2ND BATCH OF CASES
NEGOTIABLE INSTRUMENTS LAW
San Miguel Corp. vs. Bartolome Puzon
Del Mundo
G.R. NO. 167567 Sept. 22, 2010
Secs. 12 and 16
DECISION
DEL CASTILLO, J.:
This petition for review assails the December 21, 2004 Decision[1]and March 28, 2005
Resolution[2]of the Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the
petition before it and denied reconsideration, respectively.
Factual Antecedents
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer
of beer products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon
purchased SMC products on credit. To ensure payment and as a business practice, SMC
required him to issue postdated checks equivalent to the value of the products purchased
on credit before the same were released to him. Said checks were returned to Puzon when
the transactions covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for
which he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904
(for P309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction.
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office
in Paraaque City to reconcile his account with SMC. During that visit Puzon allegedly
requested to see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903
which was attached to a bond paper together with BPI Check No. 17657 he allegedly
immediately left the office with his accountant, bringing the checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon
ignored the demand hence SMC filed a complaint against him for theft with the City
Prosecutors Office of Paraaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)
The investigating prosecutor, Elizabeth Yu Guray found that the relationship between [SMC]
and [Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in
the reconciliation of accounts and the non-payment of beer empties which cannot give rise
to a criminal prosecution for theft.[3] Thus, in her July 31, 2001 Resolution,[4] she
recommended the dismissal of
the case for lack of evidence. SMC appealed.
On June 4, 2003, the DOJ issued its resolution[5]affirming the prosecutors Resolution
dismissing the case. Its motion for reconsideration having been denied in the April 23, 2004
DOJ Resolution,[6]SMC filed a petition for certiorari with the CA.
Ruling of the Court of Appeals
The CA found that the postdated checks were issued by Puzon merely as a security for the
payment of his purchases and that these were not intended to be encashed. It thus
concluded that SMC did not acquire ownership of the checks as it was duty bound to return
the same checks to Puzon after the transactions covering them were settled. The CA agreed
with the prosecutor that there was no theft, considering that a person cannot be charged
with theft for taking personal property that belongs to himself. It disposed of the appeal as
follows:
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the
instant petition is hereby DISMISSED. The assailed Resolutions of public respondent, dated
04 June 2003 and 23 April 2004, are AFFIRMED. No costs at this instance.
SO ORDERED.[7]
The motion for reconsideration of SMC was denied. Hence, the present petition.
Issues
Petitioner now raises the following issues:
I
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS
BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION
FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00)
II
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO.
27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED
TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE ISSUED IN
PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS SECURITY TO ENSURE
PAYMENT OF PUZONS OBLIGATION.
III
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN
PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS
COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES THEREOF COULD BE
LIKENED TO A CONTRACT OF PLEDGE.
IV
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF
PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE. [8]
Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees to have taken the
subject postdated checks. It also contends that ownership of the checks was transferred to
it because these were issued, not merely as security but were, in payment of Puzons
purchases.SMC points out that it has established more than sufficient probable cause to
justify the indictment of Puzon for the crime of Theft.
Respondents Arguments
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the
province of an appeal on certiorari. He also insists that there is no probable cause to charge
him with theft because the subject checks were issued only as security and he therefore
retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The
resolution of the first issue raised by SMC of whether respondent stole the subject check,
which calls for the Court to determine whether respondent is guilty of a felony, first requires
that the facts be duly established in the proper forum and in accord with the proper
procedure. This issue cannot be resolved based on mere allegations of facts and
affidavits. The same is true with the second issue raised by petitioner, to wit: whether the
checks issued by Puzon were payments for his purchases or were intended merely as security
to ensure payment. These issues cannot be properly resolved in the present petition for
review on certiorari which is rooted merely on the resolution of the prosecutor finding no
probable cause for the filing of an information for theft.
The third issue raised by petitioner, on the other hand, would entail venturing into
constitutional matters for a complete resolution. This route is unnecessary in the present
case considering that the main matter for resolution here only concerns grave abuse of
discretion and the existence of probable cause for theft, which at this point is more properly
resolved through another more clear cut route.
