G.R. No. 187769 June 4, 2014 ALVIN PATRIMONIO, Petitioner, Napoleon Gutierrez and Octavio Marasigan Iii, Respondents

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NEGOTIABLE INSTRUMENTS
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-
G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City,
Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and
ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the
name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows
related to basketball. Petitioner was already then a decorated professional basketball player while Gutierrez was
a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous notification to and approval by the
petitioner. According to petitioner, the arrangement was made so that he could verify the validity of the
payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In addition to the payment of the principal, Gutierrez
assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos
Only", and the amount of "₱200,000.00". The upper right portion of the check corresponding to the date was
also filled out with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It
was later revealed that petitioner’s account with the bank had been closed since May 28, 1993.
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Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of ₱200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied
authorizing the loan or the check’s negotiation, and asserted that he was not privy to the parties’ loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez was
declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-signed
blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez
not to negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments
Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the RTC
ruled that he deliberately violated petitioner’s specific instructions and took advantage of the trust reposed in
him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioner’s
complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the
check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due
course. He contended that when Marasigan received the check, he knew that the same was without a date, and
hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his check
being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After
careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not
receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioner’s
authority. It held that the loan may not be nullified since it is grounded on an obligation arising from law and
ruled that the petitioner is still liable to pay Marasigan the sum of ₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present
petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a special
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power of attorney is necessary for an individual to make a loan or borrow money in behalf of another; (3) the
loan transaction was between Gutierrez and Marasigan, with his check being used only as a security; (4) the
check had not been completely and strictly filled out in accordance with his authority since the condition that
the subject check can only be used provided there is prior approval from him, was not complied with; (5) even if
the check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim the check’s
value as he was not a holder in due course; and (6) by reason of the bad faith in the dealings between the
respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority
given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of
inquiry of whether the contract of loan may be nullified, hinges on the very existence of the contract of loan – a
question that, as presented, is essentially, one of fact. Whether the petitioner authorized the borrowing;
whether Gutierrez completely filled out the subject check strictly under the petitioner’s authority; and whether
Marasigan is a holder in due course are also questions of fact, that, as a general rule, are beyond the scope of a
Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One
notable exception is when the findings off act of both the trial court and the CA are conflicting, making their
review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit with
the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine the
parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of
money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that absent such authority in writing, he
should not be held liable for the face value of the check because he was not a party or privy to the agreement.
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Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to
render some service or to do something in representation or on behalf of another, with the consent or authority
of the latter." Agency may be express, or implied from the acts of the principal, from his silence or lack of action,
or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can
loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
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(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things
which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority
may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as it
may, the authority must be duly established by competent and convincing evidence other than the self serving
assertion of the party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in
Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The requirements are
met if there is a clear mandate from the principal specifically authorizing the performance of the act. As early as
1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or
written, the one vital thing being that it shall be express. And more recently, We stated that, if the special
authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while
the same does not state that the special authority be in writing the Court has every reason to expect that, if not
in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that
such authority was verbally given him.(Home Insurance Company vs. United States lines Company, et al., 21
SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner.1âwphi1Records do not show that the petitioner executed any special power of attorney (SPA) in
favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone
for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such
transaction:
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ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow
using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan
in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner.
As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages
in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring authority on de Villa,
there is no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was
ever presented. x x x There was no showing that respondent corporation ever authorized de Villa to obtain the
loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable
since there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner.
Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death).
(citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to
obtain a loan from him.
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Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of
account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.
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It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting
for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not
bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we held in People v.
Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as
holder, i.e., as "payee" or "indorsee." And there appears to beno contract of agency between Yambao and
Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before
the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of both
parties is essential, the principal consents that the other party, the agent, shall act on his behalf, and the agent
consents so to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence, but also its nature and extent. This is more
imperative when it is considered that the transaction dealt with involves checks, which are not legal tender, and
the creditor may validly refuse the same as payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the petitioner whether he had authorized the borrowing of money
or release of the check. He was thus bound by the risk accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not
Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article 1318 of the
Civil Code14enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and

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3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not obtained and who
was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and neither
should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any evidence to
prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even remotely, as sufficient
authorization, much less, consent to the contract of loan. Without the consent given by one party in a purported
contract, such contract could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable
under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments
Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced against any person who became a party thereto
prior to its completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and from such possession, together
with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the
blanks.16
In order however that one who is not a holder in due course can enforce the instrument against a party prior to
the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the
instrument had not been filled up strictly in accordance with the authority given and within a reasonable time,
the maker can set this up as a personal defense and avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority to fill it up had been given and that the same was not in
excess of authority.17
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In the present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled out strictly
under the authority he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for
value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary that
at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up
against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which would
render it dishonest for him to take a negotiable paper. The absence of the defense, when the instrument was
taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument
amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced
upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that
there was something wrong about his assignor's acquisition of title, although he did not have notice of the
particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all that is
required is knowledge of such facts that his action in taking the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial sense.
The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves
to dispose of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty
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upon the defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious
facts. (emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan,
and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The
following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were
several visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again
and he was fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na
siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog…
(He told me that we have to fix it up before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July
27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and
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failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as gross
negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred
from recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case
recover on the instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not
within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority
he gave. He points to his instruction not to use the check without his prior approval and argues that the check
was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and
use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business
provided that he could only use them upon his approval. His instruction could not be any clearer as Gutierrez’
authority was limited to the use of the checks for the operation of their business, and on the condition that the
petitioner’s prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority
does not extend to its use (i.e., subsequent transfer or negotiation)once the check is completed. In other words,
only the authority to complete the check is presumed. Further, the law used the term "prima facie" to
underscore the fact that the authority which the law accords to a holder is a presumption juris tantumonly;
hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to
fill up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved
the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only xx in this
check?
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A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority
when he used the check to pay the loan he supposedly contracted for the construction of petitioner's house.
This is a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot
therefore be validly concluded that the check was completed strictly in accordance with the authority given by
the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense
that the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no
right to enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the
check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's
petition for review on certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated
April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs against the
respondents.
SO ORDERED.
2nd case PDF (Gr no. 219037)
G.R. No. 150228 July 30, 2009
BANK OF AMERICA NT & SA, Petitioner,

vs.
PHILIPPINE RACING CLUB, Respondent.
DECISION
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 promulgated on
July 16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled
"Philippine Racing Club, Inc. v. Bank of America NT & SA," affirming the Decision2 dated March 17, 1994 of the
Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise,
the present petition assails the Resolution3 promulgated on September 28, 2001, denying the Motion for
Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the
Metro Manila area. Among the accounts maintained was Current Account No. 58891-012 with defendant-
appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to said Current Account
were plaintiff-appellee’s President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation
were scheduled to go out of the country in connection with the corporation’s business. In order not to disrupt
operations in their absence, they pre-signed several checks relating to Current Account No. 58891-012. The
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intention was to insure continuity of plaintiff-appellee’s operations by making available cash/money especially
to settle obligations that might become due. These checks were entrusted to the accountant with instruction to
make use of the same as the need arose. The internal arrangement was, in the event there was need to make
use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the
entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a
couple of plaintiff-appellee corporation’s checks (Nos. 401116 and 401117) with the indicated value of
P110,000.00 each. It is admitted that these 2 checks were among those presigned by plaintiff-appellee
corporation’s authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of
the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on
the upper line was the word "CASH" while the lower line had the following typewritten words, viz: "ONE
HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular entries on the face of the checks,
defendant-appellant bank, without as much as verifying and/or confirming the legitimacy of the checks
considering the substantial amount involved and the obvious infirmity/defect of the checks on their faces,
encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have taken
less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee
corporation yielded the fact that there was no transaction involving PRCI that call for the payment of
P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of PRCI (one Clarita
Mesina who was subsequently criminally charged for qualified theft) who eventually completed without
authority the entries on the pre-signed checks. PRCI’s demand for defendant-appellant to pay fell on deaf ears.
Hence, the complaint.4
After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of
which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the
latter is ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand (₱220,000.00) Pesos, with legal interest to be computed
from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (₱20,000.00) Pesos by way of attorney’s fees;
(3) The sum of Ten Thousand (₱10,000.00) Pesos for litigation expenses, and
(4) To pay the costs of suit.
SO ORDERED.5
Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in
its July 16, 2001 Decision. Petitioner’s Motion for Reconsideration of the CA Decision was subsequently denied
on September 28, 2001.
Petitioner now comes before this Court arguing that:

Batch 1 13
I. The Court of Appeals gravely erred in holding that the proximate cause of respondent’s loss was petitioner’s
encashment of the checks.
A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks
despite the fact that petitioner was merely fulfilling its obligation under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment,
despite the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law,
despite its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the proximate cause of respondent’s loss was its own
grossly negligent practice of pre-signing checks without payees and amounts and delivering these pre-signed
checks to its employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial court’s award of attorney’s fees despite the absence
of any applicable ground under Article 2208 of the Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorney’s fees, moral and exemplary damages, and costs
of suit in favor of petitioner, who clearly deserves them.6
From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is
whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioner’s
failure to make a verification regarding the said checks with the respondent in view of the misplacement of
entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving
the same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid
checks. Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL), petitioner claims that its duty
as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing
the drawer-client’s genuine signatures. The genuine signatures of the client’s duly authorized signatories affixed
on the checks signify the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty
to determine whether the signatures appearing on the check are the drawer-client’s or its duly authorized
signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay. If the
signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and
contractual, duty not to pay.9
Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer
before encashing a check only when the check bears a material alteration. A material alteration is defined in
Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the
number or relations of the parties, the currency in which payment is to be made or one which adds a place of
payment where no place of payment is specified, or any other change or addition which alters the effect of the
instrument in any respect. With respect to the checks at issue, petitioner points out that they do not contain any
material alteration.10 This is a fact which was affirmed by the trial court itself.11
Batch 1 14
There is no dispute that the signatures appearing on the subject checks were genuine signatures of the
respondent’s authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondent’s
President and Vice-President for Finance, respectively. Both pre-signed the said checks since they were both
scheduled to go abroad and it was apparently their practice to leave with the company accountant checks
signed in black to answer for company obligations that might fall due during the signatories’ absence. It is
likewise admitted that neither of the subject checks contains any material alteration or erasure.
However, on the blank space of each check reserved for the payee, the following typewritten words appear:
"ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the blank
reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a
check writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious
before proceeding to encash them which it did not do.
It is well-settled that 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. They have the obligation to
treat their client’s 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.12
Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the
typewritten word "CASH," expressed in words, is the very same amount indicated in figures by means of a check
writer on the amount portion of the check. The amount stated in words is, therefore, a mere reiteration of the
amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a repetition
and that a repetition is not an alteration which if present and material would have enjoined it to commence
verification with respondent.13
We do not agree with petitioner’s myopic view and carefully crafted defense. Although not in the strict sense
"material alterations," the misplacement of the typewritten entries for the payee and the amount on the same
blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of
the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was
possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily
accomplishes the checks of respondent, it should have occurred to petitioner’s employees that it would be
unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility
that the holder or the person who is attempting to encash the checks did not have proper title to the checks or
did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple
phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the
stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of
highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding
their encashment. Respondent’s witness testified that for checks in amounts greater than Twenty Thousand
Pesos (₱20,000.00) it is the company’s practice to ensure that the payee is indicated by name in the check.14 This
was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to
"CASH" for substantial amounts such as in this case. If each irregular circumstance in this case were taken singly
or isolated, the bank’s employees might have been justified in ignoring them. However, the confluence of the
irregularities on the face of the checks and circumstances that depart from the usual banking practice of
respondent should have put petitioner’s employees on guard that the checks were possibly not issued by the
Batch 1 15
respondent in due course of its business. Petitioner’s subtle sophistry cannot exculpate it from behavior that fell
extremely short of the highest degree of care and diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioner’s operations manager that in case of an irregularity on the
face of the check (such as when blanks were not properly filled out) the bank may or may not call the client
depending on how busy the bank is on a particular day,15 we are even more convinced that petitioner’s
safeguards to protect clients from check fraud are arbitrary and subjective. Every client should be treated
equally by a banking institution regardless of the amount of his deposits and each client has the right to expect
that every centavo he entrusts to a bank would be handled with the same degree of care as the accounts of
other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of diligence expected
of it as a banking institution.
In defense of its cashier/teller’s questionable action, petitioner insists that pursuant to Sections 1416 and 1617 of
the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had
authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in
petitioner’s view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-
sign and deliver the subject checks.18 Petitioner argues that there was indeed delivery in this case because,
following American jurisprudence, the gross negligence of respondent’s accountant in safekeeping the subject
checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from
claiming non-delivery of the instrument.19
Petitioner’s contention would have been correct if the subject checks were correctly and properly filled out by
the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the
bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper
delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances.
However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to
the likelihood that the checks were not properly delivered to the person who encashed the same. In all, we see
no reason to depart from the finding in the assailed CA Decision that the subject checks are properly
characterized as incomplete and undelivered instruments thus making Section 1520 of the NIL applicable in this
case.
However, we do agree with petitioner that respondent’s officers’ practice of pre-signing of blank checks should
be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation
of businesses. It should have occurred to respondent’s officers and managers that the pre-signed blank checks
could fall into the wrong hands as they did in this case where the said checks were stolen from the company
accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner
will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court
has consistently applied the doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong,21 we ruled:
…[I]t is petitioner [bank] 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. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but failed
to do so is chargeable with the consequences thereof.22 (emphasis ours)
Batch 1 16
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of
respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the
former had the last clear chance to avoid the loss. To reiterate, petitioner’s own operations manager admitted
that they could have called up the client for verification or confirmation before honoring the dubious checks.
Verily, petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the
necessary verification due to the volume of banking transactions on that particular day is a flimsy and
unacceptable excuse, considering that the "banking business is so impressed with public interest where the trust
and confidence of the public in general is of paramount importance such that the appropriate standard of
diligence must be a high degree of diligence, if not the utmost diligence."23 Petitioner’s negligence has been
undoubtedly established and, thus, pursuant to Art. 1170 of the NCC,24 it must suffer the consequence of said
negligence.
In the interest of fairness, however, we believe it is proper to consider respondent’s own negligence to mitigate
petitioner’s liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury
being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.1avvph!1
Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:
The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own injury
should not be entitled to recover damages in full but must bear the consequences of his own negligence. The
defendant must thus be held liable only for the damages actually caused by his negligence. xxx xxx xxx
As we previously stated, respondent’s practice of signing checks in blank whenever its authorized bank
signatories would travel abroad was a dangerous policy, especially considering the lack of evidence on record
that respondent had appropriate safeguards or internal controls to prevent the pre-signed blank checks from
falling into the hands of unscrupulous individuals and being used to commit a fraud against the company. We
cannot believe that there was no other secure and reasonable way to guarantee the non-disruption of
respondent’s business. As testified to by petitioner’s expert witness, other corporations would ordinarily have
another set of authorized bank signatories who would be able to sign checks in the absence of the preferred
signatories.26 Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject
checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a
drawer’s signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the
pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the
responsibility for the loss.
We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from
respondent’s accountant turned out to be another employee, purportedly a clerk in respondent’s accounting
department. As the employer of the "thief," respondent supposedly had control and supervision over its own
employee. This gives the Court more reason to allocate part of the loss to respondent.
Following established jurisprudential precedents,27 we believe the allocation of sixty percent (60%) of the actual
damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is
Batch 1 17
proper under the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%)
of its own loss.
Finally, we find that the awards of attorney’s fees and litigation expenses in favor of respondent are not justified
under the circumstances and, thus, must be deleted. The power of the court to award attorney’s fees and
litigation expenses under Article 2208 of the NCC28 demands factual, legal, and equitable justification.
An adverse decision does not ipso facto justify an award of attorney’s fees to the winning party.29 Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney’s fees
may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a
case other than an erroneous conviction of the righteousness of his cause.30
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28,
2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to
respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos
(₱220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorney’s fees and
litigation expenses in favor of respondent are deleted.
Proportionate costs.
SO ORDERED.
G.R. No. 158312 November 14, 2008
JOHN DY, petitioner,

