic of the transaction has
again and again been recognized and protected by the courts. Of course, the title is at bottom a security
title, as it has sometimes been called, and the banker is always under the obligation to reconvey; but only
after his advances have been fully repaid and after the importer has fulfilled the other terms of the

As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:

. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel
Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon an he
has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the
person who has advanced payment, until he has been paid in full, or if the merchandise has already been
sold, the proceeds of the sale should be turned over to him by the importer or by his representative or
successor in interest.

Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt
transaction is defined as "any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security
interests' over certain specified goods, documents or instruments, releases the same to the possession of the entrustee
upon the latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trusts receipt, or for other purposes substantially equivalent to any one of the following: . . ."

It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and
have profited by its operation and/or disposition but very recent information that (sic) reached plaintiff bank that
defendants already sold the machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the
property covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants have willfully
violated their duty to account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of any
lease, sale or other disposition of the same that they may have made, notwithstanding demands therefor; defendants have
fraudulently misapplied or converted to their own use any money realized from the lease, sale, and other disposition of
said machinery." 23 While there is no specific prayer for the delivery to the petitioner by Philippine Rayon of the proceeds
of the sale of the machinery covered by the trust receipt, such relief is covered by the general prayer for "such further and
other relief as may be just and equitable on the premises." 24 And although it is true that the petitioner commenced a
criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability
arising out of the trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an
entrustee to turn over the proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent
of the amount owing to the entruster or as appear in the trust receipt or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. 25 Under Article 33 of the Civil
Code, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured
party in cases of defamation, fraud and physical injuries. Estafa falls under fraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private
respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon.
The statement at the dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause",

In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing,
we jointly and severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND
may call upon us to pay arising out of or pertaining to, and/or in any event connected with the default of
and/or non-fulfillment in any respect of the undertaking of the aforesaid:


We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any
steps or exhaust its remedy against aforesaid:

before making demand on me/us.

(Sgd.) Anacleto R. Chi


Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally
agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.

In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whether the mere signature of
defendant-appellee Chi of (sic) the guaranty agreement, Exhibit "C-1", will make it an actionable
document. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A
perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. It was signed only
by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in that
capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-appellant also
failed to have the purported guarantee clause acknowledged before a notary public. All these show that
the alleged guaranty provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged
still defendant-appellee Chi cannot be held liable thereunder because the records show that the plaintiff-
appellant had neither exhausted the property of the defendant-appellant nor had it resorted to all legal
remedies against the said defendant-appellant as provided in Article 2058 of the Civil Code. The
obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and subsidiary under
Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises only when the
principal debtor fails to comply with his obligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is
only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was
not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor
before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary
guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary
between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and
severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing
between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the
petitioner on the other with respect to the liability described under the trust receipt. Elsewise stated, their liability is not
divisible as between them, i.e., it can be enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the
petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared
solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29

Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively
disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary
public. While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who signed
the same did not make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi became the
sole guarantor. The attestation by witnesses and the acknowledgement before a notary public are not required by law to
make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present; however, when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that it be proved in a certain way, that
requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or
default of another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it
would be unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public is required to
make the same a public document, under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a
public document.

And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal
proceedings against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal
proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115.
Public respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the
phrase "without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads:

Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.

A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It is
clear that if the violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the
offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud as
provided for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be put in jail. However, it is these entities which are made liable for the
civil liability arising from the criminal offense. This is the import of the clause "without prejudice to the civil liabilities
arising from the criminal offense." And, as We stated earlier, since that violation of a trust receipt constitutes fraud under
Article 33 of the Civil Code, petitioner was acting well within its rights in filing an independent civil action to enforce the
civil liability arising therefrom against Philippine Rayon.