Probable Cause for Theft
Probable cause is defined as such facts and circumstances that will engender a well-founded
belief that a crime has been committed and that the respondent is probably guilty thereof
and should be held for trial.[9] On the fine points of the determination of probable
cause, Reyes v. Pearlbank Securities, Inc.[10] comprehensively elaborated that:
The determination of [the existence or absence of probable cause] lies within the discretion
of the prosecuting officers after conducting a preliminary investigation upon complaint of an
offended party. Thus, the decision whether to dismiss a complaint or not is dependent upon
the sound discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, if he
finds the charge insufficient in form or substance or without any ground. Or he may proceed
with the investigation if the complaint in his view is sufficient and in proper form. To
emphasize, the determination of probable cause for the filing of information in court is an
executive function, one that properly pertains at the first instance to the public prosecutor
and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding
information or move for the dismissal of the case. Ultimately, whether or not a complaint
will be dismissed is dependent on the sound discretion of the Secretary of Justice. And unless
made with grave abuse of discretion, findings of the Secretary of Justice are not subject to
review.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the
conduct of preliminary investigations and to leave the Department of Justice ample latitude
of discretion in the determination of what constitutes sufficient evidence to establish
probable cause for the prosecution of supposed offenders. Consistent with this policy, courts
do not reverse the Secretary of Justice's findings and conclusions on the matter of probable
cause except in clear cases of grave abuse of discretion.
In the present case, we are also not sufficiently convinced to deviate from the general rule
of non-interference. Indeed the CA did not err in dismissing the petition for certiorari before
it, absent grave abuse of discretion on the part of the DOJ Secretary in not finding probable
cause against Puzon for theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain
but without violence against, or intimidation of persons nor force upon things, shall take
personal property of another without the latters consent.
xxxx
[T]he essential elements of the crime of theft are the following: (1) that there be a taking of
personal property; (2) that said property belongs to another; (3) that the taking be done with
intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the
taking be accomplished without the use of violence or intimidation against persons or force
upon things.[11]
Considering that the second element is that the thing taken belongs to another, it is relevant
to determine whether ownership of the subject check was transferred to petitioner. On this
point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires the title thereto as of the date
of delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned provision means that
the party delivering did so for the purpose of giving effect thereto. [12] Otherwise, it cannot
be said that there has been delivery of the negotiable instrument. Once there is delivery, the
person to whom the instrument is delivered gets the title to the instrument completely and
irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of
giving effect to the instrument is evident thus title to or ownership of the check was
transferred upon delivery. However, if the check was not given as payment, there being no
intent to give effect to the instrument, then ownership of the check was not transferred to
SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation
of Puzon. There was no provisional receipt or official receipt issued for the amount of the
check. What was issued was a receipt for the document, a POSTDATED CHECK SLIP.[13]
Furthermore, the petitioner's demand letter sent to respondent states As per company
policies on receivables, all issuances are to be covered by post-dated checks. However, you
have deviated from this policy by forcibly taking away the check you have issued to us to
cover the December issuance.[14] Notably, the term payment was not used instead the terms
covered and cover were used.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit
that the check was given in payment of the obligation of Puzon, the same is contradicted by
his statements in paragraph 4, where he states that As a standard company operating
procedure, all beer purchases by dealers on credit shall be covered by postdated checks
equivalent to the value of the beer products purchased; in paragraph 9 where he states that
the transaction covered by the said check had not yet been paid for, and in paragraph 8
which clearly shows that partial payment is expected to be made by the return of beer
empties, and not by the deposit or encashment of the check. Clearly the term cover was not
meant to be used interchangeably with payment.
When taken in conjunction with the counter-affidavit of Puzon where he states that As the
[liquid beer] contents are paid for, SMC return[s] to me the corresponding PDCs or request[s]
me to replace them with whatever was the unpaid balance.[15] it becomes clear that both
parties did not intend for the check to pay for the beer products. The evidence proves that
the check was accepted, not as payment, but in accordance with the long-standing policy of
SMC to require its dealers to issue postdated checks to cover its receivables. The check was
only meant to cover the transaction and in the meantime Puzon was to pay for the
transaction by some other means other than the check. This being so, title to the check did
not transfer to SMC; it remained with Puzon. The second element of the felony of theft was
therefore not established. Petitioner was not able to show that Puzon took a check
that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no
probable cause for theft.