vs.
PEOPLE OF THE PHILIPPINES and The HONORABLE COURT OF APPEALS, respondents.
DECISION
This appeal prays for the reversal of the Decision1 dated January 23, 2003 and the Resolution2 dated May 14,
2003 of the Court of Appeals in CA-G.R. CR No. 23802. The appellate court affirmed with modification the
Decision3 dated November 17, 1999 of the Regional Trial Court (RTC), Branch 82 of Quezon City, which had
convicted petitioner John Dy of two counts of estafa in Criminal Cases Nos. Q-93-46711 and Q-93-46713, and
two counts of violation of Batas Pambansa Bilang 224 (B.P. Blg. 22) in Criminal Cases Nos. Q-93-46712 and Q-93-
46714.
The facts are undisputed:
Since 1990, John Dy has been the distributor of W.L. Food Products (W.L. Foods) in Naga City, Bicol, under the
business name Dyna Marketing. Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack
foods at the latter's branch or main office in Quezon City. At times, he would entrust the payment to one of his
drivers.
On June 24, 1992, Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack foods. He
introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's credit with the main office,
gave him merchandise worth P106,579.60. In return, the driver handed her a blank Far East Bank and Trust
Batch 1 18
Company (FEBTC) Check with Check No. 553602 postdated July 22, 1992. The check was signed by Dy though it
did not indicate a specific amount.
Yet again, on July 1, 1992, the same driver obtained snack foods from Maraca in the amount of P226,794.36 in
exchange for a blank FEBTC Check with Check No. 553615 postdated July 31, 1992.
In both instances, the driver was issued an unsigned delivery receipt. The amounts for the purchases were filled
in later by Evelyn Ong, accountant of W.L. Foods, based on the value of the goods delivered.
When presented for payment, FEBTC dishonored the checks for insufficiency of funds. Raul D. Gonzales,
manager of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno, counsel of W.L. Foods, of the dishonor.
Apparently, Dy only had an available balance of P2,000 as of July 22, 1992 and July 31, 1992.
Later, Gonzales sent Atty. Jimeno another letter5 advising her that FEBTC Check No. 553602 for P106,579.60 was
returned to the drawee bank for the reasons stop payment order and drawn against uncollected deposit
(DAUD), and not because it was drawn against insufficient funds as stated in the first letter. Dy's savings deposit
account ledger reflected a balance of P160,659.39 as of July 22, 1992. This, however, included a regional clearing
check for P55,000 which he deposited on July 20, 1992, and which took five (5) banking days to clear. Hence, the
inward check was drawn against the yet uncollected deposit.
When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he could not pay
since he had no funds yet. This prompted the former to send petitioner a demand letter, which the latter
ignored.
On July 16, 1993, Lim charged Dy with two counts of estafa under Article 315, paragraph 2(d)6 of the Revised
Penal Code in two Informations, which except for the dates and amounts involved, similarly read as follows:
That on or about the 24th day of June, 1992, in Quezon City, Philippines, the said accused, did then and
there [willfully] and feloniously defraud W.L. PRODUCTS, a corporation duly organized and existing
under the laws of the Republic of the Philippines with business address at No. 531 Gen. Luis St.,
Novaliches, this City, in the following manner, to wit: the said accused, by means of false manifestations
and fraudulent representation which he made to complainant to the effect that Far East Bank and Trust
Co. check No. 553602 dated July 22, 1992 in the amount of P106,579.60, payable to W.L. Products is a
good check and will be honored by the bank on its maturity date, and by means of other deceit of
similar import, induced and succeeded in inducing the said complainant to receive and accept the
aforesaid check in payment of snack foods, the said accused knowing fully well that all his
manifestations and representations were false and untrue and were made solely for the purpose of
obtaining, as in fact he did obtain the aforesaid snack foods valued at P106,579.60 from said
complainant as upon presentation of said check to the bank for payment, the same was dishonored and
payment thereof refused for the reason stop payment and the said accused, once in possession of the
aforesaid snack foods, with intent to defraud, [willfully], unlawfully and feloniously misapplied,
misappropriated and converted the same or the value thereof to his own personal use and benefit, to
the damage and prejudice of said W.L. Products, herein represented by RODOLFO BORJAL, in the
aforementioned amount of P106,579.60, Philippine Currency.
Contrary to law.7
Batch 1 19
On even date, Lim also charged Dy with two counts of violation of B.P. Blg. 22 in two Informations which
likewise save for the dates and amounts involved similarly read as follows:
That on or about the 24th day of June, 1992, the said accused, did then and there [willfully], unlawfully
and feloniously make or draw and issue to W.L. FOOD PRODUCTS to apply on account or for value a Far
East Bank and Trust Co. Check no. 553602 dated July 22, 1992 payable to W.L. FOOD PRODUCTS in the
amount of P106,579.60 Philippine Currency, said accused knowing fully well that at the time of issue
he/she/they did not have sufficient funds in or credit with the drawee bank for payment of such check in
full upon its presentment, which check when presented 90 days from the date thereof was subsequently
dishonored by the drawee bank for the reason "Payment stopped" but the same would have been
dishonored for insufficient funds had not the accused without any valid reason, ordered the bank to
stop payment, the said accused despite receipt of notice of such dishonor, failed to pay said W.L. Food
Products the amount of said check or to make arrangement for payment in full of the same within five
(5) banking days after receiving said notice.
CONTRARY TO LAW.8
On November 23, 1994, Dy was arrested in Naga City. On arraignment, he pleaded not guilty to all charges.
Thereafter, the cases against him were tried jointly.
On November 17, 1999 the RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22. The trial
court disposed of the case as follows:
WHEREFORE, accused JOHN JERRY DY ALDEN (JOHN DY) is hereby found GUILTY beyond reasonable
doubt of swindling (ESTAFA) as charged in the Informations in Criminal Case No. 93-46711 and in
Criminal Case No. Q-93-46713, respectively. Accordingly, after applying the provisions of the
Indeterminate Sentence Law and P.D. No. 818, said accused is hereby sentenced to suffer the
indeterminate penalty of ten (10) years and one (1) day to twelve (12) years of prision mayor, as
minimum, to twenty (20) years of reclusion temporal, as maximum, in Criminal Case No. Q-93-46711
and of ten (10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to thirty (30)
years of reclusion perpetua, as maximum, in Criminal Case No. Q-93-46713.
Likewise, said accused is hereby found GUILTY beyond reasonable doubt of Violation of B.P. 22 as
charged in the Informations in Criminal Case No. Q-93-46712 and in Criminal Case No. Q-93-46714 and is
accordingly sentenced to imprisonment of one (1) year for each of the said offense and to pay a fine in
the total amount of P333,373.96, with subsidiary imprisonment in case of insolvency.
FINALLY, judgment is hereby rendered in favor of private complainant, W. L. Food Products, herein
represented by Rodolfo Borjal, and against herein accused JOHN JERRY DY ALDEN (JOHN DY), ordering
the latter to pay to the former the total sum of P333,373.96 plus interest thereon at the rate of 12% per
annum from September 28, 1992 until fully paid; and, (2) the costs of this suit.
SO ORDERED.9
Dy brought the case to the Court of Appeals. In the assailed Decision of January 23, 2003, the appellate court
affirmed the RTC. It, however, modified the sentence and deleted the payment of interests in this wise:
Batch 1 20
WHEREFORE, in view of the foregoing, the decision appealed from is hereby AFFIRMED with
MODIFICATION. In Criminal Case No. Q-93-46711 (for estafa), the accused-appellant JOHN JERRY DY
ALDEN (JOHN DY) is hereby sentenced to suffer an indeterminate penalty of imprisonment ranging from
six (6) years and one (1) day of prision mayor as minimum to twenty (20) years of reclusion temporal as
maximum plus eight (8) years in excess of [P]22,000.00. In Criminal Case No. Q-93-46712 (for violation
of BP 22), accused-appellant is sentenced to suffer an imprisonment of one (1) year and to indemnify
W.L. Food Products, represented by Rodolfo Borjal, the amount of ONE HUNDRED SIX THOUSAND FIVE
HUNDRED SEVENTY NINE PESOS and 60/100 ([P]106,579.60). In Criminal Case No. Q-93-46713 (for
estafa), accused-appellant is hereby sentenced to suffer an indeterminate penalty of imprisonment
ranging from eight (8) years and one (1) day of prision mayor as minimum to thirty (30) years as
maximum. Finally, in Criminal Case No. Q-93-46714 (for violation of BP 22), accused-appellant is
sentenced to suffer an imprisonment of one (1) year and to indemnify W.L. Food Products, represented
by Rodolfo Borjal, the amount of TWO HUNDRED TWENTY SIX THOUSAND SEVEN HUNDRED NINETY
FOUR PESOS AND 36/100 ([P]226,794.36).
SO ORDERED.10
Dy moved for reconsideration, but his motion was denied in the Resolution dated May 14, 2003.
Hence, this petition which raises the following issues:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF ESTAFA ON TWO
(2) COUNTS?
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF VIOLATION OF
BP 22 ON TWO (2) COUNTS?
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES TO
PRIVATE COMPLAINANT, W.L. FOOD PRODUCTS, THE TOTAL SUM OF [P]333,373.96?11
Essentially, the issue is whether John Dy is liable for estafa and for violation of B.P. Blg. 22.
First, is petitioner guilty of estafa?
Mainly, petitioner contends that the checks were ineffectively issued. He stresses that not only were the checks
blank, but also that W.L. Foods' accountant had no authority to fill the amounts. Dy also claims failure of
consideration to negate any obligation to W.L. Foods. Ultimately, petitioner denies having deceived Lim
inasmuch as only the two checks bounced since he began dealing with him. He maintains that it was his long
established business relationship with Lim that enabled him to obtain the goods, and not the checks issued in
Batch 1 21
payment for them. Petitioner renounces personal liability on the checks since he was absent when the goods
were delivered.
The Office of the Solicitor General (OSG), for the State, avers that the delivery of the checks by Dy's driver to
Maraca, constituted valid issuance. The OSG sustains Ong's prima facie authority to fill the checks based on the
value of goods taken. It observes that nothing in the records showed that W.L. Foods' accountant filled up the
checks in violation of Dy's instructions or their previous agreement. Finally, the OSG challenges the present
petition as an inappropriate remedy to review the factual findings of the trial court.
We find that the petition is partly meritorious.
Before an accused can be held liable for estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as
amended by Republic Act No. 4885,12 the following elements must concur: (1) postdating or issuance of a check
in payment of an obligation contracted at the time the check was issued; (2) insufficiency of funds to cover the
check; and (3) damage to the payee thereof.13 These elements are present in the instant case.
Section 191 of the Negotiable Instruments Law14 defines "issue" as the first delivery of an instrument, complete
in form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the negotiability of
an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an
intention to convey title to the payee and recognize him as a holder.15 It means more than handing over to
another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself.16
In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid.
When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to
fill the blanks. This was, in fact, accomplished by Lim's accountant.
The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:
SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein.
And a signature on a blank paper delivered by the person making the signature in order that the paper
may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for
any amount. …. (Emphasis supplied.)
Hence, the law merely requires that the instrument be in the possession of a person other than the drawer or
maker. From such possession, together with the fact that the instrument is wanting in a material particular, the
law presumes agency to fill up the blanks.17 Because of this, the burden of proving want of authority or that the
authority granted was exceeded, is placed on the person questioning such authority.18 Petitioner failed to fulfill
this requirement.
Next, petitioner claims failure of consideration. Nevertheless, in a letter19 dated November 10, 1992, he
expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was a clear acknowledgment
of receipt of the goods, which gave rise to his duty to maintain or deposit sufficient funds to cover the amount
of the checks.
More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor and his
absence when the checks were delivered belie fraud. Indeed damage and deceit are essential elements of the
Batch 1 22
offense and must be established with satisfactory proof to warrant conviction.20 Deceit as an element
of estafa is a specie of fraud. It is actual fraud which consists in any misrepresentation or contrivance where a
person deludes another, to his hurt. There is deceit when one is misled -- by guile, trickery or by other means --
to believe as true what is really false.21
Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No. 553615 which
was dishonored for insufficiency of funds. The letter22 of petitioner's counsel dated November 10, 1992 shows
beyond reasonable doubt that petitioner received notice of the dishonor of the said check for insufficiency of
funds. Petitioner, however, failed to deposit the amounts necessary to cover his check within three banking days
from receipt of the notice of dishonor. Hence, as provided for by law,23 the presence of deceit was sufficiently
proven.
Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing obligation between
the parties. The existence of prior transactions between Lim and Dy alone did not rule out deceit because each
transaction was separate, and had a different consideration from the others. Even as petitioner was absent
when the goods were delivered, by the principle of agency, delivery of the checks by his driver was deemed as
his act as the employer. The evidence shows that as a matter of course, Dy, or his employee, would pay W.L.
Foods in either cash or check upon pick up of the stocks of snack foods at the latter's branch or main office.
Despite their two-year standing business relations prior to the issuance of the subject check, W.L Foods
employees would not have parted with the stocks were it not for the simultaneous delivery of the check issued
by petitioner.24Aside from the existing business relations between petitioner and W.L. Foods, the primary
inducement for the latter to part with its stocks of snack foods was the issuance of the check in payment of the
value of the said stocks.
In a number of cases,25 the Court has considered good faith as a defense to a charge of estafa by postdating a
check. This good faith may be manifested by making arrangements for payment with the creditor and exerting
best efforts to make good the value of the checks. In the instant case petitioner presented no proof of good
faith. Noticeably absent from the records is sufficient proof of sincere and best efforts on the part of petitioner
for the payment of the value of the check that would constitute good faith and negate deceit.
With the foregoing circumstances established, we find petitioner guilty of estafa with regard to FEBTC Check No.
553615 for P226,794.36.
The same, however, does not hold true with respect to FEBTC Check No. 553602 for P106,579.60. This check was
dishonored for the reason that it was drawn against uncollected deposit. Petitioner had P160,659.39 in his
savings deposit account ledger as of July 22, 1992. We disagree with the conclusion of the RTC that since the
balance included a regional clearing check worth P55,000 deposited on July 20, 1992, which cleared only five (5)
days later, then petitioner had inadequate funds in this instance. Since petitioner technically and retroactively
had sufficient funds at the time Check No. 553602 was presented for payment then the second element
(insufficiency of funds to cover the check) of the crime is absent. Also there is no prima facie evidence of deceit
in this instance because the check was not dishonored for lack or insufficiency of funds. Uncollected deposits are
not the same as insufficient funds. The prima facie presumption of deceit arises only when a check has been
dishonored for lack or insufficiency of funds. Notably, the law speaks of insufficiency of funds but not of
uncollected deposits. Jurisprudence teaches that criminal laws are strictly construed against the Government
and liberally in favor of the accused.26 Hence, in the instant case, the law cannot be interpreted or applied in
such a way as to expand its provision to encompass the situation of uncollected deposits because it would make
the law more onerous on the part of the accused.
Batch 1 23
Clearly, the estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when a
check is dishonored for being drawn against insufficient funds or closed account, and not against uncollected
deposit.27 Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected
deposit, which was duly collected, could satisfy the amount of the check when presented for payment.
Second, did petitioner violate B.P. Blg. 22?
Petitioner argues that the blank checks were not valid orders for the bank to pay the holder of such checks. He
reiterates lack of knowledge of the insufficiency of funds and reasons that the checks could not have been
issued to apply on account or for value as he did not obtain delivery of the goods.
The OSG maintains that the guilt of petitioner has been proven beyond reasonable doubt. It cites pieces of
evidence that point to Dy's culpability: Maraca's acknowledgment that the checks were issued to W.L. Foods as
consideration for the snacks; Lim's testimony proving that Dy received a copy of the demand letter; the bank
manager's confirmation that petitioner had insufficient balance to cover the checks; and Dy's failure to settle his
obligation within five (5) days from dishonor of the checks.
Once again, we find the petition to be meritorious in part.
The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing and issuance of
any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop
payment.28 The case at bar satisfies all these elements.
During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that the signatures
appearing on them were his.29 The facts reveal that the checks were issued in blank because of the uncertainty
of the volume of products to be retrieved, the discount that can be availed of, and the deduction for bad orders.
Nevertheless, we must stress that what the law punishes is simply the issuance of a bouncing check and not the
purpose for which it was issued nor the terms and conditions relating thereto.30 If inquiry into the reason for
which the checks are issued, or the terms and conditions of their issuance is required, the public's faith in the
stability and commercial value of checks as currency substitutes will certainly erode.31
Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a worthless check or a
check that is dishonored upon presentment for payment. The act effectively declares the offense to be one
of malum prohibitum. The only valid query, then, is whether the law has been breached, i.e., by the mere act of
issuing a bad check, without so much regard as to the criminal intent of the issuer.32 Indeed, non-fulfillment of
the obligation is immaterial. Thus, petitioner's defense of failure of consideration must likewise fall. This is
especially so since as stated above, Dy has acknowledged receipt of the goods.
On the second element, petitioner disputes notice of insufficiency of funds on the basis of the check being
issued in blank. He relies on Dingle v. Intermediate Appellate Court33 and Lao v. Court of Appeals34 as his
authorities. In both actions, however, the accused were co-signatories, who were neither apprised of the
particular transactions on which the blank checks were issued, nor given notice of their dishonor. In the latter
case, Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or
obliged to possess under the organizational structure of the corporation.35 Lao was only a minor employee who
Batch 1 24
had nothing to do with the issuance, funding and delivery of checks.36 In contrast, petitioner was the proprietor
of Dyna Marketing and the sole signatory of the checks who received notice of their dishonor.
Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of
his funds with the bank when he did not pay the value of the goods or make arrangements for their payment in
full within five (5) banking days upon notice. His letter dated November 10, 1992 to Lim fortified such
presumption.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was dishonored for
insufficient funds and stop payment order, petitioner did not pay or make arrangements with the bank for its
payment in full within five (5) banking days.
Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was dishonored for the
reason DAUD or drawn against uncollected deposit. When the check was presented for payment, it was
dishonored by the bank because the check deposit made by petitioner, which would make petitioner's bank
account balance more than enough to cover the face value of the subject check, had not been collected by the
bank.
In Tan v. People,38 this Court acquitted the petitioner therein who was indicted under B.P. Blg. 22, upon a check
which was dishonored for the reason DAUD, among others. We observed that:
In the second place, even without relying on the credit line, petitioner's bank account covered the check
she issued because even though there were some deposits that were still uncollected the deposits
became "good" and the bank certified that the check was "funded."39
To be liable under Section 140 of B.P. Blg. 22, the check must be dishonored by the drawee bank for insufficiency
of funds or credit or dishonored for the same reason had not the drawer, without any valid cause, ordered the
bank to stop payment.
In the instant case, even though the check which petitioner deposited on July 20, 1992 became good only five
(5) days later, he was considered by the bank to retroactively have had P160,659.39 in his account on July 22,
1992. This was more than enough to cover the check he issued to respondent in the amount of P106,579.60.
Under the circumstance obtaining in this case, we find the petitioner had issued the check, with full ability to
abide by his commitment41 to pay his purchases.
Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of insufficiency of funds and
does not treat of uncollected deposits. To repeat, we cannot interpret the law in such a way as to expand its
provision to encompass the situation of uncollected deposits because it would make the law more onerous on
the part of the accused. Again, criminal statutes are strictly construed against the Government and liberally in
favor of the accused.42
As regards petitioner's civil liability, this Court has previously ruled that an accused may be held civilly liable
where the facts established by the evidence so warrant.43 The rationale for this is simple. The criminal and civil
liabilities of an accused are separate and distinct from each other. One is meant to punish the offender while the
other is intended to repair the damage suffered by the aggrieved party. So, for the purpose of indemnifying the
latter, the offense need not be proved beyond reasonable doubt but only by preponderance of evidence.44
Batch 1 25
We therefore sustain the appellate court's award of damages to W.L. Foods in the total amount of P333,373.96,
representing the sum of the checks petitioner issued for goods admittedly delivered to his company.
As to the appropriate penalty, petitioner was charged with estafa under Article 315, paragraph 2(d) of the
Revised Penal Code, as amended by Presidential Decree No. 81845 (P.D. No. 818).
Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds P22,000, the penalty of reclusión
temporal is imposed in its maximum period, adding one year for each additional P10,000 but the total penalty
shall not exceed thirty (30) years, which shall be termed reclusión perpetua.47Reclusión perpetua is not the
prescribed penalty for the offense, but merely describes the penalty actually imposed on account of the amount
of the fraud involved.
WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby ACQUITTED in Criminal Case No. Q-93-46711
for estafa, and Criminal Case No. Q-93-46712 for violation of B.P. Blg. 22, but he is ORDERED to pay W.L. Foods
the amount of P106,579.60 for goods delivered to his company.
In Criminal Case No. Q-93-46713 for estafa, the Decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner is sentenced to suffer an indeterminate penalty of twelve (12) years of prisión mayor,
as minimum, to thirty (30) years of reclusión perpetua, as maximum.
In Criminal Case No. Q-93-46714 for violation of B.P. Blg. 22, the Decision of the Court of Appeals is AFFIRMED,
and John Dy is hereby sentenced to one (1) year imprisonment and ordered to indemnify W.L. Foods in the
amount of P226,794.36.
SO ORDERED.
G.R. No. 141181 April 27, 2007
SAMSON CHING, Petitioner,