The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. The
trial court based the dismissal, and the respondent Court its affirmance thereof, on the theory that Chi is not liable on the
trust receipt in any capacity — either as surety or as guarantor — because his signature at the dorsal portion thereof was
useless; and even if he could be bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the
Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor, Philippine Rayon. The
records fail to show that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which

Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the debtor.

Simply stated, there is as yet no cause of action against Chi.

We are not persuaded. Excussion is not a condition sine qua non for the institution of an action against a guarantor.
In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:

4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment against him until after
the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the

There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case
No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of the Rules of Court on permissive joinder of
parties explicitly allows it. It reads:

Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any right to relief in respect to
or arising out of the same transaction or series of transactions is alleged to exist, whether jointly,
severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs or be
joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or
to all such defendants may arise in the action; but the court may make such orders as may be just to
prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any
proceedings in which he may have no interest.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of
plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work,
trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including
judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to
pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run
only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases.37

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it
is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things considered,
he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi
and condemning petitioner to pay him P20,000.00 as attorney's fees.

In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner

WHEREFORE, the instant Petition is hereby GRANTED.

The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that
of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby
REVERSED and SET ASIDE and another is hereby entered:

1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in
question (Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"),
and ordering it to pay petitioner: (a) the amounts due thereon in the total sum of
P956,384.95 as of 15 September 1974, with interest thereon at six percent (6%) per annum
from 16 September 1974 until it is fully paid, less whatever may have been applied
thereto by virtue of foreclosure of mortgages, if any; (b) a sum equal to ten percent (10%)
of the aforesaid amount as attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt
and ordering him to pay the face value thereof, with interest at the legal rate,
commencing from the date of the filing of the complaint in Civil Case No. Q-19312 until
the same is fully paid as well as the costs and attorney's fees in the sum of P10,000.00 if
the writ of execution for the enforcement of the above awards against Philippine Rayon
Mills, Inc. is returned unsatisfied.



1. Transaction: Balmaceda bought fighthing cocks from Ramos

2. NI: 34 Manager’s Check
3. Balmaceda fraudulently obtained and encashed 31 Manager’s checks
4. WON CA erred/ WON Balmaceda’s scheme was proven
5. No.

 PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the
Branch Manager of its Sta. Cruz, Manila branch.
 PCIB alleged that between 1991 and 1993, in the total amount of Ten Million Seven Hundred Eighty Two
Thousand One Hundred Fifty Pesos (₱10,782,150.00).
 PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a
portion of the proceeds from Balmaceda’s alleged fraud. PCIB also increased the number of fraudulently obtained
and encashed Manager’s checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven
Thousand One Hundred Fifty Pesos (₱11,937,150.00). The RTC granted this motion.
 Balmaceda did not file an Answer, he was declared in default.
 Ramos filed an Answer denying any knowledge of Balmaceda’s scheme. According to Ramos, he is a reputable
businessman engaged in the business of buying and selling fighting cocks, and Balmaceda was one of his clients.
Ramos admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda,
but maintained that he had no knowledge of the source of Balmaceda’s money.
 RTC issued a decision in favor of PCIB
 RTC found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the
Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the bank’s funds by falsifying
several commercial documents. He accomplished this by claiming that he had been instructed by one of the
Bank’s corporate clients to purchase Manager’s checks on its behalf, with the value of the checks to be debited
from the client’s corporate bank account.
 First, he would instruct the Bank staff to prepare the application forms for the purchase of Manager’s checks,
payable to several persons. Then, he would forge the signature of the client’s authorized representative on these
forms and sign the forms as PCIB’s approving officer. Finally, he would have an authorized officer of PCIB issue
the Manager’s checks. Balmaceda would subsequently ask his subordinates to release the Manager’s checks to
him, claiming that the client had requested that he deliver the checks.5 After receiving the Manager’s checks, he
encashed them by forging the signatures of the payees on the checks.
 In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Manager’s checks
payable to Ramos were crossed checks, Balmaceda was still able to encash the checks. 6 After Balmaceda encashed
three of these Manager’s checks, he deposited most of the money into Ramos’ account. 7 The RTC concluded that
from the ₱11,937,150.00 that Balmaceda misappropriated from PCIB, ₱895,000.00 actually went to Ramos. Since
the RTC disbelieved Ramos’ allegation that the sum of money deposited into his Savings Account (PCIB, Pasig
branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of
 CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that Ramos
colluded with Balmaceda in the latter’s fraudulent manipulations. 8
 According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Manager’s checks does
not suffice to prove that Ramos was complicit in Balmaceda’s fraudulent scheme. It observed that other persons
were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after
Ramos. With PCIB’s failure to prove Ramos’ actual participation in Balmaceda’s fraud, no legal and factual basis
exists to hold him liable.The CA also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from
Ramos’ bank account.