Consequently, the CA did not err in finding no grave abuse of discretion committed by the
DOJ in sustaining the dismissal of the case for theft for lack of probable cause.
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005
Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.
John Dy vs. People, et. Al. Galita
G.R. NO. 15312 November 14, 2008
Sec. 14
DECISION
QUISUMBING, Acting C.J.:
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 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
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:
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
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 facieauthority 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 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.24 Aside 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.
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?cralawred
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 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
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.47 Reclusión 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.
Rafael P. Lunaria vs. people Grande
G.R. NO. 160127 November 11, 2008
Sec. 14
DECISION
PUNO, C.J.:
This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, to
reverse and set aside the Decision of the Court of Appeals (CA),1 and the Resolution which
denied petitioner's motion for reconsideration. The CA affirmed the decision of the Regional
Trial Court (RTC) of Valenzuela City, Branch 75,2 finding petitioner Rafael Lunaria guilty of
one (1) count violation of Batas Pambansa (B.P.) Blg. 22.
The Case
Records3 show that sometime in October 1988, petitioner entered into a partnership
agreement with private complainant Nemesio Artaiz, in the conduct of a money-lending
business, with the former as industrial partner and the latter the financer. Petitioner, who
was then a cashier of Far East Bank and Trust Company in Meycauayan, Bulacan, would offer
loans to prospective borrowers which his branch was unable to accommodate. At the start
of the business, petitioner would first inform Artaiz of the amount of the proposed loan, then
the latter would issue a check charged against his account in the bank (proceeds of which
will go to a borrower), while petitioner would in turn issue a check to Artaiz corresponding
to the amount lent plus the agreed share of interest.
The lending business progressed satisfactorily between the parties and sufficient trust was
established between the parties that they both agreed to issue pre-signed checks to each
other, for their mutual convenience. The checks were signed but had no payee's name, date
or amount, and each was given the authority to fill these blanks based on each other's advice.
The arrangement ended on November 1989, when Artaiz was no longer willing to continue
the partnership.4 One of the checks issued by petitioner to Artaiz was dishonored for
insufficient funds.5 When Artaiz went to petitioner to ask why the latter's check had
bounced, petitioner told Artaiz that he had been implicated in a murder case and therefore
could not raise the money to fund the check.6 Petitioner requested Artaiz not to deposit the
other checks that would become due as he still had a case.7
Petitioner was charged with murder in December 1989 and detained until May 1990, when
he was released on bail. He was eventually acquitted in December 1990. According to Artaiz,
he went to petitioner in May 1990, after petitioner had been released on bail, and demanded
payment for the money owed Artaiz. Petitioner again requested more time to prepare the
money and collect on the loans. Artaiz agreed.8 In June 1990, petitioner allegedly went to
Artaiz's residence where both had an accounting. It was supposedly agreed that petitioner
owed Artaiz P844,000.00 and petitioner issued a check in that amount, post-dated to
December 1990.9
When the check became due and demandable, Artaiz deposited it. The check was dishonored
as the account had been closed. A demand letter was subsequently sent to petitioner,
informing him of the dishonor of his check, with a demand that he pay the obligation.10
Artaiz also went to petitioner's house to get a settlement. According to Artaiz, petitioner
proposed that his house and lot be given as security. But after Artaiz's lawyer had prepared
the document, petitioner refused to sign. At this point, Artaiz filed the instant case.11
The RTC found petitioner guilty as charged and sentenced him to suffer the penalty of
imprisonment of one (1) year, and to pay Artaiz the amount of P844,000.00, and the cost of
suit.12
On appeal, the CA found no error and affirmed the decision in toto.13
The Issues
In the petition before us, petitioner alleges that the CA gravely erred in:
I. Not reversing the RTC decision convicting petitioner for violation of B.P. Bilang 22;
II. Not holding that the prosecution failed to establish the elements of the crime of the
violation of B.P. Bilang 22:
1. the prosecution failed to establish that the subject check was duly "made" or "drawn" and
"issued" by petitioner;
2. the subject check was received by the private complainant without giving any
consideration therefore;
3. the oral testimony of private complainant is full of serious inconsistencies and
contradictions and should have been disregarded by the trial court;
4. private complainant's testimony should have been stricken off the records for being
hearsay in nature;
5. the prosecution dismally failed to overcome the presumption of innocence of the accused
in criminal cases;
6. to hold petitioner liable for violation of B.P. Blg. 22 in this case would result in a terrible
injustice;
III. In the alternative,' in not applying in petitioner's favor the rule of preference in the
imposition of penalties in B.P. Blg. 22 cases, i.e., the [CA] erred gravely in not deleting the
penalty of imprisonment and imposing in lieu thereof a fine upon petitioner.