vs.
CLARITA NICDAO and HON. COURT OF APPEALS, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision1 dated November 22,
1999 of the Court of Appeals (CA) in CA-G.R. CR No. 23055. The assailed decision acquitted respondent Clarita
Nicdao of eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22, otherwise known as "The Bouncing
Checks Law." The instant petition pertains and is limited to the civil aspect of the case as it submits that
notwithstanding respondent Nicdao’s acquittal, she should be held liable to pay petitioner Ching the amounts of
the dishonored checks in the aggregate sum of ₱20,950,000.00.
Factual and Procedural Antecedents
On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal complaints for eleven (11) counts
of violation of BP 22 against respondent Nicdao. Consequently, eleven (11) Informations were filed with the First
Batch 1 26
Municipal Circuit Trial Court (MCTC) of Dinalupihan-Hermosa, Province of Bataan, which, except as to the
amounts and check numbers, uniformly read as follows:
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA BILANG 22, committed as
follows:
That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within the jurisdiction of this
Honorable Court, the said accused did then and there willfully and unlawfully make or draw and issue Hermosa
Savings & Loan Bank, Inc. Check No. [002524] dated October 06, 1997 in the amount of [₱20,000,000.00] in
payment of her obligation with complainant Samson T.Y. Ching, the said accused knowing fully well that at the
time she issued the said check she did not have sufficient funds in or credit with the drawee bank for the
payment in full of the said check upon presentment, which check when presented for payment within ninety
(90) days from the date thereof, was dishonored by the drawee bank for the reason that it was drawn against
insufficient funds and notwithstanding receipt of notice of such dishonor the said accused failed and refused and
still fails and refuses to pay the value of the said check in the amount of [P20,000,000.00] or to make
arrangement with the drawee bank for the payment in full of the same within five (5) banking days after
receiving the said notice, to the damage and prejudice of the said Samson T.Y. Ching in the aforementioned
amount of [P20,000,000.00], Philippine Currency.
CONTRARY TO LAW.
Dinalupihan, Bataan, October 21, 1997.
(Sgd.) SAMSON T.Y. CHING
Complainant
The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following details:
Check No. Amount Date Private Complainant Reason for the Dishonor
0025242 ₱ 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*
0088563 150,000 Oct. 6, 1997 " "
0121424 100,000 Oct. 6, 1997 " "
0045315 50,000 Oct. 6, 1997 " "
0022546 100,000 Oct. 6, 1997 " "
0088757 100,000 Oct. 6, 1997 " "
0089368 50,000 Oct. 6, 1997 " "
0022739 50,000 Oct. 6, 1997 " "
00894810 150,000 Oct. 6, 1997 " "
00893511 100,000 Oct. 6, 1997 " "