Ramos participation in Balmacedas scheme not proven)

HELD: At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-
examination of the evidence on record. As a general rule, petitions for review on certiorari only involve questions of
law.11 By way of exception, however, we can delve into evidence and the factual circumstance of the case when the
findings of fact in the tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the
exception applies, we are given latitude to review the evidence on record to decide the case with finality. 12

Ramos’ participation in Balmaceda’s scheme not proven

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking
advantage of his position as branch manager of PCIB’s Sta. Cruz, Manila branch, was able to apply for and obtain
Manager’s checks drawn against the bank account of one of PCIB’s clients. The unsettled question is whether Ramos, who
received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money to
the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to
fraudulently secure Manager’s checks and to misappropriate their proceeds. Since Ramos’ defense – anchored on mere
denial of any participation in Balmaceda’s wrongdoing – is an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence
which, to the court, is more worthy of belief than the evidence offered in opposition. 13 This Court, in Encinas v. National
Bookstore, Inc.,14 defined "preponderance of evidence" in the following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is
more convincing to the court as worthy of belief than that which is offered in opposition thereto.

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his
assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of
action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the claim. 15

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with
Balmaceda in perpetrating the latter’s scheme to defraud the Bank. In PCIB’s estimation, it successfully accomplished this
through the submission of the following evidence:

[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the application forms for MCs, show
that [these MCs were applied for in favor of Ramos;]

[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove that the MCs were issued in
favor of x x x Ramos[; and]

[3] [T]estimonies of the witness for [PCIB].16

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as

On its face, all that PCIB’s evidence proves is that Balmaceda used Ramos’ name as a payee when he filled up the
application forms for the Manager’s checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos
the payee on some of the Manager’s checks is not enough basis to conclude that Ramos was complicit in Balmaceda’s
fraud; a number of other people were made payees on the other Manager’s checks yet PCIB never alleged them to be
liable, nor did the Bank adduce any other evidence pointing to Ramos’ participation that would justify his separate
treatment from the others. Also, while Ramos is Balmaceda’s brother-in-law, their relationship is not sufficient, by itself,
to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme.

Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Manager’s
checks against the bank account of one of PCIB’s clients, as well as when he encashed the fraudulently acquired
Manager’s checks.

Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that Balmaceda committed all
the acts necessary to obtain the unauthorized Manager’s checks – from filling up the application form by forging the
signature of the client’s representative, to forging the signatures of the payees in order to encash the checks. As Mrs.
Costes stated in her testimony:

Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making unauthorized
withdrawals from particular account of a client or a client of yours at Sta. Cruz branch. Would you tell us how he effected
his unauthorized withdrawals?

A: He prevailed upon the domestic remittance clerk to prepare the application of a Manager’s check which [has] been
debited to a client’s account. This particular Manager’s check will be payable to a certain individual thru his account as
the instruction of the client.

Q: What was your findings in so far as the particular alleged instruction of a client is concerned?
A: We found out that he forged the signature of the client.

Q: On that particular application?

A: Yes sir.

Q: Showing to you several applications for Manager’s Check previously attached as Annexes "A, B, C, D and E["] of the
complaint. Could you please tell us where is that particular alleged signature of a client applying for the Manager’s check
which you claimed to have been forged by Mr. Balmaceda?