The Ruling
We affirm the conviction but with modification on the penalty.
At the outset, the first and second grounds raised by petitioner are essentially factual in
nature, impugning the finding of guilt by both the CA and the RTC. Petitioner would have this
court re-evaluate and re-assess the facts, when it is beyond cavil that in an appeal by
certiorari, the jurisdiction of this Court is confined to reviews of errors of law ascribed to the
CA. This Court is not a trier of facts, and the findings of fact by the CA are conclusive, more
so when it concurs with the factual findings of the RTC. Absent any showing that such findings
are devoid of any substantiation on record, the finding of guilt is conclusive on us.14
Moreover, we have gone over the records and find no error in the decision of the appellate
court holding that the elements of the crime have been established by the prosecution, i.e.,
(1) the making, drawing, and issuance of any check to apply for 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 the check in full upon
its presentment; and (3) the subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.15
Petitioner makes much of the argument that the check was not "made" or "drawn" within
the contemplation of the law, nor was it for a consideration. The evidence on record belies
these assertions. As correctly held by the CA:
Under the first element, [petitioner] wants Us to believe that he did not draw and issue the
check. Citing the Negotiable Instruments Law, he said the he could not have "drawn" and
"issued" the subject check because "it was not complete in form at the time it was given to
[Artaiz]."
At the outset, it should be borne in mind that the exchange of the pre-signed checks without
date and amount between the parties had been their practice for almost a year by virtue of
their money-lending business. They had authority to fill up blanks upon information that a
check can then be issued.
Thus, under the Negotiable Instruments Law, Section 14 of which reads:
"Blanks, when may be filled. - Where the instrument is wanting in any material particular,
the person in possession thereof has prima facie authority to complete it by filling up the
blanks therein. xxx"
[T]his practice is allowed.
Because of the presumption of authority, the burden of proof that there was no authority or
that authority granted was exceeded is carried by the person who questions such authority.
Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill
up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz was
within his rights to fill up blanks on the check.
xxx xxx xxx
Under the second element, [petitioner] states that the making and issuing of the check was
devoid of consideration. He claimed that the transaction for which the check was issued did
not materialize. However, it should be noted that when lack of consideration is claimed, it
pertains to total lack of consideration. In this case, records show that [petitioner] recognized
that there was an amount due to Artaiz, such that he had his own version of computation
with respect to the amount he owed to Artaiz.16
We also note that with respect to the second element of the crime, consideration was duly
established in Artaiz's testimony.17
It bears repeating that the lack of criminal intent on the part of the accused is irrelevant.18
The law has made the mere act of issuing a worthless check a malum prohibitum, an act
proscribed by legislature for being deemed pernicious and inimical to public welfare.19 In
fact, even in cases where there had been payment, through compensation or some other
means, there could still be prosecution for violation of B.P. 22. The gravamen of the offense
under this law is the act of issuing a worthless check or a check that is dishonored upon its
presentment for payment, not the nonpayment of the obligation.20
We now come to the penalty imposed. On this ground, we rule for petitioner.