Batch 1 27
01037712 100,000 Oct. 6, 1997 " "
At about the same time, fourteen (14) other criminal complaints, also for violation of BP 22, were filed against
respondent Nicdao by Emma Nuguid, said to be the common law spouse of petitioner Ching. Allegedly fourteen
(14) checks, amounting to ₱1,150,000.00, were issued by respondent Nicdao to Nuguid but were dishonored for
lack of sufficient funds. The Informations were filed with the same MCTC and docketed as Criminal Cases Nos.
9458 up to 9471.
At her arraignment, respondent Nicdao entered the plea of "not guilty" to all the charges. A joint trial was then
conducted for Criminal Cases Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda Yandoc, an employee of the
Hermosa Savings & Loan Bank, Inc., were presented to prove the charges against respondent Nicdao. On direct-
examination,13 petitioner Ching preliminarily identified each of the eleven (11) Hermosa Savings & Loan Bank
(HSLB) checks that were allegedly issued to him by respondent Nicdao amounting to ₱20,950,000.00. He
identified the signatures appearing on the checks as those of respondent Nicdao. He recognized her signatures
because respondent Nicdao allegedly signed the checks in his presence. When petitioner Ching presented these
checks for payment, they were dishonored by the bank, HSLB, for being "DAIF" or "drawn against insufficient
funds."
Petitioner Ching averred that the checks were issued to him by respondent Nicdao as security for the loans that
she obtained from him. Their transaction began sometime in October 1995 when respondent Nicdao,
proprietor/manager of Vignette Superstore, together with her husband, approached him to borrow money in
order for them to settle their financial obligations. They agreed that respondent Nicdao would leave the checks
undated and that she would pay the loans within one year. However, when petitioner Ching went to see her
after the lapse of one year to ask for payment, respondent Nicdao allegedly said that she had no cash.
Petitioner Ching claimed that he went back to respondent Nicdao several times more but every time, she would
tell him that she had no money. Then in September 1997, respondent Nicdao allegedly got mad at him for being
insistent and challenged him about seeing each other in court. Because of respondent Nicdao's alleged refusal to
pay her obligations, on October 6, 1997, petitioner Ching deposited the checks that she issued to him. As he
earlier stated, the checks were dishonored by the bank for being "DAIF." Shortly thereafter, petitioner Ching,
together with Emma Nuguid, wrote a demand letter to respondent Nicdao which, however, went unheeded.
Accordingly, they separately filed the criminal complaints against the latter.
On cross-examination,14 petitioner Ching claimed that he had been a salesman of the La Suerte Cigar and
Cigarette Manufacturing for almost ten (10) years already. As such, he delivered the goods and had a
warehouse. He received salary and commissions. He could not, however, state his exact gross income. According
to him, it increased every year because of his business. He asserted that aside from being a salesman, he was
also in the business of extending loans to other people at an interest, which varied depending on the person he
was dealing with.
Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he
filed against respondent Nicdao. He reiterated that, upon their agreement, the checks were all signed by
respondent Nicdao but she left them undated. Petitioner Ching admitted that he was the one who wrote the
date, October 6, 1997, on those checks when respondent Nicdao refused to pay him.
Batch 1 28
With respect to the ₱20,000,000.00 check (Check No. 002524), petitioner Ching explained that he wrote the
date and amount thereon when, upon his estimation, the money that he regularly lent to respondent Nicdao
beginning October 1995 reached the said sum. He likewise intimated that prior to 1995, they had another
transaction amounting to ₱1,200,000.00 and, as security therefor, respondent Nicdao similarly issued in his
favor checks in varying amounts of ₱100,000.00 and ₱50,000.00. When the said amount was fully paid,
petitioner Ching returned the checks to respondent Nicdao.
Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-9443 pertained to
respondent Nicdao’s loan transactions with him beginning October 1995. He also mentioned an instance when
respondent Nicdao’s husband and daughter approached him at a casino to borrow money from him. He lent
them ₱300,000.00. According to petitioner Ching, since this amount was also unpaid, he included it in the other
amounts that respondent Nicdao owed to him which totaled ₱20,000,000.00 and wrote the said amount on one
of respondent Nicdao’s blank checks that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered money to respondent
Nicdao, in the amount of ₱1,000,000.00 until the total amount reached ₱20,000,000.00. He did not ask
respondent Nicdao to acknowledge receiving these amounts. Petitioner Ching claimed that he was confident
that he would be paid by respondent Nicdao because he had in his possession her blank checks. On the other
hand, the latter allegedly had no cause to fear that he would fill up the checks with just any amount because
they had trust and confidence in each other. When asked to produce the piece of paper on which he allegedly
wrote the amounts that he lent to respondent Nicdao, petitioner Ching could not present it; he reasoned that it
was not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao confided to him that she told her daughter
Janette, who was married to a foreigner, that her debt to him was only between ₱3,000,000.00 and
₱5,000,000.00. Petitioner Ching claimed that he offered to accompany respondent Nicdao to her daughter in
order that they could apprise her of the amount that she owed him. Respondent Nicdao refused for fear that it
would cause disharmony in the family. She assured petitioner Ching, however, that he would be paid by her
daughter.
Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the
checks to him, he went to her several times to collect payment. In all these instances, she said that she had no
cash. Finally, in September 1997, respondent Nicdao allegedly went to his house and told him that Janette was
only willing to pay him between ₱3,000,000.00 and ₱5,000,000.00 because, as far as her daughter was
concerned, that was the only amount borrowed from petitioner Ching. On hearing this, petitioner Ching angrily
told respondent Nicdao that she should not have allowed her debt to reach ₱20,000,000.00 knowing that she
would not be able to pay the full amount.
Petitioner Ching identified the demand letter that he and Nuguid sent to respondent Nicdao. He explained that
he no longer informed her about depositing her checks on his account because she already made that statement
about seeing him in court. Again, he admitted writing the date, October 6, 1997, on all these checks.
Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-
examination,15she testified that she worked as a checking account bookkeeper/teller of the bank. As such, she
received the checks that were drawn against the bank and verified if they were funded. On October 6, 1997, she
received several checks issued by respondent Nicdao. She knew respondent Nicdao because the latter
maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases
Nos. 9433-9443 and affirmed that stamped at the back of each was the annotation "DAIF". Further, per the
Batch 1 29
bank’s records, as of October 8, 1997, only a balance of ₱300.00 was left in respondent Nicdao’s checking
account and ₱645.83 in her savings account. On even date, her account with the bank was considered inactive.
On cross-examination,16 Yandoc stated anew that respondent Nicdao’s checks bounced on October 7, 1997 for
being "DAIF" and her account was closed the following day, on October 8, 1997. She informed the trial court
that there were actually twenty-five (25) checks of respondent Nicdao that were dishonored at about the same
time. The eleven (11) checks were purportedly issued in favor of petitioner Ching while the other fourteen (14)
were purportedly issued in favor of Nuguid. Yandoc explained that respondent Nicdao or her employee would
usually call the bank to inquire if there was an incoming check to be funded.
For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao.
On direct-examination,17 respondent Nicdao stated that she only dealt with Nuguid. She vehemently denied the
allegation that she had borrowed money from both petitioner Ching and Nuguid in the total amount of
₱22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a loan from Nuguid but only for
₱2,100,000.00 and the same was already fully paid. As proof of such payment, she presented a Planters Bank
demand draft dated August 13, 1996 in the amount of ₱1,200,000.00. The annotation at the back of the said
demand draft showed that it was endorsed and negotiated to the account of petitioner Ching.
In addition, respondent Nicdao also presented and identified several cigarette wrappers18 at the back of which
appeared computations. She explained that Nuguid went to the grocery store everyday to collect interest
payments. The principal loan was ₱2,100,000.00 with 12% interest per day. Nuguid allegedly wrote the
payments for the daily interests at the back of the cigarette wrappers that she gave to respondent Nicdao.
The principal loan amount of ₱2,100,000.00 was allegedly delivered by Nuguid to respondent Nicdao in varying
amounts of ₱100,000.00 and ₱150,000.00. Respondent Nicdao refuted the averment of petitioner Ching that
prior to 1995, they had another transaction.
With respect to the ₱20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but
denied that she issued the same to petitioner Ching. Anent the other ten (10) checks, she likewise admitted that
the signatures thereon were hers while the amounts and payee thereon were written by either Jocelyn Nicdao
or Melanie Tolentino, who were employees of Vignette Superstore and authorized by her to do so.
Respondent Nicdao clarified that, except for the ₱20,000,000.00 check, the other ten (10) checks were handed
to Nuguid on different occasions. Nuguid came to the grocery store everyday to collect the interest payments.
Respondent Nicdao said that she purposely left the checks undated because she would still have to notify
Nuguid if she already had the money to fund the checks.
Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that her daughter would get
mad if she found out about the amount that she owed him. What allegedly transpired was that when she
already had the money to pay them (presumably referring to petitioner Ching and Nuguid), she went to them to
retrieve her checks. However, petitioner Ching and Nuguid refused to return the checks claiming that she
(respondent Nicdao) still owed them money. She demanded that they show her the checks in order that she
would know the exact amount of her debt, but they refused. It was at this point that she got angry and dared
them to go to court.
After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check in the amount of
₱20,000,000.00 was just presented to the bank for payment. She claimed that it was only then that she
Batch 1 30
remembered that sometime in 1995, she was informed by her employee that one of her checks was missing. At
that time, she did not let it bother her thinking that it would eventually surface when presented to the bank.
Respondent Nicdao could not explain how the said check came into petitioner Ching’s possession. She explained
that she kept her checks in an ordinary cash box together with a stapler and the cigarette wrappers that
contained Nuguid’s computations. Her saleslady had access to this box. Respondent Nicdao averred that it was
Nuguid who offered to give her a loan as she would allegedly need money to manage Vignette Superstore.
Nuguid used to run the said store before respondent Nicdao’s daughter bought it from Nuguid’s family, its
previous owner. According to respondent Nicdao, it was Nuguid who regularly delivered the cash to respondent
Nicdao or, if she was not at the grocery store, to her saleslady. Respondent Nicdao denied any knowledge that
the money loaned to her by Nuguid belonged to petitioner Ching.
At the continuation of her direct-examination,19 respondent Nicdao said that she never dealt with petitioner
Ching because it was Nuguid who went to the grocery store everyday to collect the interest payments. When
shown the ₱20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but she
denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to the other ten (10)
checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by
either Josie Nicdao or Melanie Tolentino, her employees whom she authorized to do so. With respect to the
payee, it was purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks
to pay someone else.
On cross-examination,20 respondent Nicdao explained that Josie Nicdao and Melanie Tolentino were caretakers
of the grocery store and that they manned it when she was not there. She likewise confirmed that she
authorized them to write the amounts on the checks after she had affixed her signature thereon. She stressed,
however, that the ₱20,000,000.00 check was the one that was reported to her as lost or missing by her saleslady
sometime in 1995. She never reported the matter to the bank because she was confident that it would just
surface when it would be presented for payment.
Again, respondent Nicdao identified the cigarette wrappers which indicated the daily payments she had made to
Nuguid. The latter allegedly went to the grocery store everyday to collect the interest payments. Further, the
figures at the back of the cigarette wrappers were written by Nuguid. Respondent Nicdao asserted that she
recognized her handwriting because Nuguid sometimes wrote them in her presence. Respondent Nicdao
maintained that she had already paid Nuguid the amount of ₱1,200,000.00 as evidenced by the Planters Bank
demand draft which she gave to the latter and which was subsequently negotiated and deposited in petitioner
Ching’s account. In connection thereto, respondent Nicdao refuted the prosecution’s allegation that the demand
draft was payment for a previous transaction that she had with petitioner Ching. She clarified that the payments
that Nuguid collected from her everyday were only for the interests due. She did not ask Nuguid to make written
acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao. On direct-
examination,21Tolentino stated that she worked at the Vignette Superstore and she knew Nuguid because her
employer, respondent Nicdao, used to borrow money from her. She knew petitioner Ching only by name and
that he was the "husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was entrusted with the
custody of respondent Nicdao’s personal checks. Tolentino identified her own handwriting on some of the
checks especially with respect to the amounts and figures written thereon. She said that Nuguid instructed her
to leave the space for the payee blank as she would use the checks to pay someone else. Tolentino added that
Batch 1 31
she could not recall respondent Nicdao issuing a check to petitioner Ching in the amount of ₱20,000,000.00. She
confirmed that they lost a check sometime in 1995. When informed about it, respondent Nicdao told her that
the check could have been issued to someone else, and that it would just surface when presented to the bank.
Tolentino recounted that Nuguid came to the grocery store everyday to collect the interest payments of the
loan. In some instances, upon respondent Nicdao’s instruction, Tolentino handed to Nuguid checks that were
already signed by respondent Nicdao. Sometimes, Tolentino would be the one to write the amount on the
checks. Nuguid, in turn, wrote the amounts on pieces of paper which were kept by respondent Nicdao.
On cross-examination,22 Tolentino confirmed that she was authorized by respondent Nicdao to fill up the checks
and hand them to Nuguid. The latter came to the grocery store everyday to collect the interest payments.
Tolentino claimed that in 1995, in the course of chronologically arranging respondent Nicdao’s check booklets,
she noticed that a check was missing. Respondent Nicdao told her that perhaps she issued it to someone and
that it would just turn up in the bank. Tolentino was certain that the missing check was the same one that
petitioner Ching presented to the bank for payment in the amount of ₱20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao sometime in 1996. After the checks were
dishonored in October 1997, Tolentino got a call from respondent Nicdao. After she was shown a fax copy
thereof, Tolentino confirmed that the ₱20,000,000.00 check was the same one that she reported as missing in
1995.
Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense witnesses. On
direct-examination,23 she averred that she was a saleslady at the Vignette Superstore from August 1994 up to
April 1998. She knew Nuguid as well as petitioner Ching.
Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn Nicdao used to fill up
the checks of respondent Nicdao that had already been signed by her and give them to Nuguid. The latter came
to the grocery store everyday to pick up the interest payments. Jocelyn Nicdao identified the checks on which
she wrote the amounts and, in some instances, the name of Nuguid as payee. However, most of the time,
Nuguid allegedly instructed her to leave as blank the space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid acknowledged receipt of
the interest payments. She explained that she was the one who wrote the minus entries and they represented
the daily interest payments received by Nuguid.
On cross-examination,24 Jocelyn Nicdao stated that she was a distant cousin of respondent Nicdao. She stopped
working for her in 1998 because she wanted to take a rest. Jocelyn Nicdao reiterated that she handed the checks
to Nuguid at the grocery store.
After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting
respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Ching’s
testimony that respondent Nicdao borrowed money from him in the total amount of ₱20,950,000.00. Petitioner
Ching delivered ₱1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum reached
₱20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from
petitioner Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the
latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the bank for being
"DAIF."
Batch 1 32
The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the making, drawing and
issuance of any check to apply to account or for value; (b) the knowledge of the maker, drawer or issuer that at
the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and (c) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.25
According to the MCTC, all the foregoing elements are present in the case of respondent Nicdao’s issuance of
the checks subject of Criminal Cases Nos. 9433-9443. On the first element, respondent Nicdao was found by the
MCTC to have made, drawn and issued the checks. The fact that she did not personally write the payee and date
on the checks was not material considering that under Section 14 of the Negotiable Instruments Law, "where
the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority
to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making
the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount x x x." Respondent Nicdao admitted that she authorized her
employees to provide the details on the checks after she had signed them.
The MCTC disbelieved respondent Nicdao’s claim that the ₱20,000,000.00 check was the same one that she lost
in 1995. It observed that ordinary prudence would dictate that a lost check would at least be immediately
reported to the bank to prevent its unauthorized endorsement or negotiation. Respondent Nicdao made no
such report to the bank. Even if the said check was indeed lost, the MCTC faulted respondent Nicdao for being
negligent in keeping the checks that she had already signed in an unsecured box.
The MCTC further ruled that there was no evidence to show that petitioner Ching was not a holder in due course
as to cause it (the MCTC) to believe that the said check was not issued to him. Respondent Nicdao’s admission of
indebtedness was sufficient to prove that there was consideration for the issuance of the checks.
The second element was also found by the MCTC to be present as it held that respondent Nicdao, as maker,
drawer or issuer, had knowledge that at the time of issue she did not have sufficient funds in or credit with the
drawee bank for the payment in full of the checks upon their presentment.
As to the third element, the MCTC established that the checks were subsequently dishonored by the drawee
bank for being "DAIF" or drawn against insufficient funds. Stamped at the back of each check was the annotation
"DAIF." The bank representative likewise testified to the fact of dishonor.
Under the foregoing circumstances, the MCTC declared that the conviction of respondent Nicdao was
warranted. It stressed that the mere act of issuing a worthless check was malum prohibitum; hence, even if the
checks were issued in the form of deposit or guarantee, once dishonored, the same gave rise to the prosecution
for and conviction of BP 22.26 The decretal portion of the MCTC decision reads:
WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas Pambansa Blg. 22 in 11
counts, and is hereby ordered to pay the private complainant the amount of ₱20,950,000.00 plus 12% interest
per annum from date of filing of the complaint until the total amount had been paid. The prayer for moral
damages is denied for lack of evidence to prove the same. She is likewise ordered to suffer imprisonment
equivalent to 1 year for every check issued and which penalty shall be served successively.
SO ORDERED.27
Batch 1 33
Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in Criminal Cases Nos. 9458-9471
and convicted respondent Nicdao of the fourteen (14) counts of violation of BP 22 filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in separate Decisions both dated
May 10, 1999, affirmed in toto the decisions of the MCTC convicting respondent Nicdao of eleven (11) and
fourteen (14) counts of violation of BP 22 in Criminal Cases Nos. 9433-9443 and 9458-9471, respectively.
Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions of the RTC. The
petition involving the eleven (11) checks purportedly issued to petitioner Ching was docketed as CA-G.R. CR No.
23055 (assigned to the 13th Division). On the other hand, the petition involving the fourteen (14) checks
purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054 (originally assigned to the 7th Division but
transferred to the 6th Division). The Office of the Solicitor General (OSG) filed its respective comments on the
said petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-G.R.
CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the 13th Division be transferred and
consolidated with CA-G.R. CR No. 23054 in accordance with the Revised Internal Rules of the Court of Appeals
(RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a Resolution dated October 19,
1999 advising the OSG to file the motion in CA-G.R. CR No. 23054 as it bore the lowest number. Respondent
Nicdao opposed the consolidation of the two cases. She likewise filed her reply to the comment of the OSG in
CA-G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR No. 23055 acquitting
respondent Nicdao of the eleven (11) counts of violation of BP 22 filed against her by petitioner Ching. The
decretal portion of the assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is hereby GRANTED. Accordingly, the decision dated
May 10, 1999, of the Regional Trial Court, 3rd Judicial Region, Branch 5, Bataan, affirming the decision dated
December 8, 1998, of the First Municipal Circuit Trial Court of Dinalupihan-Hermosa, Bataan, convicting
petitioner Clarita S. Nicdao in Criminal Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and SET
ASIDE and another judgment rendered ACQUITTING her in all these cases, with costs de oficio.
SO ORDERED.28
On even date, the CA issued an Entry of Judgment declaring that the above decision has become final and
executory and is recorded in the Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual findings:
Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and housekeeper who only finished high
school, has a daughter, Janette Boyd, who is married to a wealthy expatriate.
Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a salesman of La Suerte
Cigar and Cigarette Factory.
Emma Nuguid, complainant’s live-in partner, is a CPA and formerly connected with Sycip, Gorres and Velayo.
Nuguid used to own a grocery store now known as the Vignette Superstore. She sold this grocery store, which
Batch 1 34
was about to be foreclosed, to petitioner’s daughter, Janette Boyd. Since then, petitioner began managing said
store. However, since petitioner could not always be at the Vignette Superstore to keep shop, she entrusted to
her salesladies, Melanie Tolentino and Jocelyn Nicdao, pre-signed checks, which were left blank as to amount
and the payee, to cover for any delivery of merchandise sold at the store. The blank and personal checks were
placed in a cash box at Vignette Superstore and were filled up by said salesladies upon instruction of petitioner
as to amount, payee and date.
Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be
used in running her newly acquired store. Nuguid represented to petitioner that as former manager of the
Vignette Superstore, she knew that petitioner would be in need of credit to meet the daily expenses of running
the business, particularly in the daily purchases of merchandise to be sold at the store. After Emma Nuguid
succeeded in befriending petitioner, Nuguid was able to gain access to the Vignette Superstore where
petitioner’s blank and pre-signed checks were kept.29
In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid in the total
amount of ₱2,100,000.00 secured by twenty-four (24) checks drawn against respondent Nicdao’s account with
HSLB. Upon Nuguid’s instruction, the checks given by respondent Nicdao as security for the loans were left blank
as to the payee and the date. The loans consisted of (a) ₱950,000.00 covered by ten (10) checks subject of the
criminal complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) ₱1,150,000.00 covered by fourteen
(14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans totaled
₱2,100,000.00 and they were transacted between respondent Nicdao and Nuguid only. Respondent Nicdao
never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that, based on the evidence, respondent Nicdao had
already fully paid the loans. In particular, the CA referred to the Planters Bank demand draft in the amount of
₱1,200,000.00 which, by his own admission, petitioner Ching had received. The appellate court debunked
petitioner Ching’s allegation that the said demand draft was payment for a previous transaction. According to
the CA, petitioner Ching failed to adduce evidence to prove the existence of a previous transaction between him
and respondent Nicdao.
Apart from the demand draft, the CA also stated that respondent Nicdao made interest payments on a daily
basis to Nuguid as evidenced by the computations written at the back of the cigarette wrappers. Based on these
computations, as of July 21, 1997, respondent Nicdao had made a total of ₱5,780,000.00 payments to Nuguid
for the interests alone. Adding up this amount and that of the Planters Bank demand draft, the CA placed the
payments made by respondent Nicdao to Nuguid as already amounting to ₱6,980,000.00 for the principal loan
amount of only ₱2,100,000.00.
The CA negated petitioner Ching’s contention that the payments as reflected at the back of the cigarette
wrappers could be applied only to the interests due. Since the transactions were not evidenced by any
document or writing, the CA ratiocinated that no interests could be collected because, under Article 1956 of the
Civil Code, "no interest shall be due unless it has been expressly stipulated in writing."
The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid,
she tried to retrieve her checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead,
Nuguid and petitioner Ching filled up the said checks to make it appear that: (a) petitioner Ching was the payee
in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in fourteen (14) checks.
Petitioner Ching and Nuguid then put the date October 6, 1997 on all these checks and deposited them the
following day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her
Batch 1 35
checks were dishonored by HSLB and gave her three days to settle her indebtedness or else face prosecution for
violation of BP 22.
With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid, the CA declared that she
could no longer be held liable for violation of BP 22. It was explained that to be held liable under BP 22, it must
be established, inter alia, that the check was made or drawn and issued to apply on account or for value.
According to the CA, the word "account" refers to a pre-existing obligation, while "for value" means an
obligation incurred simultaneously with the issuance of the check. In the case of respondent Nicdao’s checks,
the pre-existing obligations secured by them were already extinguished after full payment had been made by
respondent Nicdao to Nuguid. Obligations are extinguished by, among others, payment.30 The CA believed that
when petitioner Ching and Nuguid refused to return respondent Nicdao’s checks despite her total payment of
₱6,980,000.00 for the loans secured by the checks, petitioner Ching and Nuguid were using BP 22 to coerce
respondent Nicdao to pay a debt which she no longer owed them.
With respect to the ₱20,000,000.00 check, the CA was not convinced by petitioner Ching’s claim that he
delivered ₱1,000,000.00 every month to respondent Nicdao until the amount reached ₱20,000,000.00 and,
when she refused to pay the same, he filled up the check, which she earlier delivered to him as security for the
loans, by writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out that, contrary to
his assertion, he was never employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan
Resurreccion, Vice-President and Legal Counsel of the said company. Moreover, as admitted by petitioner Ching,
he did not own the house where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to human experience that petitioner Ching would, as
he claimed, deliver a total sum of ₱20,000,000.00 to respondent Nicdao without any documentary proof
thereof, e.g., written acknowledgment that she received the same. On the other hand, it found plausible
respondent Nicdao’s version of the story that the ₱20,000,000.00 check was the same one that was missing way
back in 1995. The CA opined that this missing check surfaced in the hands of petitioner Ching who, in cahoots
with Nuguid, wrote the amount ₱20,000,000.00 thereon and deposited it in his account. To the mind of the CA,
the inference that the check was stolen was anchored on competent circumstantial evidence. Specifically,
Nuguid, as previous manager/owner of the grocery store, had access thereto. Likewise applicable, according to
the CA, was the presumption that the person in possession of the stolen article was presumed to be guilty of
taking the stolen article.31
The CA emphasized that the ₱20,000,000.00 check was never delivered by respondent Nicdao to petitioner
Ching. As such, the said check without the details as to the date, amount and payee, was an incomplete and
undelivered instrument when it was stolen and ended up in petitioner Ching’s hands. On this point, the CA
applied Sections 15 and 16 of the Negotiable Instruments Law:
SEC. 15. Incomplete instrument not delivered. – Where an incomplete instrument has not been delivered, it will
not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any
person whose signature was placed thereon before delivery.
SEC. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing, accepting or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only,
and not for the purpose of transferring the property. But where the instrument is in the hands of a holder in due
Batch 1 36
course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the contrary is proved.
The CA held that the ₱20,000,000.00 check was filled up by petitioner Ching without respondent Nicdao’s
authority. Further, it was incomplete and undelivered. Hence, petitioner Ching did not acquire any right or
interest therein and could not assert any cause of action founded on the
stolen checks.32 Under these circumstances, the CA concluded that respondent could not be held liable for
violation of BP 22.
The Petitioner’s Case
As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the case as
petitioner Ching argues that notwithstanding respondent Nicdao’s acquittal of the eleven (11) counts of
violation of BP 22, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the
aggregate sum of ₱20,950,000.00.
He urges the Court to review the findings of facts made by the CA as they are allegedly based on a
misapprehension of facts and manifestly erroneous and contradicted by the evidence. Further, the CA’s factual
findings are in conflict with those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding respondent Nicdao’s acquittal by the CA, the Supreme
Court has the jurisdiction and authority to resolve and rule on her civil liability. He invokes Section 1, Rule 111 of
the Revised Rules of Court which, prior to its amendment, provided, in part:
SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil action for the
recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil
action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles
32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. x x
x
Supreme Court Circular No. 57-9733 dated September 16, 1997 is also cited as it provides in part:
1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily include the
corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. x
xx
Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of Court, the civil action for the
recovery of damages under Articles 32, 33, 34, and 2176 arising from the same act or omission of the accused is
impliedly instituted with the criminal action. Moreover, under the above-quoted Circular, the criminal action for
violation of BP 22 necessarily includes the corresponding civil action, which is the recovery of the amount of the
dishonored check representing the civil obligation of the drawer to the payee.
Batch 1 37
In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching maintains that she had loan
obligations to him totaling ₱20,950,000.00. The existence of the same is allegedly established by his testimony
before the MCTC. Also, he asks the Court to take judicial notice that for a monetary loan secured by a check, the
check itself is the evidence of indebtedness.
He insists that, contrary to her protestation, respondent Nicdao also transacted with him, not only with Nuguid.
Petitioner Ching pointed out that during respondent Nicdao’s testimony, she referred to her creditors in plural
form, e.g. "[I] told them, most checks that I issued I will inform them if I have money." Even respondent Nicdao’s
employees allegedly knew him; they testified that Nuguid instructed them at times to leave as blank the payee
on the checks as they would be paid to someone else, who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no capacity to lend ₱20,950,000.00 to respondent