A: Here sir.


Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the
application form?

A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by
the client and his signature representing that, he certified the signature based on their records to be authentic.

Q: When you said he to whom are you referring to?

A: Mr. Balmaceda. And at the same time he approved the transaction.


Q: Do you know if the corresponding checks applied for in the application forms were issued?

A: Yes sir.

Q: Could you please show us where these checks are now, the one applied for in Exhibit "A" which is in the amount of
₱150,000.00, where is the corresponding check?

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmaceda’s

Q: In other words he is likewise approving signatory to the Manager’s check?

A: Yes sir. This is an authority that the check [has] been encashed.

Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he
allowed to encash by granting it.

Could you please show us?

ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross check.

A: And this is his signature.


Q: How about the check corresponding to Exhibit E-2 which is an application for ₱125,000.00 for a certain Rolando Ramos.
Do you have the check?

A: Yes sir.
ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of ₱125,000.00 payable to certain Rolando

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as he is concerned?

A: Yes sir he is also the right signer and he authorized the cancellation of the cross check.17 (emphasis ours)


Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again any participation in
these checks?

A: He is also the right signer and approved officer and he was authorized to debit on file.


Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were subsequently encashed?

A: Yes sir.

Q: Were you able to find out who encashed?

A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the
encashment of the check.


Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these] particular checks, the

A: No sir.

Q: It was all Mr. Balmaceda dealing with you?

A: Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging the
payees signature?

A: Yes sir.18 (emphases ours)

Mrs. Nilda Laforteza, the Commercial Account Officer of PCIB’s Sta. Cruz, Manila branch at the time the events of this
case occurred, confirmed Mrs. Costes’ testimony by stating that it was Balmaceda who forged Ramos’ signature on the
Manager’s checks where Ramos was the payee, so as to encash the amounts indicated on the checks. 19Mrs. Laforteza also
testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the one
who deposited the checks into Ramos’ bank account. As revealed during Mrs. Laforteza’s cross-examination:

Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client go to the bank to
encash these checks?

A: No it is Balmaceda who is depositing in his behalf.

Q: Did my client ever call up the bank concerning this amount?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.
Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to the account
of my client?

A: Yes.20 (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Manager’s check for
₱480,000.00, could only testify that the money was deposited into Ramos’ PCIB bank account. She could not attest that
Ramos himself presented the Manager’s check for deposit in his bank account.21 These testimonies clearly dispute PCIB’s
theory that Ramos was instrumental in the encashment of the Manager’s checks.

We also find no reason to doubt Ramos’ claim that Balmaceda deposited these large sums of money into his bank account
as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses – Vicente
Cosculluela and Crispin Gadapan – who testified that Ramos previously engaged in the business of buying and selling
fighting cocks, and that Balmaceda was one of Ramos’ biggest clients.

Quoting from the RTC decision, PCIB stresses that Ramos’ own witness and business partner, Cosculluela, testified that
the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than
₱100,000.00, for the sale of approximately 45 fighting cocks. 22 In PCIB’s view, this testimony directly contradicts Ramos’
assertion that he received approximately ₱400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony
also renders questionable Ramos’ assertion that Balmaceda deposited large amounts of money into his bank account as
payment for the fighting cocks.

On this point, we find that PCIB misunderstood Cosculluela’s testimony. A review of the testimony shows that
Cosculluela specifically referred to the net profit that they earned from the sale of the fighting cocks; 23 PCIB apparently
did not take into account the capital, transportation and other expenses that are components of these transactions.
Obviously, in sales transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping
costs and other incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that
Ramos and Cosculluela earned in a single transaction amounted to no more than ₱100,000.00,24 the inclusion of the actual
acquisition costs of the fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to
Manila) and other attendant expenses could account for the ₱400,000.00 that Balmaceda deposited into Ramos’ bank

Given that PCIB failed to establish Ramos’ participation in Balmaceda’s scheme, it was not even necessary for Ramos to
provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears
stronger than that presented by the defendant, a judgment cannot be entered in the plaintiff’s favor if his evidence still
does not suffice to sustain his cause of action; 25 to reiterate, a preponderance of evidence as defined must be established to
achieve this result.