Since 1998,21 this Court has held that it would best serve the ends of criminal justice if, in
fixing the penalty to be imposed for violation of B.P. 22, the same philosophy underlying the
Indeterminate Sentence Law be observed, i.e., that of redeeming valuable human material
and preventing unnecessary deprivation of personal liberty and economic usefulness with
due regard to the protection of the social order.22 This policy was embodied in Supreme
Court Administrative Circular No. 12-2000,23 authorizing the non-imposition of the penalty
of imprisonment in B.P. 22 cases. We also clarified in Administrative Circular No. 13-2001, as
explained in Tan v. Mendez,24 that we are not decriminalizing B.P. 22 violations, nor have
we removed imprisonment as an alternative penalty. Needless to say, the determination of
whether the circumstances warrant the imposition of a fine alone rests solely upon the
judge. Should the judge decide that imprisonment is the more appropriate penalty,
Administrative Circular No. 12-2000 ought not to be deemed a hindrance.
Nevertheless, we note that ultimately, this case was a derivative of the breakdown of
petitioner and Artaiz's partnership, which was precipitated by petitioner being implicated
and detained for a murder charge, from which he was subsequently acquitted. Under the
circumstances of the case, and bearing in mind the guidelines set in Administrative Circular
No. 13-2004, we deem the imposition of a fine alone would best serve the interests of justice,
pegged at the maximum amount provided for by law, which is two hundred thousand pesos
(P200,000.00),25 with the proviso that subsidiary imprisonment will be meted out which
shall not exceed six months in case of insolvency or nonpayment. Petitioner should also pay
Artaiz the amount of P844,000.00, and the cost of suit.
IN VIEW WHEREOF, the petition is DENIED and the Decision of the Court of Appeals in CA-
G.R. CR No. 20343 is AFFIRMED with MODIFICATION. Petitioner is ordered to indemnify
Nemesio Artaiz in the amount of P844,000.00 and the cost of suit, with legal interest from
date of judicial demand. The sentence of imprisonment of one (1) year is SET ASIDE and, in
lieu thereof, a FINE in the amount of P200,000.00 is imposed upon petitioner, with subsidiary
imprisonment not to exceed six months in case of insolvency or nonpayment.

SO ORDERED.
Alvin Patrimonio vs. Napoleon Gutierez et. Al. Guilalas
G.R. NO. 187769 June 4, 2014
Secs. 16 and 52
BRION, J.:
Assailed in this petition for review on certiorari[1] under Rule 45 of the Revised Rules of Court
is the decision[2] dated September 24, 2008 and the resolution[3] 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 1arasigan III (Marasigan) the sum of P200,000.00.
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
P200,000.00 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 P200,000.00 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 "P200,000.00". 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.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand
letters to the petitioner asking for the payment of P200,000.00, 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 P200,000.00.
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 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:
Whether the contract of loan in the amount of P200,000.00 granted by respondent
Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan;
Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
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 of fact 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.
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:
xxxx
(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. Records 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:
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.
xxxx
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.
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 be no 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 Code[14] enumerates 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
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]
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 Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng
"in good faith and for value." It also provides in Section 52(d) that in order that one may be tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…
a holder in due course, it is necessary that at the time it was negotiated to him he had no xxxx
notice of any infirmity in the instrument or defect in the title of the person negotiating it. Q:
What was your reply, if any?
Acquisition in good faith means taking without knowledge or notice of equities of any sort A:
which could be set up against a prior holder of the instrument.[18] It means that he does not I actually asked him. Kanino ba ang tseke na sinasabi mo? (Whose check is it that you are
have any knowledge of fact which would render it dishonest for him to take a negotiable referring to or talking about?)
paper. The absence of the defense, when the instrument was taken, is the essential element Q:
of good faith.[19] What was his answer?
A:
As held in De Ocampo v. Gatchalian:[20] It was Alvin's check.
Q:
In order to show that the defendant had "knowledge of such facts that his action in taking What was your reply, if any?
the instrument amounted to bad faith," it is not necessary to prove that the defendant knew A:
the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being I told him do you know that it is not really Alvin who borrowed money from you or what you
sufficient to show that the defendant had notice that there was something wrong about his want to appear…
assignor's acquisition of title, although he did not have notice of the particular wrong that xxxx
was committed. Q:
What was his reply?