Nicdao. Petitioner Ching clarified that what he meant when he testified before the MCTC was that he was
engaged in dealership with La Suerte Cigar and Cigarette Manufacturing, and not merely its sales agent. He
stresses that he owns a warehouse and is also in the business of lending money. Further, the CA’s reasoning that
he could not possibly have lent ₱20,950,000.00 to respondent Nicdao since petitioner Ching and Nuguid did not
own the house where they live, is allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CA’s finding, the Planters Bank demand draft for ₱1,200,000.00
was in payment for respondent Nicdao’s previous loan transaction with him. Apart from the ₱20,000,000.00
check, the other ten (10) checks (totaling ₱950,000.00) were allegedly issued by respondent Nicdao to petitioner
Ching as security for the loans that she obtained from him from 1995 to 1997. The existence of another loan
obligation prior to the said period was allegedly established by the testimony of respondent Nicdao’s own
witness, Jocelyn Nicdao, who testified that when she started working in Vignette Superstore in 1994, she
noticed that respondent Nicdao was already indebted to Nuguid.
Petitioner Ching also takes exception to the CA’s ruling that the payments made by respondent Nicdao as
reflected on the computations at the back of the cigarette wrappers were for both the principal loan and
interests. He insists that they were for the interests alone. Even respondent Nicdao’s testimony allegedly
showed that they were daily interest payments. Petitioner Ching further avers that the interest payments
totaling ₱5,780,000.00 can only mean that, contrary to respondent Nicdao’s claim, her loan obligations
amounted to much more than ₱2,100,000.00. Further, she is allegedly estopped from questioning the interests
because she willingly paid the same.
Petitioner Ching also harps on respondent Nicdao’s silence when she received his and Nuguid’s demand letter to
her. Through the said letter, they notified her that the twenty-five (25) checks valued at ₱22,100,000.00 were
dishonored by the HSLB, and that she had three days to settle her ndebtedness with them, otherwise, face
prosecution. Respondent Nicdao’s silence, i.e., her failure to deny or protest the same by way of reply, vis-à-vis
the demand letter, allegedly constitutes an admission of the statements contained therein.
On the other hand, the MCTC’s decision, as affirmed by the RTC, is allegedly based on the evidence on record; it
has been established that the checks were respondent Nicdao’s personal checks, that the signatures thereon
were hers and that she had issued them to petitioner Ching. With respect to the ₱20,000,000.00 check,
petitioner Ching assails the CA’s ruling that it was stolen and was never delivered or issued by respondent
Nicdao to him. The issue of the said check being stolen was allegedly not raised during trial. Further, her failure
to report the alleged theft to the bank to stop payment of the said lost or missing check is allegedly contrary to
human experience. Petitioner Ching describes respondent Nicdao’s defense of stolen or lost check as incredible
and, therefore, false.
Batch 1 38
Aside from the foregoing substantive issues that he raised, petitioner Ching also faults the CA for not acting and
ordering the consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054. He informs the Court that latter
case is still pending with the CA.
In fine, it is petitioner Ching’s view that the CA gravely erred in disregarding the findings of the MCTC, as
affirmed by the RTC, and submits that there is more than sufficient preponderant evidence to hold respondent
Nicdao civilly liable to him in the amount of ₱20,950,000.00. He thus prays that the Court direct respondent
Nicdao to pay him the said amount plus 12% interest per annum computed from the date of written demand
until the total amount is fully paid.
The Respondent’s Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that it is barred under Section
2(b), Rule 111 of the Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the cases provided for in Section 3 hereof, after the
criminal action has been commenced, the civil action which has been reserved cannot be instituted until final
judgment in the criminal action.
xxxx
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds
from a declaration in a final judgment that the fact from which the civil might arise did not exist.
According to respondent Nicdao, the assailed CA decision has already made a finding to the effect that the fact
upon which her civil liability might arise did not exist. She refers to the ruling of the CA that the ₱20,000,000.00
check was stolen; hence, petitioner Ching did not acquire any right or interest over the said check and could not
assert any cause of action founded on the said check. Consequently, the CA held that respondent Nicdao had no
obligation to make good the stolen check and cannot be held liable for violation of BP 22. She also refers to the
CA’s pronouncement relative to the ten (10) other checks that they were not issued to apply on account or for
value, considering that the loan obligations secured by these checks had already been extinguished by her full
payment thereof.
To respondent Nicdao’s mind, these pronouncements are equivalent to a finding that the facts upon which her
civil liability may arise do not exist. The instant petition, which seeks to enforce her civil liability based on the
eleven (11) checks, is thus allegedly already barred by the final and executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it
found that the ₱20,000,000.00 check was a stolen check and that she never made any transaction with
petitioner Ching. Moreover, the other ten (10) checks were not issued to apply on account or for value. These
findings are allegedly supported by the evidence on record which consisted of the respective testimonies of the
defense witnesses to the effect that: respondent Nicdao had the practice of leaving pre-signed checks placed
inside an unsecured cash box in the Vignette Superstore; the salesladies were given the authority to fill up the
said checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans from her; as
security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave the checks to
Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995,
one of the salesladies reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid,
Batch 1 39
respondent Nicdao tried to retrieve her checks but Nuguid and petitioner Ching falsely told her that she still
owed them money; they then maliciously filled up the checks making it appear that petitioner Ching was the
payee in the five checks and the six others were payable to "cash"; and knowing fully well that these checks
were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited
the checks and caused them to be dishonored by HSLB.
It is pointed out by respondent Nicdao that her testimony (that the ₱20,000,000.00 check was the same one
that she lost sometime in 1995) was corroborated by the respective testimonies of her employees. Another
indication that it was stolen was the fact that among all the checks which ended up in the hands of petitioner
Ching and Nuguid, only the ₱20,000,000.00 check was fully typewritten; the rest were invariably handwritten as
to the amounts, payee and date.
Respondent Nicdao defends the CA’s conclusion that the ₱20,000,000.00 check was stolen on the ground that
an appeal in a criminal case throws open the whole case to the appellate court’s scrutiny. In any event, she
maintains that she had been consistent in her theory of defense and merely relied on the disputable
presumption that the person in possession of a stolen article is presumed to be the author of the theft.
Considering that it was stolen, respondent Nicdao argues, the ₱20,000,000.00 check was an incomplete and
undelivered instrument in the hands of petitioner Ching and he did not acquire any right or interest therein.
Further, he cannot assert any cause of action founded on the said stolen check. Accordingly, petitioner Ching’s
attempt to collect payment on the said check through the instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner Ching’s testimony that she owed him a total
sum of ₱20,950,000.00 without any documentary proof of the loan transactions. She submits that it is contrary
to human experience for loan transactions involving such huge amounts of money to be devoid of any
documentary proof. In relation thereto, respondent Nicdao underscores that petitioner Ching lied about being
employed as a salesman of La Suerte Cigar and Cigarette Manufacturing. It is underscored that he has not
adequately shown that he possessed the financial capacity to lend such a huge amount to respondent Nicdao as
he so claimed.
Neither could she be held liable for the ten (10) other checks (in the total amount of ₱950,000,000.00) because
as respondent Nicdao asseverates, she merely issued them to Nuguid as security for her loans obtained from the
latter beginning October 1995 up to 1997. As evidenced by the Planters Bank demand draft in the amount of
₱1,200,000.00, she already made payment in 1996. The said demand draft was negotiated to petitioner Ching’s
account and he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was
payment for a prior existing obligation. She asserts that petitioner Ching was unable to present evidence of such
a previous transaction.
In addition to the Planters Bank demand draft, respondent Nicdao insists that petitioner Ching received, through
Nuguid, cash payments as evidenced by the computations written at the back of the cigarette wrappers. Nuguid
went to the Vignette Superstore everyday to collect these payments. The other defense witnesses corroborated
this fact. Petitioner Ching allegedly never disputed the accuracy of the accounts appearing on these cigarette
wrappers; nor did he dispute their authenticity and accuracy.
Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of the Planters
Bank demand draft (₱1,200,000.00) and those reflected at the back of the cigarette wrappers (₱5,780,000.00),
respondent Nicdao had already paid petitioner Ching and Nuguid a total sum of ₱6,980,000.00 for her loan
Batch 1 40
obligations totaling only ₱950,000.00, as secured by the ten (10) HSLB checks excluding the stolen
₱20,000,000.00 check.
Respondent Nicdao rebuts petitioner Ching’s argument (that the daily payments were applied to the interests),
and claims that this is illegal. Petitioner Ching cannot insist that the daily payments she made applied only to the
interests on the loan obligations, considering that there is admittedly no document evidencing these loans,
hence, no written stipulation for the payment of interests thereon. On this point, she invokes Article 1956 of the
Civil Code, which proscribes the collection of interest payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as security for her loans
had already been discharged upon her full payment thereof. It is her belief that these checks can no longer be
used to coerce her to pay a debt that she does not owe.
On the CA’s failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054, respondent Nicdao proffers
the explanation that under the RIRCA, consolidation of the cases is not mandatory. In fine, respondent Nicdao
urges the Court to deny the petition as it failed to discharge the burden of proving her civil liability with the
required preponderance of evidence. Moreover, the CA’s acquittal of respondent Nicdao is premised on the
finding that, apart from the stolen check, the ten (10) other checks were not made to apply to a valid, due and
demandable obligation. This, in effect, is a categorical ruling that the fact from which the civil liability of
respondent Nicdao may arise does not exist.
The Court’s Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdao’s acquittal, petitioner Ching is entitled to appeal the civil aspect of the case
within the reglementary period
It is axiomatic that "every person criminally liable for a felony is also civilly liable."34 Under the pertinent
provision of the Revised Rules of Court, the civil action is generally impliedly instituted with the criminal action.
At the time of petitioner Ching’s filing of the Informations against respondent Nicdao, Section 1,35 Rule 111 of
the Revised Rules of Court, quoted earlier, provided in part:
SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil action for the
recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil
action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles
32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not necessarily carry with it the extinguishment of the civil
liability of the accused. Section 2(b)36 of the same Rule, also quoted earlier, provided in part:
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds
from a declaration in a final judgment that the fact from which the civil might arise did not exist.
Batch 1 41
It is also relevant to mention that judgments of acquittal are required to state "whether the evidence of the
prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond
reasonable doubt. In either case, the judgment shall determine if the act or omission from which the civil liability
might arise did not exist."37
In Sapiera v. Court of Appeals,38 the Court enunciated that the civil liability is not extinguished by acquittal: (a)
where the acquittal is based on reasonable doubt; (b) where the court expressly declares that the liability of the
accused is not criminal but only civil in nature; and (c) where the civil liability is not derived from or based on the
criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil Code –
ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been
proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted.
Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require
the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious.
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the
absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the
acquittal is due to that ground.
The Court likewise expounded in Salazar v. People39 the consequences of an acquittal on the civil aspect in this
wise:
The acquittal of the accused does not prevent a judgment against him on the civil aspect of the criminal case
where: (a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the
court declared that the liability of the accused is only civil; (c) the civil liability of the accused does not arise from
or is not based upon the crime of which the accused is acquitted. Moreover, the civil action based on the delict
is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from
which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed
to him.
If the accused is acquitted on reasonable doubt but the court renders judgment on the civil aspect of the
criminal case, the prosecution cannot appeal from the judgment of acquittal as it would place the accused in
double jeopardy. However, the aggrieved party, the offended party or the accused or both may appeal from the
judgment on the civil aspect of the case within the period therefor.
From the foregoing, petitioner Ching correctly argued that he, as the offended party, may appeal the civil aspect
of the case notwithstanding respondent Nicdao’s acquittal by the CA. The civil action was impliedly instituted
with the criminal action since he did not reserve his right to institute it separately nor did he institute the civil
action prior to the criminal action.
Following the long recognized rule that "the appeal period accorded to the accused should also be available to
the offended party who seeks redress of the civil aspect of the decision," the period to appeal granted to
petitioner Ching is the same as that granted to the accused.40 With petitioner Ching’s timely filing of the instant
petition for review of the civil aspect of the CA’s decision, the Court thus has the jurisdiction and authority to
determine the civil liability of respondent Nicdao notwithstanding her acquittal.
Batch 1 42
In order for the petition to prosper, however, it must establish that the judgment of the CA acquitting
respondent Nicdao falls under any of the three categories enumerated in Salazar and Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt as only preponderance of evidence is required;
(b) where the court declared that the liability of the accused is only civil; and
(c) where the civil liability of the accused does not arise from or is not based upon the crime of which
the accused is acquitted.
Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final
judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or
where the accused did not commit the act or omission imputed to him.
For reasons that will be discussed shortly, the Court holds that respondent Nicdao cannot be held civilly liable to
petitioner Ching.
The acquittal of respondent Nicdao likewise effectively extinguished her civil liability
A painstaking review of the case leads to the conclusion that respondent Nicdao’s acquittal likewise carried with
it the extinction of the action to enforce her civil liability. There is simply no basis to hold respondent Nicdao
civilly liable to petitioner Ching.
First, the CA’s acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is based on
the finding that she did not commit the act penalized under BP 22. In particular, the CA found that the
₱20,000,000.00 check was a stolen check which was never issued nor delivered by respondent Nicdao to
petitioner Ching. As such, according to the CA, petitioner Ching "did not acquire any right or interest over Check
No. 002524 and cannot assert any cause of action founded on said check,"41 and that respondent Nicdao "has no
obligation to make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22." 42
With respect to the ten (10) other checks, the CA established that the loans secured by these checks had already
been extinguished after full payment had been made by respondent Nicdao. In this connection, the second
element for the crime under BP 22, i.e., "that the check is made or drawn and issued to apply on account or for
value," is not present.
Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable to petitioner Ching. In
fact, the CA explicitly stated that she had already fully paid her obligations. The CA computed the payments
made by respondent Nicdao vis-à-vis her loan obligations in this manner:
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own
handwriting totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft received by Emma Nuguid, it would
appear that petitioner [respondent herein] had already made payments in the total amount of ₱6,980,000.00
for her loan obligation of only ₱2,100,000.00 (₱950,000.00 in the case at bar and ₱1,150,000.00 in CA-G.R. CR
No. 23054).43
On the other hand, its finding relative to the ₱20,000,000.00 check that it was a stolen check necessarily
absolved respondent Nicdao of any civil liability thereon as well.
Batch 1 43
Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not arise from or was not
based upon the criminal act of which she was acquitted (ex delicto) but from her loan obligations to him (ex
contractu), however, petitioner Ching miserably failed to prove by preponderant evidence the existence of these
unpaid loan obligations. Significantly, it can be inferred from the following findings of the CA in its decision
acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On
the ₱20,000,000.00 check, the CA found as follows:
True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession of complainant
Ching who, in cahoots with his paramour Emma Nuguid, filled up the blank check with his name as payee and in
the fantastic amount of ₱20,000,000.00, dated it October 6, 1997, and presented it to the bank on October 7,
1997, along with the other checks, for payment. Therefore, the inference that the check was stolen is anchored
on competent circumstantial evidence. The fact already established is that Emma Nuguid , previous owner of the
store, had access to said store. Moreover, the possession of a thing that was stolen , absent a credible reason, as
in this case, gives rise to the presumption that the person in possession of the stolen article is presumed to be
guilty of taking the stolen article (People v. Zafra, 237 SCRA 664).
As previously shown, at the time check no. 002524 was stolen, the said check was blank in its material aspect (as
to the name of payee, the amount of the check, and the date of the check), but was already pre-signed by
petitioner. In fact, complainant Ching himself admitted that check no. 002524 in his possession was a blank
check (TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition).
Moreover, since it has been established that check no. 002524 had been missing since 1995 (TSN, Sept. 9, 1998,
pp. 14-15, Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE, Petition), it is abundantly clear that said
check was never delivered to complainant Ching. Check no. 002524 was an incomplete and undelivered
instrument when it was stolen and ended up in the hands of complainant Ching. Sections 15 and 16 of the
Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by complainant Ching that said check in his possession was a
blank check and was subsequently completed by him alone without authority from petitioner. Inasmuch as
check no. 002524 was incomplete and undelivered in the hands of complainant Ching, he did not acquire any
right or interest therein and cannot, therefore, assert any cause of action founded on said stolen check
(Development Bank of the Philippines v. Sima We, 219 SCRA 736, 740).
It goes without saying that since complainant Ching did not acquire any right or interest over check no. 002524
and cannot assert any cause of action founded on said check, petitioner has no obligation to make good the
stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22.44
Anent the other ten (10) checks, the CA made the following findings:
Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of this
petition had already been paid. It is not controverted that petitioner gave Emma Nuguid a demand draft valued
at ₱1,200,000 to pay for the loans guaranteed by said checks and other checks issued to her. Samson Ching
admitted having received the demand draft which he deposited in his bank account. However, complainant
Samson Ching claimed that the said demand draft represents payment for a previous obligation incurred by
Batch 1 44
petitioner. However, complainant Ching failed to adduce any evidence to prove the existence of the alleged
obligation of the petitioner prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that petitioner
made cash payments to Emma Nuguid who collected the payments almost daily at the Vignette Superstore. As
of July 21, 1997, Emma Nuguid collected cash payments amounting to approximately ₱5,780,000.00. All of these
cash payments were recorded at the back of cigarette cartons by Emma Nuguid in her own handwriting, the
authenticity and accuracy of which were never denied by either complainant Ching or Emma Nuguid.
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own
handwriting totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft received by Emma Nuguid, it would
appear that petitioner had already made payments in the total amount of ₱6,980,000.00 for her loan in the total
amount of ₱6,980,000.00 for her loan obligation of only ₱2,100,000.00 (₱950,000.00 in the case at bar and
P1,150,000.00 in CA-G.R. CR No. 23054).45
Generally checks may constitute evidence of indebtedness.46 However, in view of the CA’s findings relating to
the eleven (11) checks - that the ₱20,000,000.00 was a stolen check and the obligations secured by the other ten
(10) checks had already been fully paid by respondent Nicdao – they can no longer be given credence to
establish respondent Nicdao’s civil liability to petitioner Ching. Such civil liability, therefore, must be established
by preponderant evidence other than the discredited checks.
After a careful examination of the records of the case,47 the Court holds that the existence of respondent
Nicdao’s civil liability to petitioner Ching in the amount of ₱20,950,000.00 representing her unpaid obligations to
the latter has not been sufficiently established by preponderant evidence. Petitioner Ching mainly relies on his
testimony before the MCTC to establish the existence of these unpaid obligations. In gist, he testified that from
October 1995 up to 1997, respondent Nicdao obtained loans from him in the total amount of ₱20,950,000.00.
As security for her obligations, she issued eleven (11) checks which were invariably blank as to the date,
amounts and payee. When respondent Nicdao allegedly refused to pay her obligations despite his due demand,
petitioner filled up the checks in his possession with the corresponding amounts and date and deposited them in
his account. They were subsequently dishonored by the HSLB for being "DAIF" and petitioner Ching accordingly
filed the criminal complaints against respondent Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations – Et incumbit
probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit (The proof lies
upon him who affirms, not upon him who denies; since, by the nature of things, he who denies a fact cannot
produce any proof).48 In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. 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 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.49Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in
determining preponderance of evidence:
SEC. 1. Preponderance of evidence, how determined. – In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. In determining where the preponderance or superior weight
of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the
witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or improbability of their
Batch 1 45
testimony, their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
Unfortunately, petitioner Ching’s testimony alone does not constitute preponderant evidence to establish
respondent Nicdao’s civil liability to him amounting to ₱20,950,000.00. Apart from the discredited checks, he
failed to adduce any other documentary evidence to prove that respondent Nicdao still has unpaid obligations
to him in the said amount. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our
Rules.50
In contrast, respondent Nicdao’s defense consisted in, among others, her allegation that she had already paid
her obligations to petitioner Ching through Nuguid. In support thereof, she presented the Planters Bank demand
draft for ₱1,200,000.00. The said demand draft was negotiated to petitioner Ching’s account and he admitted
receipt of the value thereof. Petitioner Ching tried to controvert this by claiming that it was payment for a
previous transaction between him and respondent Nicdao. However, other than his self-serving claim, petitioner
Ching did not proffer any documentary evidence to prove the existence of the said previous transaction.
Considering that the Planters Bank demand draft was dated August 13, 1996, it is logical to conclude that,
absent any evidence to the contrary, it formed part of respondent Nicdao’s payment to petitioner Ching on
account of the loan obligations that she obtained from him since October 1995.
Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of which were
written the computations of the daily payments that she had made to Nuguid. The fact of the daily payments
was corroborated by the other witnesses for the defense, namely, Jocelyn Nicdao and Tolentino. As found by
the CA, based on these computations, respondent Nicdao had made a total payment of ₱5,780,000.00 to Nuguid
as of July 21, 1997.51Again, the payments made, as reflected at the back of these cigarette wrappers, were not
disputed by petitioner Ching. Hence, these payments as well as the amount of the Planters Bank demand draft
establish that respondent Nicdao already paid the total amount of ₱6,980,000.00 to Nuguid and petitioner
Ching.
The Court agrees with the CA that the daily payments made by respondent Nicdao amounting to ₱5,780,000.00
cannot be considered as interest payments only. Even respondent Nicdao testified that the daily payments that
she made to Nuguid were for the interests due. However, as correctly ruled by the CA, no interests could be
properly collected in the loan transactions between petitioner Ching and respondent Nicdao because there was
no stipulation therefor in writing. To reiterate, under Article 1956 of the Civil Code, "no interest shall be due
unless it has been expressly stipulated in writing."
Neither could respondent Nicdao be considered to be estopped from denying the validity of these interests.
Estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.52 Clearly, the
collection of interests without any stipulation therefor in writing is prohibited by law. Consequently, the daily
payments made by respondent Nicdao amounting to ₱5,780,000.00 were properly considered by the CA as
applying to the principal amount of her loan obligations.
With respect to the ₱20,000,000.00 check, the defense of respondent Nicdao that it was stolen and that she
never issued or delivered the same to petitioner Ching was corroborated by the other defense witnesses,
namely, Tolentino and Jocelyn Nicdao.
Batch 1 46
All told, as between petitioner Ching and respondent Nicdao, the requisite quantum of evidence -
preponderance of evidence - indubitably lies with respondent Nicdao. As earlier intimated, she cannot be held
civilly liable to petitioner Ching for her acquittal; under the circumstances which have just been discussed
lengthily, such acquittal carried with it the extinction of her civil liability as well.
The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054
During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the pertinent provision of the
RIRCA on consolidation of cases provided:
SEC. 7. Consolidation of Cases. – Whenever two or more allied cases are assigned to different Justices, they may
be consolidated for study and report to a single Justice.
(a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the
conformity of all the Justices concerned, the consolidation may be allowed when the cases to be consolidated
involve the same parties and/or related questions of fact and/or law.53
The use of the word "may" denotes the permissive, not mandatory, nature of the above provision, Thus, no
grave error could be imputed to the CA when it proceeded to render its decision in CA-G.R. CR No. 23055,
without consolidating it with CA-G.R. CR No. 23054.
WHEREFORE, premises considered, the Petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 133179 March 27, 2008
ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Respondents.
DECISION
To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they
unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals’ (CA’s) Decision
promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et
al. The CA Decision modified the Decision dated November 15, 19932 of the Regional Trial Court (RTC), Branch 63
in Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
Batch 1 47
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at
its Quintin Paredes Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to
mature on December 15, 1983,3 as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and
instructed the latter to pre-terminate Lim Sio Wan’s money market placement, to issue a manager’s check
representing the proceeds of the placement, and to give the check to one Deborah Dee Santos who would pick
up the check.5 Lim Sio Wan described the appearance of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a manager’s check to be issued.7 The bank
issued Manager’s Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wan’s money
market placement in the name of Lim Sio Wan, as payee.8 The check was cross-checked "For Payee’s Account
Only" and given to Santos.9
Thereafter, the manager’s check was deposited in the account of Filipinas Cement Corporation (FCC) at
respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan as
indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with
respondent Producers Bank. Santos was the money market trader assigned to handle FCC’s account.12 Such
deposit is evidenced by Official Receipt No. 31756813 and a Letter dated September 21, 1983 of Santos
addressed to Angie Lazo of FCC, acknowledging receipt of the placement.14 The placement matured on October
25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter dated October 25, 1983.15 When
the placement matured, FCC demanded the payment of the proceeds of the placement.16 On December 5, 1983,
the same date that So received the phone call instructing her to pre-terminate Lim Sio Wan’s placement, the
manager’s check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the
proceeds of FCC’s money market placement with Producers Bank.17 In other words, the Allied check was
deposited with Metrobank in the account of FCC as Producers Bank’s payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC)
Rules and Regulations, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements
and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check
even without checking the authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount on the face
of the check was credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on
January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to
Allied to withdraw it.21 She was then informed that the placement had been pre-terminated upon her
instructions. She denied giving any instructions and receiving the proceeds thereof. She desisted from further
complaints when she was assured by the bank’s manager that her money would be recovered.22
When Lim Sio Wan’s second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latter’s
instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30
Batch 1 48
days.23On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would
not materialize, sent a demand letter to Allied asking for the payment of the first placement.24 Allied refused to
pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its
subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed as Civil Case No.
6757 against Allied to recover the proceeds of her first money market placement. Sometime in February 1984,
she withdrew her second placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a fourth party
complaint28 against FCC. FCC for its part filed a fifth party complaint29 against Producers Bank. Summonses were
duly served upon all the parties except for Santos, who was no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the
signature on the check was forged.31 Thus, Metrobank withheld the amount represented by the check from FCC.
Later on, Metrobank agreed to release the amount to FCC after the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with
Allied.33The RTC admitted the amended complaint despite the opposition of Metrobank.34 Consequently, Allied’s
third party complaint against Metrobank was converted into a cross-claim and the latter’s fourth party
complaint against FCC was converted into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus 12%
interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorney’s fees;
and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Bank’s cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobank’s third-party complaint as against Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporation’s fourth-party complaint against Producer’s Bank is also DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals