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to
the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily
because other PCIB employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer.

Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch
at the time of the incident, testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s employees to
fill up the application forms for the Manager’s checks, to be debited from the bank account of one of the bank’s clients,
without providing the necessary Authority to Debit from the client.26 PCIB also admitted that these Manager’s checks
were subsequently released to Balmaceda, and not to the client’s representative, based solely on Balmaceda’s word that
the client had tasked him to deliver these checks.27

Despite Balmaceda’s gross violations of bank procedures – mainly in the processing of the applications for Manager’s
checks and in the releasing of the Manager’s checks – Balmaceda’s co-employees not only turned a blind eye to his
actions, but actually complied with his instructions. In this way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that
were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its face or across its
corner.28 Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the bank;
and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose
and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. 29 In
other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee.
When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s
account.30 In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which
were all crossed checks, or checks payable to the "payee’s account only."

The General Banking Law of 200031 requires of banks the highest standards of integrity and performance. The banking
business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general
in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a
good father of a family.32 The highest degree of diligence is expected. 33

While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these
acts, this circumstance cannot be used to excuse the manner the Bank – through its employees –handled its clients’ bank
accounts and thereby ignored established bank procedures at the branch manager’s mere order. This lapse is made all the
more glaring by Balmaceda’s repetition of his modus operandi 33 more times in a period of over one year by the Bank’s
own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the
weakness or lapses of individual employees.

Principle of unjust enrichment not applicable

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the amounts unjustly
received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil
Code which provides:

Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines v. Philab Industries,
Inc.34 that:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but
instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party
knowingly received something of value to which he was not entitled and that the state of affairs are such that it would
be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to
account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust
enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of
restitution.35 (emphasis ours)

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money
secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from
Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received
the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link
between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment.

However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank
account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly,
PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources
of Balmaceda’s funds.

PCIB illegally froze and debited Ramos’ assets

We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI Family Bank v. Franco, 36 we
cautioned against the unilateral freezing of bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant
[BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes
are derived from shady transactions, would open the floodgates of public distrust in the banking industry. 37

We see no legal merit in PCIB’s claim that legal compensation took place between it and Ramos, thereby warranting the
automatic deduction from Ramos’ bank account. For legal compensation to take place, two persons, in their own right,
must first be creditors and debtors of each other. 38 While PCIB, as the depositary bank, is Ramos’ debtor in the amount of
his deposits, Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law,
to automatically debit from Ramos’ bank account.

On the award of damages

Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold PCIB liable for moral and
exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the
depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code,
which provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. [emphasis ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious commission of a wrong; it partakes of the nature of fraud. 39

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos’ bank account and
subsequently debited the amount of ₱251,910.96 therefrom. While PCIB may have acted hastily and without regard to its
primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity, 40 we find that its actions
were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is
not a ground for granting moral damages.41

We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is
entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.1âwphi1 Since no
reason exists to award moral damages, so too can there be no reason to award exemplary damages.