It is sufficient that the buyer of a note had notice or knowledge that the note was in some A:
way tainted with fraud. It is not necessary that he should know the particulars or even the Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito. (T.S.N.,
nature of the fraud, since all that is required is knowledge of such facts that his action in Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)[21]
taking the note amounted bad faith.
Since he knew that the underlying obligation was not actually for the petitioner, the rule that
The term 'bad faith' does not necessarily involve furtive motives, but means bad faith in a a possessor of the instrument is prima facie a holder in due course is inapplicable. As
commercial sense. The manner in which the defendants conducted their Liberty Loan correctly noted by the CA, his inaction and failure to verify, despite knowledge of that the
department provided an easy way for thieves to dispose of their plunder. It was a case of "no petitioner was not a party to the loan, may be construed as gross negligence amounting to
questions asked." Although gross negligence does not of itself constitute bad faith, it is bad faith.
evidence from which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes deliberately to Yet, it does not follow that simply because he is not a holder in due course, Marasigan is
obvious facts. (emphasis supplied). 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
In the present case, Marasigan's knowledge that the petitioner is not a party or a privy to the disadvantage of a holder who is not in due course is that the negotiable instrument is subject
contract of loan, and correspondingly had no obligation or liability to him, renders him to defenses as if it were non-negotiable.[23] Among such defenses is the filling up blank not
dishonest, hence, in bad faith. The following exchange is significant on this point: within the authority.

WITNESS: AMBET NABUS On this point, the petitioner argues that the subject check was not filled up strictly on the
Q: basis of the authority he gave. He points to his instruction not to use the check without his
Now, I refer to the second call… after your birthday. Tell us what you talked about? prior approval and argues that the check was filled up in violation of said instruction.
A:
Since I celebrated my birthday in that place where Nap and I live together with the other Check Was Not Completed Strictly Under
crew, there were several visitors that included Danny Espiritu. So a week after my birthday, The Authority Given by The Petitioner
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- Our own examination of the records tells us that Gutierrez has exceeded the authority to fill
settle na niya yung utang ni Nap, dahil… up the blanks and use the check. To repeat, petitioner gave Gutierrez pre-signed checks to
xxxx be used in their business provided that he could only use them upon his approval. His
WITNESS: 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 tantum only; 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 P200,000 in this check?
A:
No, sir.
Q:
And lastly, did you authorize anyone including Nap Gutierrez to write the words P200,000
only xx in this check?
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.
Ching vs. Nicdao Jangcan
G.R. NO. 141181 April 27, 2007
Secs. 14, 15, 16
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision[1]
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 Nicdaos acquittal, she should be held liable to pay petitioner Ching the amounts
of the dishonored checks in the aggregate sum of P20,950,000.00.
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 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 [P20,000,000.00] 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. 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
(Sgd.) SAMSON T.Y. CHING against respondent Nicdao. On direct-examination,[13] petitioner Ching preliminarily
identified each of the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks that were
Complainant allegedly issued to him by respondent Nicdao amounting to P20,950,000.00. 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
The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following petitioner Ching presented these checks for payment, they were dishonored by the bank,
details: HSLB, for being DAIF or drawn against insufficient funds.

Check No. Amount Date Private Reason for

Complainant the Dishonor 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
002524[2] P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF* 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
008856[3] 150,000 Oct. 6, 1997 " " 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
012142[4] 100,000 Oct. 6, 1997 " " no cash.

004531[5] 50,000 Oct. 6, 1997 " "

002254[6] 100,000 Oct. 6, 1997 " " 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
008875[7] 100,000 Oct. 6, 1997 " " 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
008936[8] 50,000 Oct. 6, 1997 " " 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
002273[9] 50,000 Oct. 6, 1997 " " Ching, together with Emma Nuguid, wrote a demand letter to respondent Nicdao which,
however, went unheeded. Accordingly, they separately filed the criminal complaints against
008948[10] 150,000 Oct. 6, 1997 " " the latter.