Batch 1 49
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC
Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum
from March 16, 1984 until fully paid. The moral damages, attorney’s fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-terminate the
initial placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of
amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged
demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the
check, it being the collecting bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the
proceeds of Lim Sio Wan’s money market placement to Santos. Allied clearly raises a question of fact. When the
CA affirms the findings of fact of the RTC, the factual findings of both courts are binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial court’s findings on the credibility of
witness So inasmuch as it was the trial court that heard the witness and had the opportunity to observe closely
her deportment and manner of testifying. Unless the trial court had plainly overlooked facts of substance or
value, which, if considered, might affect the result of the case,40 we find it best to defer to the trial court on
matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual question.41 Thus, the finding of
the RTC, affirmed by the CA, that the respective parties were negligent in the exercise of their obligations is also
conclusive upon this Court.
Batch 1 50
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the
doctrine that the relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.42 More
succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money
market placement is a simple loan or mutuum.43 Further, we defined a money market in Cebu International
Finance Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private respondent is in the
nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request,
or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such
event, the obligation of Allied to Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Batch 1 51
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory

condition, and prescription, are governed elsewhere in this Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her
money market placement to Santos and the bank had been negligent in so doing, there is no question that the
obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that "payment
shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or
any person authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no
fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by
mistake as to the person of his creditor, or through error induced by the fraud of a third person, the payment to
one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article
1241. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it.45 (Emphasis
supplied.)
Since there was no effective payment of Lim Sio Wan’s money market placement, the bank still has an obligation
to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan’s money. It points out that
Metrobank guaranteed all prior indorsements inscribed on the manager’s check, and without Metrobank’s
guarantee, the present controversy would never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is,
aside from being an efficient intervening cause, also the last negligent act, x x x contributory to the injury caused
in the present case, which thereby leads to the conclusion that it is the collecting bank, Metrobank that is the
proximate cause of the alleged loss of the plaintiff in the instant case.46
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred."47 Thus, there is
an efficient supervening event if the event breaks the sequence leading from the cause to the ultimate result. To
determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not
happen, would the injury have resulted? If the answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the
check would still be lost because of Metrobank’s negligence in indorsing the check without verifying the
genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.—Every indorser who indorses without qualification, warrants to all
subsequent holders in due course;
Batch 1 52
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be
according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.—Every person negotiating an instrument by
delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation
securities, other than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in
the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be
liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged. We
held in a line of cases that "a collecting bank which indorses a check bearing a forged indorsement and presents
it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately
should be held liable therefor."48
However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself
was attended with negligence. Thus, in the cases cited above where the collecting bank is generally held liable,
in two of the cases where the checks were negligently issued, this Court held the institution issuing the check
just as liable as or more liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the payees on the strength
of forged indorsements, we held the collecting bank solely liable for the whole amount of the checks involved
for having indorsed the same. In Republic Bank v. Ebrada,49 the check was properly issued by the Bureau of
Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking
Corporation,50 Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders
Royal Bank v. Radio Philippines Network, Inc.,51 the checks were issued at the request of Radio Philippines
Network, Inc. from Traders Royal Bank.1avvphi1
Batch 1 53
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of
the amount on the face of the negotiable instrument and the collecting bank is liable for 40%. We also noted the
relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the encashment of
the forged checks by an impostor. Both banks were not able to overcome the presumption of negligence in the
selection and supervision of their employees. It was the gross negligence of the employees of both banks which
resulted in the fraud and the subsequent loss. While it is true that petitioner BPI’s negligence may have been the
proximate cause of the loss, respondent CBC’s negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code
to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the
courts. (See Phoenix Construction Inc. v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are
satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of
P7,250.00 and the cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank
should equally share the liability for the loss of amount represented by the checks concerned due to the
negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the
negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in
allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years
and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospital’s real cashier, respondent Province contributed to the loss amounting to P203,300.00
and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover
fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on
its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the payee’s indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or
institution which issued the check was held partially liable for the amount of the check was because of the
negligence of these parties which resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the manager’s check and in
transmitting it to Santos without even a written authorization.54 In fact, Allied did not even ask for the certificate
evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her
instructions. Both actions could have prevented the whole fraudulent transaction from unfolding. Allied’s
negligence must be considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been
issued and no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had
there been no check in the first place.
Batch 1 54
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When
Metrobank indorsed the check in compliance with the PCHC Rules and Regulations55 without verifying the
authenticity of Lim Sio Wan’s indorsement and when it accepted the check despite the fact that it was cross-
checked payable to payee’s account only,56 its negligent and cavalier indorsement contributed to the easier
release of Lim Sio Wan’s money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the
liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan’s indorsement, can
raise the real defense of forgery as against both banks.57
As to Producers Bank, Allied Bank’s argument that Producers Bank must be held liable as employer of Santos
under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for
quasi-delicts that an employee has committed. Such provision of law does not apply to civil liability arising from
delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant
case. Such liability on the part of the employer for the civil aspect of the criminal act of the employee is based on
the conviction of the employee for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied
correctly claims in its petition that Producers Bank should reimburse Allied for whatever judgment that may be
rendered against it pursuant to Art. 22 of the Civil Code, which provides: "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 cause or legal ground, shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust enrichment when
a person unjustly retains a benefit to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of the Civil
Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another."59
In the instant case, Lim Sio Wan’s money market placement in Allied Bank was pre-terminated and withdrawn
without her consent. Moreover, the proceeds of the placement were deposited in Producers Bank’s account in
Metrobank without any justification. In other words, there is no reason that the proceeds of Lim Sio Wans’
placement should be deposited in FCC’s account purportedly as payment for FCC’s money market placement
and interest in Producers Bank.lavvphil With such payment, Producers Bank’s indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of
Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and
Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly
enriched. It must be remembered that FCC’s money market placement with Producers Bank was already due
and demandable; thus, Producers Bank’s payment thereof was justified. FCC was entitled to such payment. As
Batch 1 55
earlier stated, the fact that the indorsement on the check was forged cannot be raised against FCC which was
not a part in any stage of the negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire controversy.
Unfortunately, since summons had not been served on Santos, the courts have not acquired jurisdiction over
her.60 We, therefore, cannot ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12%
interest per annum, moral damages, attorney’s fees, and costs of suit which Allied and Metrobank are adjudged
to pay Lim Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and the
November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum
from March 16, 1984 until fully paid. The moral damages, attorney’s fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the
aforementioned amounts. The liabilities of the parties are concurrent and independent of each other.
SO ORDERED.
G.R. No. 192413 June 13, 2012
Rizal Commercial Banking Corporation, Petitioner,