We deem it just and equitable, however, to uphold the award of attorney’s fees in Ramos’ favor. Taking into consideration
the time and efforts involved that went into this case, we increase the award of attorney’s fees from ₱20,000.00 to


1. Purchase of fuel products

2. Check
3. Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued
were dishonoured.
4. WON bank is liable
5. No. a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the
fact that a deposit may be made later in the day. 25 Before a bank depositor may maintain a suit to recover a
specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his

 George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard.
They regularly purchased bulk fuel and other related products from Petrophil Corporation on COD basis. Orders
for bulk fuel and other related products were made by telephone and payments were effected by personal checks
upon delivery.1
 Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings
accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation.
 The bank allowed them to maintain a zero balance in their current account. Transfers from Saving Account No.
1037002387 to their current account could be made only with their prior authorization, but they gave written
authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current
Account No. 37-00066-7 at any time whenever the funds in their current account were insufficient to meet
withdrawals from said current account. Such arrangement for automatic transfer of funds was called a pre-
authorized transfer (PAT) agreement.2
 On December 12, 1983, petitioners, through Librada Moran, drew a check for P50,576.00 payable to
PetrophilCorporation.4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued
another check in the amount of P56,090.00 in favor of the same corporation. 5 The total sum of the two checks was
 On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the
Pandacan branch of the PNB, the collecting bank.
 In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in
the afternoon of the same day.
 The records show that on December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings
Account No. 1037001372 (covered by the PAT) had an available balance of
P26,104.306 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7
 George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with
the bank. He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25,8 and he
likewise deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. 9
 George Moran was informed by Librada, that Petrophil refused to deliver their orders on a credit basis because
the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the
bank dishonored the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to
temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil
cancelled their credit accommodation, forcing them to pay for their purchases in cash. 12 George Moran, furious
and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation,
he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customer
service officer, had committed a "grave error".
 On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an
application for a manager's check so that the dishonored checks could be redeemed. Diaz then went to Petrophil
to personally present the checks in payment for the two dishonored checks. 14
 George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from
Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the two aforementioned checks
were "inadvertently dishonored . . . due to operational error." Said letter was received by Petrophil on January 4,
 Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and personal
reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the
bank issued a certification clearing their name and paid them P1,000,000.00 as moral damages. 16
 RTC dismissed both the complaint and the counterclaim.
 CA affirmed the decision of the trial court. 18

ISSUE: WON the bank is liable

HELD: no.
We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on a bank payable
on demand. 19 Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by
a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer
or order, a named sum of money. 20

Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. 21 In other words, the relationship between the bank and the depositor is that of a debtor and
creditor. 22 By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks
drawn by the depositor provided that said depositor has money in the hands of the bank. 23

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his
deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the
drawer to substantial damages without any proof of actual
damages. 24

Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact
that a deposit may be made later in the day. 25 Before a bank depositor may maintain a suit to recover a specific
amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. 26

The present action for damages accordingly hinges on the resolution of the inquiry as to whether or not petitioners had
sufficient funds in their accounts when the bank dishonored the checks in question. In view of the factual findings of the
two lower courts the correctness of which are challenged by what appear to be plausible, arguments, we feel that the
same should properly be resolved by us. This would necessarily require us to inquire into both the savings and current
accounts of petitioners in relation to the PAT arrangement.

On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the available balance for Savings
Account No. 1037001372 was P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero balance. On
December 15, 1983, at approximately ten o'clock in the morning, petitioners, through George Moran, learned that
P66,666.00 from Saving Account No. 1037001372 was transferred to their current account. Another P40,000.00 was
transferred from Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by then
sufficient to cover the two checks, it is asserted by petitioners that such fact should have prevented the dishonor of the
checks. It appears, however, that it was not so.

As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unit of Citytrust,
detailed on the witness stand the standard clearing procedure adopted by respondent bank and the Philippine Clearing
House Corporation, to wit:.

Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs.
Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation
were drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks
were made payable to Petrophil Corporation. On record, Petrophil Corporation
presented these two (2) checks for clearing with PNB Pandacan Branch on December 14,
1983. Now in accordance with the bank, what would happen with these checks drawn
with (sic) PNB on December 14, 1983?.