008935[11] 100,000 Oct. 6, 1997 " "

010377[12] 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 P1,150,000.00, 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.
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.
With respect to the P20,000,000.00 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
P1,200,000.00 and, as security therefor, respondent Nicdao similarly issued in his favor
checks in varying amounts of P100,000.00 and P50,000.00. 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 Nicdaos loan transactions with him beginning October 1995.
He also mentioned an instance when respondent Nicdaos husband and daughter
approached him at a casino to borrow money from him. He lent them P300,000.00.
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 P20,000,000.00 and wrote the
said amount on one of respondent Nicdaos 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 P1,000,000.00 until the total amount reached
P20,000,000.00. 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
P3,000,000.00 and P5,000,000.00. 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
P3,000,000.00 and P5,000,000.00 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 P20,000,000.00
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,[15] she 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 banks records, as of October 8, 1997, only a balance of P300.00 was
left in respondent Nicdaos checking account and P645.83 in her savings account. On even
date, her account with the bank was considered inactive.
On cross-examination,[16] Yandoc stated anew that respondent Nicdaos 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 P22,950,000.00. Respondent Nicdao
admitted, however, that she had obtained a loan from Nuguid but only for P2,100,000.00
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 P1,200,000.00. 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 wrappers[18]
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 P2,100,000.00 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 P2,100,000.00 was allegedly delivered by Nuguid to respondent
Nicdao in varying amounts of P100,000.00 and P150,000.00. Respondent Nicdao refuted the
averment of petitioner Ching that prior to 1995, they had another transaction.
With respect to the P20,000,000.00 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 P20,000,000.00 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 P20,000,000.00 was just presented to the bank for payment. She
claimed that it was only then that she 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 Chings
possession. She explained that she kept her checks in an ordinary cash box together with a
stapler and the cigarette wrappers that contained Nuguids 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 Nicdaos daughter bought it from Nuguids 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 P20,000,000.00 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 P20,000,000.00
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 P1,200,000.00 as evidenced by the Planters
Bank demand draft which she gave to the latter and which was subsequently negotiated and
deposited in petitioner Chings account. In connection thereto, respondent Nicdao refuted
the prosecutions 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,[21] Tolentino 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 Nicdaos 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 she could not recall
respondent Nicdao issuing a check to petitioner Ching in the amount of P20,000,000.00. 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 Nicdaos 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 Nicdaos 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 P20,000,000.00.
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 P20,000,000.00 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 Chings testimony that respondent Nicdao borrowed
money from him in the total amount of P20,950,000.00. Petitioner Ching delivered
P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum
reached P20,000,000.00. 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.
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
Nicdaos 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 Nicdaos claim that the P20,000,000.00 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 Nicdaos 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 P20,950,000.00 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]
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, complainants 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 was about to be foreclosed, to petitioners
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
petitioners 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 P2,100,000.00 secured by twenty-four (24) checks drawn
against respondent Nicdaos account with HSLB. Upon Nuguids 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) P950,000.00 covered by ten (10) checks subject of the criminal
complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00 covered
by fourteen (14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No.
23054). The loans totaled P2,100,000.00 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 P1,200,000.00 which, by his own admission,
petitioner Ching had received. The appellate court debunked petitioner Chings 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 P5,780,000.00 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 P6,980,000.00 for
the principal loan amount of only P2,100,000.00.
The CA negated petitioner Chings 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 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 Nicdaos 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 Nicdaos checks despite her total payment of P6,980,000.00 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 P20,000,000.00 check, the CA was not convinced by petitioner Chings
claim that he delivered P1,000,000.00 every month to respondent Nicdao until the amount
reached P20,000,000.00 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 P20,000,000.00 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 Nicdaos version of the
story that the P20,000,000.00 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 P20,000,000.00 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 P20,000,000.00 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 Chings 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 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 P20,000,000.00 check was filled up by petitioner Ching without
respondent Nicdaos 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 Petitioners 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 Nicdaos 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 P20,950,000.00.