vs.
Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.
DECISION
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking
Corporation (RCBC) against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa
(Bakunawa). Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of the
Court of Appeals (CA),1 which reversed and set aside the 19 May 2008 Decision and 3 November 2008 Order of
the Makati City Regional Trial Court (RTC) in Civil Case No. 06-244.2 The case before the RTC involved the
Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended
by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the
branches of various banks in the Philippines. The trial court declared the amounts, subject of the special
Batch 1 56
proceedings, escheated to the Republic and ordered them deposited with the Treasurer of the Philippines
(Treasurer) and credited in favor of the Republic.3 The assailed RTC judgments included an unclaimed balance in
the amount of ₱ 1,019,514.29, maintained by RCBC in its Ermita Business Center branch.
We quote the narration of facts of the CA4 as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are registered owners of
six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT
Nos. 103724, 98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry Montemayor, offered
to buy said lots for "₱ 6,724,085.71", with the promise that she will take care of clearing whatever preliminary
obstacles there may[]be to effect a "completion of the sale". The Spouses Bakunawa gave to Millan the Owner’s
Copies of said TCTs and in turn, Millan made a down[]payment of "₱ 1,019,514.29" for the intended purchase.
However, for one reason or another, Millan was not able to clear said obstacles. As a result, the Spouses
Bakunawa rescinded the sale and offered to return to Millan her down[]payment of ₱ 1,019,514.29. However,
Millan refused to accept back the ₱ 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa,
through their company, the Hi-Tri Development Corporation ("Hi-Tri") took out on October 28, 1991, a
Manager’s Check from RCBC-Ermita in the amount of ₱ 1,019,514.29, payable to Millan’s company Rosmil Realty
and Development Corporation ("Rosmil") c/o Teresita Millan and used this as one of their basis for a complaint
against Millan and Montemayor which they filed with the Regional Trial Court of Quezon City, Branch 99,
docketed as Civil Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to plaintiffs
spouses the Owners’ Copies of Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827, 98828
and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos (₱ 1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of ₱
2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of ₱ 50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that
"Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five
Hundred Fourteen Pesos and Twenty Nine [Centavos] ("₱ 1,019,514.29")["], the Spouses Bakunawa, upon advice
of their counsel, retained custody of RCBC Manager’s Check No. ER 034469 and refrained from canceling or
negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible
settlement of the case, Millan was informed that the Manager’s Check was available for her withdrawal, she
being the payee.
Batch 1 57
On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri
and Spouses Bakunawa], x x x RCBC reported the "₱ 1,019,514.29-credit existing in favor of Rosmil" to the
Bureau of Treasury as among its "unclaimed balances" as of January 31, 2003. Allegedly, a copy of the Sworn
Statement executed by Florentino N. Mendoza, Manager and Head of RCBC’s Asset Management, Disbursement
& Sundry Department ("AMDSD") was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC the
action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only the
amount of "₱ 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of "₱
3,000,000.00", [which is] inclusive [of] the amount of ["]₱ 1,019,514.29". But during negotiations and evidently
prior to said settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the ₱
1,019,514.29 under RCBC Manager’s Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however
dismayed when they were informed that the amount was already subject of the escheat proceedings before the
RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the Manager’s
Check is currently the subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial
Court.
Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC bank account once
an order to debit is issued upon the payee’s presentation of the Manager’s Check. Since the payee rejected the
negotiated Manager’s Check, presentation of the Manager’s Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of the Manager’s Check was
supposed to remain part of the Corporation[’s] RCBC bank account, which, thereafter, continued to be actively
maintained and operated. For this reason, We hereby demand your confirmation that the amount of Php
1,019,514.29 continues to form part of the funds in the Corporation’s RCBC bank account, since pay-out of said
amount was never ordered. We wish to point out that if there was any attempt on the part of RCBC to consider
the amount indicated in the Manager’s Check separate from the Corporation’s bank account, RCBC would have
issued a statement to that effect, and repeatedly reminded the Corporation that the deposit would be
considered dormant absent any fund movement. Since the Corporation never received any statements of
account from RCBC to that effect, and more importantly, never received any single letter from RCBC noting the
absence of fund movement and advising the Corporation that the deposit would be treated as dormant."
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-
quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that:
"The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s Check No.
ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as the status thereof, between
28 January 2008 and 1 February 2008.
Batch 1 58
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check No. ER034469 does not form part
of the Bank’s own account. By simple operation of law, the funds covered by the manager’s check in issue
became a deposit/credit susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of
Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the check, the Bank’s obligation to do so
prescribed as early as October 2001."
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its
assailed Decision declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244
escheated to the Republic. Among those included in the order of forfeiture was the amount of ₱ 1,019,514.29
held by RCBC as allocated funds intended for the payment of the Manager’s Check issued in favor of Rosmil. The
trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the
Republic. Respondents claim that they were not able to participate in the trial, as they were not informed of the
ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of
the RTC Decision insofar as it escheated the fund allocated for the payment of the Manager’s Check. They asked
that they be included as party-defendants or, in the alternative, allowed to intervene in the case and their
motion considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask
reconsideration of the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit
was subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
they were interested parties to that case.5
On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that
the Republic had proven compliance with the requirements of publication and notice, which served as notice to
all those who may be affected and prejudiced by the Complaint for Escheat. The RTC also found that the motion
failed to point out the findings and conclusions that were not supported by the law or the evidence presented,
as required by Rule 37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out
of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November
2008 Order of the RTC. According to the appellate court,6 RCBC failed to prove that the latter had communicated
with the purchaser of the Manager’s Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn Statement on the dormant accounts held therein. The CA ruled that
the bank’s failure to notify respondents deprived them of an opportunity to intervene in the escheat
proceedings and to present evidence to substantiate their claim, in violation of their right to due process.
Batch 1 59
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices
directed to all persons claiming interest in the unclaimed balances, as well as to require them to appear after
publication and show cause why the unclaimed balances should not be deposited with the Treasurer of the
Philippines. It explained that the jurisdictional requirement of individual notice by personal service was distinct
from the requirement of notice by publication. Consequently, the CA held that the Decision and Order of the
RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
I. Whether the Decision and Order of the RTC were void for failure to send separate notices to
respondents by personal service
II. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn
Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service upon respondents
is a jurisdictional requirement in escheat proceedings. Petitioner contends that respondents were not the
owners of the unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court. It hinges its
claim on the theory that the funds represented by the Manager’s Check were deemed transferred to the credit
of the payee or holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an
action or actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the
province or city where the bank, building and loan association or trust corporation is located, in which shall be
joined as parties the bank, building and loan association or trust corporation and all such creditors or depositors.
All or any of such creditors or depositors or banks, building and loan association or trust corporations may be
included in one action. Service of process in such action or actions shall be made by delivery of a copy of the
complaint and summons to the president, cashier, or managing officer of each defendant bank, building and
loan association or trust corporation and by publication of a copy of such summons in a newspaper of general
circulation, either in English, in Filipino, or in a local dialect, published in the locality where the bank, building
and loan association or trust corporation is situated, if there be any, and in case there is none, in the City of
Manila, at such time as the court may order. Upon the trial, the court must hear all parties who have appeared
therein, and if it be determined that such unclaimed balances in any defendant bank, building and loan
association or trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment in
favor of the Government of the Republic of the Philippines, declaring that said unclaimed balances have
escheated to the Government of the Republic of the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same with the Treasurer of the Philippines to credit of
the Government of the Republic of the Philippines to be used as the National Assembly may direct.
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At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice
signed by him, giving the title and number of said action, and referring to the complaint therein, and directed to
all persons, other than those named as defendants therein, claiming any interest in any unclaimed balance
mentioned in said complaint, and requiring them to appear within sixty days after the publication or first
publication, if there are several, of such summons, and show cause, if they have any, why the unclaimed
balances involved in said action should not be deposited with the Treasurer of the Philippines as in this Act
provided and notifying them that if they do not appear and show cause, the Government of the Republic of the
Philippines will apply to the court for the relief demanded in the complaint. A copy of said notice shall be
attached to, and published with the copy of, said summons required to be published as above, and at the end of
the copy of such notice so published, there shall be a statement of the date of publication, or first publication, if
there are several, of said summons and notice. Any person interested may appear in said action and become a
party thereto. Upon the publication or the completion of the publication, if there are several, of the summons
and notice, and the service of the summons on the defendant banks, building and loan associations or trust
corporations, the court shall have full and complete jurisdiction in the Republic of the Philippines over the said
unclaimed balances and over the persons having or claiming any interest in the said unclaimed balances, or any
of them, and shall have full and complete jurisdiction to hear and determine the issues herein, and render the
appropriate judgment thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and
summons upon the president, cashier, or managing officer of the defendant bank.8 On the other hand, as to
depositors or other claimants of the unclaimed balances, service is made by publication of a copy of the
summons in a newspaper of general circulation in the locality where the institution is situated.9 A notice about
the forthcoming escheat proceedings must also be issued and published, directing and requiring all persons who
may claim any interest in the unclaimed balances to appear before the court and show cause why the dormant
accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon
respondents was a jurisdictional requirement, and that failure to effect personal service on them rendered the
Decision and the Order of the RTC void for want of jurisdiction. Escheat proceedings are actions in
rem,10 whereby an action is brought against the thing itself instead of the person.11 Thus, an action may be
instituted and carried to judgment without personal service upon the depositors or other
claimants.12 Jurisdiction is secured by the power of the court over the res.13 Consequently, a judgment of escheat
is conclusive upon persons notified by advertisement, as publication is considered a general and constructive
notice to all persons interested.14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the
payment of the Manager’s Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and
claims abandoned, left vacant, or unclaimed property, without there being an interested person having a legal
claim thereto.15 In the case of dormant accounts, the state inquires into the status, custody, and ownership of
the unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence of
or abandonment by the depositor.16 If after the proceedings the property remains without a lawful owner
interested to claim it, the property shall be reverted to the state "to forestall an open invitation to self-service
by the first comers."17 However, if interested parties have come forward and lain claim to the property, the
courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the
state.18 We emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or
withdraw from their accounts. It is a proceeding whereby the state compels the surrender to it of unclaimed
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deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or
without an owner.19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions
in filing a sworn statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all
banks, building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a
statement, under oath, of their respective managing officers, of all credits and deposits held by them in favor of
persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten
years or more, arranged in alphabetical order according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the persons in whose favor
such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money
or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date
when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank,
building and loan association, or trust corporation concerned for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with the person in whose favor the unclaimed balance
stands at his last known place of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the
existence of unclaimed balances held by banks, building and loan associations, and trust corporations. (Emphasis
supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed
balances. This notification is meant to inform them that their deposit could be escheated if left unclaimed.
Accordingly, before filing a sworn statement, banks and other similar institutions are under obligation to
communicate with owners of dormant accounts. The purpose of this initial notice is for a bank to determine
whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner. If the
depositor simply does not wish to touch the funds in the meantime, but still asserts ownership and dominion
over the dormant account, then the bank is no longer obligated to include the account in its sworn
statement.20 It is not the intent of the law to force depositors into unnecessary litigation and defense of their
rights, as the state is only interested in escheating balances that have been abandoned and left without an
owner.
In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to
the Republic, the bank "shall not thereafter be liable to any person for the same and any action which may be
brought by any person against in any bank xxx for unclaimed balances so deposited xxx shall be defended by the
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Solicitor General without cost to such bank."21 Otherwise, should it fail to comply with the legally outlined
procedure to the prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act
No. 3936, as amended.
Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send prior notices to
respondents about the forthcoming escheat proceedings involving the funds allocated for the payment of the
Manager’s Check. It explains that, pursuant to the law, only those "whose favor such unclaimed balances stand"
are entitled to receive notices. Petitioner argues that, since the funds represented by the Manager’s Check were
deemed transferred to the credit of the payee upon issuance of the check, the proper party entitled to the
notices was the payee – Rosmil – and not respondents. Petitioner then contends that, in any event, it is not
liable for failing to send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner
avers that it was not under any obligation to record the address of the payee of a Manager’s Check.
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund allocated for the
payment of the Manager’s Check. They reason that, since the funds were part of the Compromise Agreement
between respondents and Rosmil in a separate civil case, the approval and eventual execution of the agreement
effectively reverted the fund to the credit of respondents. Respondents further posit that their ownership of the
funds was evidenced by their continued custody of the Manager’s Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee),24 requesting
the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of
money.25The issuance of the check does not of itself operate as an assignment of any part of the funds in the
bank to the credit of the drawer.26 Here, the bank becomes liable only after it accepts or certifies the
check.27 After the check is accepted for payment, the bank would then debit the amount to be paid to the holder
of the check from the account of the depositor-drawer.
There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the
bank’s manager or cashier, in the name of the bank, against the bank itself.28 Typically, a manager’s or a cashier’s
check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s
account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues
the check in its name, with itself as the drawee, the check is deemed accepted in advance.29 Ordinarily, the
check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon
demand.30
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of
funds to the account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of
the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the
following provision on undelivered instruments under the Negotiable Instruments Law applicable:31
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only,
and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands
of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party whose signature
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appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. (Emphasis
supplied.)
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount to be
paid for the check would be sourced from the deposit account of Hi-Tri.32 When Rosmil did not accept the
Manager’s Check offered by respondents, the latter retained custody of the instrument instead of cancelling it.
As the Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to other persons, the
instrument remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the
instrument.33
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit
the account of respondents was never made. In fact, petitioner confirms that the Manager’s Check was never
negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the
bank.34 As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the
Manager’s Check. The doctrine that the deposit represented by a manager’s check automatically passes to the
payee is inapplicable, because the instrument – although accepted in advance – remains undelivered. Hence,
respondents should have been informed that the deposit had been left inactive for more than 10 years, and that
it may be subjected to escheat proceedings if left unclaimed.1âwphi1
After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to
determine whether the claim of respondents was valid. There was no contention that they were the procurers
of the Manager’s Check. It is undisputed that there was no effective delivery of the check, rendering the
instrument incomplete. In addition, we have already settled that respondents retained ownership of the funds.
As it is obvious from their foregoing actions that they have not abandoned their claim over the fund, we rule
that the allocated deposit, subject of the Manager’s Check, should be excluded from the escheat proceedings.
We reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed
balances. We further note that there is nothing in the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing the escheat
proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court
of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 176697 September 10, 2014
CESAR V. AREZA and LOLITA B. AREZA, Petitioners,

vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.
DECISION
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which seeks to
reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of Appeals in
CAG.R. CV No. 83192. The Court of Appeals affirmed with modification the 22 April 2004 Resolution3 of the
Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886.
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The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent Express Savings
Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-
000092-3.
They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May
2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager of
respondent Express Savings Bank (the Bank) was present during the transaction and immediately offered the
services of the Bank for the processing and eventual crediting of the said checks to petitioners’ account.4 On the
other hand,Potenciano countered that he was prevailed upon to accept the checks by way of accommodation of
petitioners who were valued clients of the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, inturn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank werehonored. He
allegedly warned petitioners that the clearing of the checks pertained only to the availability of funds and did
not mean that the checks were not infirmed.6 Thus, the entire amount of ₱1,800,000.00 was credited to
petitioners’ savings account. Based on this information, petitioners released the two cars to the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that the amount
on the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee
returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was
informed by Equitable-PCI Bank that the drawee dishonored the checks onthe ground of material alterations.
Equitable-PCI Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter ruled
in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the
Bank in the amount of ₱1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies
of the documents given by its depositary bank.7 On the other hand, petitioners maintained that the Bank never
informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was dishonored by the
Bank for the reason "Deposit Under Hold." According topetitioners, the Bank unilaterally and unlawfully put
their account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent a demand letter asking the
Bank to honor their check. The Bank refused to heed their request and instead, closed the Special Savings
Account of the petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings
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account. The Bank then withdrew the amount of ₱1,800,000.00representing the returned checks from
petitioners’ savings account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral
withdrawal from their savings account, petitioners filed a Complaint for Sum of Money with Damages against
the Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The dispositive
portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of plaintiffs and
against the defendants jointly and severally to pay plaintiffs as follows, to wit:
1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the account of
plaintiffs;
2. ₱500,000.00 as moral damages; and
3. ₱300,000.00 as attorney’s fees.8
The trial court reduced the issue to whether or not the rights of petitioners were violated by respondents when
the deposits of the former were debited by respondents without any court order and without their knowledge
and consent. According to the trial court, it is the depositary bank which should safeguard the right ofthe
depositors over their money. Invoking Article 1977 of the Civil Code, the trial court stated that the depositary
cannot make use of the thing deposited without the express permission of the depositor. The trial court also
held that respondents should have observed the 24-hour clearing house rule that checks should be returned
within 24-hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action. In this case, petitioners deposited the checks in May 2000, and respondents notified them of the
problems on the check three months later or in August 2000. In sum, the trial court characterized said acts of
respondents as attended with bad faith when they debited the amount of ₱1,800,000.00 from the account of
petitioners.
Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the Decision
of the RTC on the ground that respondents’ motion for reconsideration did not conform with Section 5, Rule 16
of the Rules of Court; hence, it was a mere scrap of paper that did not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set
aside the Pozas Decision, and dismissed the complaint. The trial court awarded respondents their counterclaim
of moral and exemplary damages of ₱100,000.00 each. The trial court first applied the principle of liberality
when it disregarded the alleged absence of a notice of hearing in respondents’ motion for reconsideration. On
the merits, the trial court considered the relationship of the Bank and petitioners with respect to their savings
account deposits as a contract of loan with the bank as the debtor and petitioners as creditors. As such, Article
1977 of the Civil Code prohibiting the depository from making use of the thing deposited without the express
permission of the depositor is not applicable. Instead, the trial court applied Article 1980 which provides that
fixed, savings and current deposits ofmoney in banks and similar institutions shall be governed by the provisions
governing simple loan. The trial court then opined thatthe Bank had all the right to set-off against petitioners’
savings deposits the value of their nine checks that were returned.
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On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of damages. The
appellate court made the following ratiocination:
Any argument as to the notice of hearing has been resolved when the pairing judge issued the order on
February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice of hearing shows that request
was addressed to the Clerk of Court and plaintiffs’ counsel for hearing to be set on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the right to debit the amount of
₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting was done "without the
plaintiffs’ knowledge."
We find that the elements of legal compensation are all present in the case at bar. Hence, applying the case of
the Bank of the Philippine Islands v. Court of Appeals, the obligors bound principally are at the same time
creditors of each other. Appellee bank stands as a debtor of appellant, a depositor. At the same time, said bank
is the creditor of the appellant with respect to the dishonored treasury warrant checks which amount were
already credited to the account of appellants. When the appellants had withdrawn the amount of the checks
they deposited and later on said checks were returned, they became indebted to the appellee bank for the
corresponding amount.
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers, appellants oughtto have
exercised due diligence in assessing his credit or personal background. The 24-hour clearing house rule is not the
one that governs in this case since the nine checks were discovered by the drawee bank to contain material
alterations.
Appellants merely allege that they were not informed of any development on the checks returned. However,
this Court believes that the bank and appellants had opportunities to communicate about the checks
considering that several transactions occurred from the time of alleged return of the checks to the date of the
debit.
However, this Court agrees withappellants that they should not pay moral and exemplary damages to each of
the appellees for lack of basis. The appellants were not shown to have acted in bad faith.9
Petitioners filed the present petition for review on certiorariraising both procedural and substantive issues, to
wit:
1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave abuse
of discretion in upholding the legality and/or propriety of the Motion for Reconsideration filed in
violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in declaring
that the private respondents "had the right to debit the amount of ₱1,800,000.00 from the appellants’
accounts" and the bank’s act of debiting was done with the plaintiff’s knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural issue raised by petitioners.
Sections 5, Rule 15 of the Rules of Court states:

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Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned, and shall specify
the time and date of the hearing which must not be later than ten (10) days after the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the adverse party as
the rules require. Petitioners add that the hearing on the motion for reconsideration was scheduled beyond 10
days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse party has
beensubstantially complied with when a copy of the motion for reconsideration was furnished to the counsel of
the adverse party, coupled with the fact that the trial court acted on said notice of hearing and, as prayed for,
issued an order12 setting the hearing of the motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the said
motion for reconsideration was furnished to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must, in this case, give way.
The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the amountof
₱1,800,000.00 was accordingly credited to petitioners’ accounts, prompting them to release the purchased cars
to the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank. Three months
had passed when the Bank was informed by its depositary bank that the drawee had dishonored the checks on
the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon the savings
account of petitioners with respondent bank. The trial court inits reconsidered decision and the appellate court
were one in declaring that petitioners should bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In
this case, before the alteration was discovered, the checks were already cleared by the drawee bank, the
Philippine Veterans Bank. Three months had lapsed before the drawee dishonored the checks and returned
them to Equitable-PCI Bank, the respondents’ depositary bank. And itwas not until 10 months later when
petitioners’ accounts were debited. A question thus arises: What are the liabilities of the drawee, the
intermediary banks, and the petitioners for the altered checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who
accepts the bill. In Philippine National Bank v. Court of Appeals,14 the payment of the amount of a check implies
not only acceptance but also compliance with the drawee’s obligation.
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In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or the altered
tenor of acceptance? There are two divergent intepretations proffered by legal analysts.15 The first view is
supported by the leading case of National City Bank ofChicago v. Bank of the Republic.16 In said case, a certain
Andrew Manning stole a draft and substituted his name for that of the original payee. He offered it as payment
to a jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which
collectedthe equivalent amount from the drawee. Upon learning of the alteration, the drawee sought to recover
from the defendant bank the amount of the draft, as money paid by mistake. The court denied recovery on the
ground that the drawee by accepting admitted the existence of the payee and his capacity to endorse.17 Still, in
Wells Fargo Bank & Union Trust Co. v. Bank of Italy,18 the court echoed the court’s interpretation in National City
Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is correct and that it was not the
legislative intent that the obligation of the acceptor should be limited to the tenorof the instrument as drawn by
the maker, as was the rule at common law,but that it should be enforceable in favor of a holder in due course
against the acceptor according to its tenor at the time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the Negotiable
Instruments Law. As stated in the Illinois case: "The court must take the act as it is written and should give to the
words their natural and common meaning . . . ifthe language of the act conflicts with statutes or decisions in
force before its enactment the courts should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act suggests that a change in the common law
was intended. A careful reading thereof, independent of any common-law influence, requires that the words
"according to the tenor of his acceptance" be construed as referring to the instrument as it was at the time it
came into the hands of the acceptor for acceptance, for he accepts no other instrument than the one presented
to him — the altered form — and it alone he engages to pay. This conclusion is in harmony with the law of
England and the continental countries. It makes for the usefulness and currency of negotiable paper without
seriously endangering accepted banking practices, for banking institutions can readily protect themselves
against liability on altered instruments either by qualifying their acceptance or certification or by relying on
forgery insurance and specialpaper which will make alterations obvious. All of the arguments advanced against
the conclusion herein announced seem highly technical in the face of the practical facts that the drawee bank
has authenticated an instrument in a certain form, and that commercial policy favors the protection of anyone
who, in due course, changes his position on the faith of that authentication.19
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of
the bill prior to alteration.20 This view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which statesthat a material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor.
Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its
duty tocharge its client’s account only for bona fide disbursements he had made. If the drawee did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the
drawer’s account which it was expected to treat with utmost fidelity.21 The drawee, however, still has recourse
to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did
in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

Batch 1 69
A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is
presented for immediate payment over the counter.22 It is also the bank to which a check is transferred for
deposit in an account at such bank, evenif the check is physically received and indorsed first by another
bank.23 A collecting bank is defined as any bank handling an item for collection except the bank on which the
check is drawn.24
When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or
ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit
the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting." It has been repeatedly held that in check transactions, the depositary/collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the endorsements.26 If any
of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may
recover from it up to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose
of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds
itself out to the public as the expert and the law holds it to a high standard of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered
checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its account with EquitablePCI
Bank to be debited, it has the option toseek recourse against the latter in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August
2000 that the drawee bank notified Equitable-PCI that there were material alterations in the checks.
We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it did not
follow the 24-hour clearing period which provides that when a drawee bank fails to return a forged or altered
check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items
Beyond The Reglementary Clearing Period.- Items which have been the subject of material alteration or items
bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the
Batch 1 70
period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity
sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai vs. People’s
Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour
rule under which the drawee bank forever loses the right to claim against presenting/collecting bank if the check
is not returned at the next clearing day orwithin 24 hours. Apparently, the commercial banks felt strict
enforcement of the 24-hour rule is too harsh and therefore made representations and obtained modification of
the rule, which modification is now incorporated in the Manual of Regulations. Since the same commercial
banks controlled the Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules
naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the
drawee bank in accordance with long standing and accepted banking practices shall be returned through the
PCHC/local clearing office, as the case may be, not later than the next regular clearing (24-hour). The
modification, however, is that items which have been the subject of material alteration or bearing forged
endorsement may be returned even beyond 24 hours so long that the same is returned within the prescriptive
period fixed by law. The consensus among lawyers is that the prescriptiveperiod is ten (10)years because a check
or the endorsement thereon is a written contract. Moreover, the item need not be returned through the
clearing house but by direct presentation to the presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co.30 is in point. A foreigner purchased
several pieces of jewelry from Gold Palace Jewellery using a United Overseas Bank (Malaysia) issued draft
addressed to the Land Bank of the Philippines (LBP). Gold Palace Jewellery deposited the draft in the company’s
account with Far East Bank. Far East Bank presented the draft for clearing to LBP. The latter cleared the same
and Gold Palace Jewellery’s account was credited with the amount stated in the draft. Consequently, Gold
Palace Jewellery released the pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from ₱300,000.00 to ₱380,000.00. LBP
returnedthe check to Far East Bank. Far East Bank refunded LBP the ₱380,000.00 paid by LBP. Far East Bank
initially debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded the payment of the difference
between the amount in the altered draft and the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far East Bank and Trust
Companycase that "the drawee is liable on its payment of the check according to the tenor of the check at the
time of payment, which was the raised amount"31 is inapplicable to the factual milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far
East, should not have debited the money paid by the drawee bank from respondent company's account. When
Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of
Batch 1 71
the NIL, became an agent of the former for the collection of the amount in the draft. The subsequent payment
by the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the
drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and,
as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction
is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank
at some future time will call on the payee for the return of the money paid to him on the check.
As the transaction in this case had been closed and the principalagent relationship between the payee and the
collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on
its own and should now be responsible for its own actions. x x x Likewise, Far East cannot invoke the warranty of
the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is
precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a
restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East
did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser
as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due
course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to
Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account
for the amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit
the account of Gold Palace, and for doing so, it must return what it had erroneously taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer, the payee,
or either the drawee bank or depositary bank was negligent and such negligence substantially contributed tothe
loss from alteration. In the instant case, no negligence can be attributed to petitioners. We lend credence to
their claim that at the time of the sales transaction, the Bank’s branch manager was present and even offered
the Bank’s services for the processing and eventual crediting of the checks. True to the branch manager’s words,
the checks were cleared three days later when deposited by petitioners and the entire amount ofthe checks was
credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should have made a
claim of the amount of ₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the collecting bank
in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings account. Under Art.
1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. And the requisites for legal compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
Batch 1 72
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-
debtor. Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loans. The bank is the debtorand
the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank and the depositor is the contract that determines
the rights and obligations of the parties.33
But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank, asthe
depositary and collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the
part of petitioners, legal compensation cannot take place. DAMAGES
The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was informed of the
dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001 when the Bank
informed petitioners that it will debit from their account the altered amount. This delay is tantamount to
negligence on the part of the collecting bank which would entitle petitioners to an award for damages under
Article 1170 of the New Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages represent the amount debited by the Bank from
petitioners’ account.
We delete the award of moral damages. Contrary to the lower court’s finding, there was no showing that the
Bank acted fraudulently or in bad faith. It may have been remiss in its duty to diligently protect the account of its
depositors but its honest but mistaken belief that petitioners’ account should be debited is not tantamount to
bad faith. We also delete the award of attorney’s fees for it is not a sound public policy to place a premium on
the right to litigate. No damages can becharged to those who exercise such precious right in good faith, even if
done erroneously.34
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to
alteration.1âwphi1 Since Philippine Veterans Bank paid the altered amount of the check, it may pass the liability
back as it did, to Equitable-PCI Bank,the collecting bank. The collecting banks, Equitable-PCI Bank and the Bank,
are ultimately liable for the amount of the materially altered check. It cannot further pass the liability back to
the petitioners absent any showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.
Batch 1 73
Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly and
severally pay petitioners ₱1,800,000.00, representing the amount withdrawn from the latter’s account. We do
not conform with said ruling regarding the finding of bad faith on the part of respondents, as well as its failure
toobserve the 24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12 February 2007
respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15 January 2004
Decision of the Regional Trial Court of Calamba City, Branch 92 in Civil Case No. B-5886 rendered by Judge
Antonio S. Pozas is REINSTATEDonly insofar as it ordered respondents to jointly and severally pay petitioners
₱1,800,000.00 representing the amount withdrawn from the latter’s account. The award of moral damages and
attorney’s fees are DELETED.
SO ORDERED.

G.R. No. 187769 June 4, 2014 ALVIN PATRIMONIO, Petitioner, Napoleon Gutierrez and Octavio Marasigan Iii, Respondents

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G.R. No. 187769 June 4, 2014 ALVIN PATRIMONIO, Petitioner, Napoleon Gutierrez and Octavio Marasigan Iii, Respondents

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G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

The Factual Background

The Ruling of the RTC

The Ruling of the CA

Reduced to its basics, the case presents to us the following issues:

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

I. Liability Under the Contract of Loan

ALVIN PATRIMONIO (witness)

Marasigan’s submission fails to persuade us.

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

II. Liability Under the Instrument

Marasigan is Not a Holder in Due Course

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

As held in De Ocampo v. Gatchalian:20

WITNESS: AMBET NABUS

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

Q: What was his reply?

WITNESS: No, sir.

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

2nd case PDF (Gr no. 219037)

G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner,

(4) To pay the costs of suit.

Petitioner now comes before this Court arguing that:

In Westmont Bank v. Ong,21 we ruled:

G.R. No. 158312 November 14, 2008

JOHN DY, petitioner,

The facts are undisputed:

Hence, this petition which raises the following issues:

First, is petitioner guilty of estafa?

We find that the petition is partly meritorious.

Second, did petitioner violate B.P. Blg. 22?

Once again, we find the petition to be meritorious in part.

G.R. No. 141181 April 27, 2007

SAMSON CHING, Petitioner,

CALLEJO, SR., J.:

Factual and Procedural Antecedents

Dinalupihan, Bataan, October 21, 1997.

(Sgd.) SAMSON T.Y. CHING

0025242 ₱ 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*

0088563 150,000 Oct. 6, 1997 " "

0121424 100,000 Oct. 6, 1997 " "

0045315 50,000 Oct. 6, 1997 " "

0022546 100,000 Oct. 6, 1997 " "

0088757 100,000 Oct. 6, 1997 " "

0089368 50,000 Oct. 6, 1997 " "

0022739 50,000 Oct. 6, 1997 " "

00894810 150,000 Oct. 6, 1997 " "

00893511 100,000 Oct. 6, 1997 " "

01037712 100,000 Oct. 6, 1997 " "

The Petitioner’s Case