A: So these checks will now be presented by PNB with the Philippine Clearing House on
December 14, and then the Philippine Clearing House will process it until midnight of December
14. Citytrust will send a clearing representative to the Philippine Clearing House at around 2:00
o'clock in the morning of December 15 and then get the checks. The checks will now be processed
at the Citytrust Computer at around 3:00 o'clock in the morning of December 14 (sic)but it will
be processed for balance of Citytrust as of December 14 because for one, we have not opened on
December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the
date it was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27

Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that the available balance
on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the
two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since
December 15, 1983 was the actual date when the checks were processed. As earlier stated, when petitioners' checks were
dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372, which was the subject
of the PAT agreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB, Pandacan
branch presented the checks for collection, the available balance for Savings Account No. 1037001372, to repeat, was only
P26,104.30 while Current Account No. 37-0006-7 had no available balance. It was only on December 15, 1983 at around ten
o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor
of the checks.

Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider the fact that the
witness himself admitted that he had no personal knowledge surrounding the dishonor of the two checks in question.
Thus, although he knew the standard clearing procedure, it does not necessarily mean that the same procedure was
adopted with regard to the two checks.

We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in law that the ordinary
course of business has been followed. In the absence of a contrary showing, it is presumed that the acts in question were
in conformity with the usual conduct of business. In the case at bar, petitioners failed to present countervailing evidence
to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by
the bank since 1983.

Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every
time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to
notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of
exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediately
payment. 28

Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of their presentment on
December 14, petitioners had, at the very least, twenty-four hours to replenish their balance in the bank.

As previously noted, it was only during business hours in the morning of December 15, 1983, that P66,666.00 was
automatically transferred from Savings Account No. 1037001372 to Current Account No. 37-00066-7, and another
P40,000.00 was transferred from Savings Account No. 1037002387 to the same current by a debit memorandum.
Petitioners argue that if indeed the checks were dishonored in the early morning of December 15, 1983, the bank would
not have automatically transferred P66,666.00 to said current account. They theorize that the checks having already been
dishonored, there was no necessity to put into effect the pre-authorized transfer agreement.

That theory is incorrect. When the transfer from both savings accounts to the current account were made, they were done
in the hope that the checks may be retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not
succeed in effectuating its good intentions. The transfers were made to preserve its relations with petitioners whom it
knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the same was at all possible.
Although not admitting fault, it tried its best to make sure that the checks would not bounce.

Under similar circumstances, it was held in Whitman vs. First National Bank 29 that a bank performs its full duty where,
upon the receipt of a check drawn against an account in which there are insufficient funds to pay it in full, it endeavors to
induce the drawer to make good his account so that the check can be paid, and failing in this, it protests the check on the
following morning and notifies its correspondent bank by the telegraph of the protest. It cannot, therefore, be held liable
to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that
the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to
make the check good, and by notifying its correspondent of the dishonor of the check by telegram.

Petitioners maintain that at the time the checks were dishonored, they had already deposited sufficient funds to cover
said checks. To prove their point, petitioners quoted in their petition the following testimony of said witness Rionisto, to

Q: Now according to you, you would receive the checks from (being deposited to) the
collecting bank which in this particular example was the Pandacan Branch of PNB which
in turn will deliver it to the Philippine Clearing House and the Philippine Clearing
House will deliver it to your office around 12:00 o'clock of December . . . ?

A: Around 2:00 o'clock of December 15. We sent a clearing representative.

Q: And the checks will be processed in accordance with the balance available as of
December 14?

A: Yes, sir.

Q: And naturally you will place there "drawn against insufficient funds, December 14,

A: Yes, sir.

Q: Are you sure about that?

A: Yes, sir . . . (tsn, September 9, 1988, p. 14) 30

Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it did not jibe with his
previous testimony, wherein he categorically stated that "the checks will now be processed as the Citytrust Computer at
around 3:00 in the morning of December 14 (sic) but it will be processed for balance of Citytrust as of December 14
because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to
process it on the date it was presented for
clearing." 31 Analyzing the procedure he had previously explained, and analyzing his testimony in its entirety and not in
truncated portions, it would logically and ineluctably appear that he actually meant December 15, and not December 14.

In the early morning of every business day, prior to banking hours, the various branches of Citytrust would receive a
computer printout called the "rejected transactions" report from the head office. The report contains, among others, a
listing of "checks to be funded." When Citytrust, Shaw Boulevard branch, received said report in the early morning of
December 15, 1983, the two checks involved were included in the "checks to be funded." That report was used by the bank
as its basis in dishonoring the two checks in question. Petitioner contends that the bank erred when it did so because on
previous occasions, the report was merely used by the bank as a basis for determining whether or not it was necessary to
notify them of the need to deposit certain amounts in their accounts.

Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the report and transfer
in on a "pink slip." These pink slips were then given to George Moran. In turn, George Moran testified that he would
deposit the necessary funds stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check
written on the notices was ever dishonored after he had funded said checks with the bank. Thus, petitioner argues, the
checks were not yet dishonored after the bank received the report in the early morning of December 15, 1983.

Said argument does not persuade. If ever petitioners on previous occasions were given notices every time a check was
presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere
accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence non-
compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the
checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have
to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the
bank may lawfully refuse payment. 32

Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check
issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then
had a balance of only P26,104.30. This being the case, Citytrust could not be expected to accept for payment either one of
the two checks nor partially honor one check.

A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the
check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has
never existed. Upon partial payment, the check holder could not be called upon to surrender the check, and the bank
would be without a voucher affording a certain means of showing the payment. The rule is based on commercial
convenience, and any rule that would work such manifest inconvenience should not be recognized. A check is intended
not only to transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the bank
of the payment of such amount when the check is taken up. 33

On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by a pre-arranged
automatic transfer agreement, had enough amount deposited to cover both checks (which is not so in this case), the bank
still had no obligation to honor said checks as there was then no authority given to it to make the transfer of funds. Where
a depositor has two accounts with a bank, an open account and a savings account, and draws a check upon the open
account for more money than the account contains, the bank may rightfully refuse to pay the check, and is under no duty
to make up the deficiency from the savings account. 34

We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of the letter of Citytrust
to Petrophil, dated December 16, 1983. As aptly and correctly stated by said court, ". . . the letter is not an admission of
liability as it was written merely to maintain the goodwill and continued patronage of plaintiff-appellants. (This) cannot
be characterized as baseless, considering the totality of the circumstances surrounding its writing." 35

In the present case, the actions taken by the bank after the incident clearly show that there was neither malice nor bad
faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branch manager, even went for this
purpose to the Moran residence to facilitate their application for a manager's check. Later, he went to the Petrophil
Corporation to personally redeem the checks. Still later, the letter was sent by respondent bank to Petrophil explaining
that the dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake to construe
that letter as an admission of guilt on the part of the bank. It knew that it was confronted with a client who obviously was
not willing to admit any fault on his part, although the facts show otherwise. Thus, respondent bank ran the risk of losing
the business of an important and influential member of the financial community if it did not do anything to assuage the
feelings of petitioners.

It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, which fact, more than
anything, displeased them, to say the least. On demand of petitioners that their names be cleared, the bank considered it
more prudent to send the letter. It never realized that it would thereafter be used by petitioners as one of the bases of their
legal action. It will be noted that there was no reason for the bank to send the letter to Petrophil Corporation since the
latter was not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended to
accommodate the request of the Morans and was part of the series of damage-control measures taken by the bank to
placate petitioners.

Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffs-appellants (herein
petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private
respondent). As pointed out by the court a quo, it took plaintiffs-appellants about six (6) months after the dishonor of the
checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that time, plaintiffs-appellants had
discovered the letter of Mr. Diaz attributing the dishonor of their checks to 'operational error'. The attempt to unduly ride
on the letter of Mr. Diaz speaks for itself." 36

On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to
award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a
fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in handling the
accounts entrusted to its care, 37 the bank may not be held responsible for such damages in the absence of fraud, bad faith,
malice, or wanton attitude. 38