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 CAs factual findings are in conflict with those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding respondent Nicdaos 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. 57-97[33] 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 x x
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.
In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching
maintains that she had loan obligations to him totaling P20,950,000.00. 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 Nicdaos
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 Nicdaos 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 P20,950,000.00
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 CAs reasoning that he could not possibly
have lent P20,950,000.00 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 CAs finding, the Planters Bank demand draft
for P1,200,000.00 was in payment for respondent Nicdaos previous loan transaction with
him. Apart from the P20,000,000.00 check, the other ten (10) checks (totaling P950,000.00)
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 Nicdaos 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 CAs 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 Nicdaos testimony allegedly showed that they were daily interest
payments. Petitioner Ching further avers that the interest payments totaling P5,780,000.00
can only mean that, contrary to respondent Nicdaos claim, her loan obligations amounted
to much more than P2,100,000.00. Further, she is allegedly estopped from questioning the
interests because she willingly paid the same.
Petitioner Ching also harps on respondent Nicdaos silence when she received his and
Nuguids demand letter to her. Through the said letter, they notified her that the twenty-five
(25) checks valued at P22,100,000.00 were dishonored by the HSLB, and that she had three
days to settle her ndebtedness with them, otherwise, face prosecution. Respondent Nicdaos
silence, i.e., her failure to deny or protest the same by way of reply, vis--vis the demand
letter, allegedly constitutes an admission of the statements contained therein.
On the other hand, the MCTCs decision, as affirmed by the RTC, is allegedly based on the
evidence on record; it has been established that the checks were respondent Nicdaos
personal checks, that the signatures thereon were hers and that she had issued them to
petitioner Ching. With respect to the P20,000,000.00 check, petitioner Ching assails the CAs
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 Nicdaos
defense of stolen or lost check as incredible and, therefore, false.
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 Chings 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
P20,950,000.00. 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 Respondents 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 P20,000,000.00 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 CAs 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 Nicdaos 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 P20,000,000.00 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, 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 P20,000,000.00 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
P20,000,000.00 check was fully typewritten; the rest were invariably handwritten as to the
amounts, payee and date.
Respondent Nicdao defends the CAs conclusion that the P20,000,000.00 check was stolen
on the ground that an appeal in a criminal case throws open the whole case to the appellate
courts 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 P20,000,000.00 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 Chings attempt to collect payment on the
said check through the instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner Chings testimony that she
owed him a total sum of P20,950,000.00 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
P950,000,000.00) 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 P1,200,000.00, she already
made payment in 1996. The said demand draft was negotiated to petitioner Chings 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 (P1,200,000.00) and those reflected at the back
of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid petitioner
Ching and Nuguid a total sum of P6,980,000.00 for her loan obligations totaling only
P950,000.00, as secured by the ten (10) HSLB checks excluding the stolen P20,000,000.00
check.
Respondent Nicdao rebuts petitioner Chings 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 CAs 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 CAs 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 Courts Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdaos 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 Chings 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.
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. People[39] 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 Nicdaos 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 Chings timely filing of the instant petition for review of the civil
aspect of the CAs decision, the Court thus has the jurisdiction and authority to determine the
civil liability of respondent Nicdao notwithstanding her acquittal.
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 Nicdaos 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 CAs 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 P20,000,000.00 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--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 P5,780,000.00 and the P1,200,000.00 demand draft received
by Emma Nuguid, it would appear that petitioner [respondent herein] had already made
payments in the total amount of P6,980,000.00 for her loan obligation of only P2,100,000.00
(P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).[43]
On the other hand, its finding relative to the P20,000,000.00 check that it was a stolen check
necessarily absolved respondent Nicdao of any civil liability thereon as well.
Third, while petitioner Ching attempts to show that respondent Nicdaos 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
P20,000,000.00 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 P20,000,000.00, 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:
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 P1,200,000 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 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 P5,780,000.00. 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 P5,780,000.00 and the P1,200,000.00 demand draft received
by Emma Nuguid, it would appear that petitioner had already made payments in the total
amount of P6,980,000.00 for her loan in the total amount of P6,980,000.00 for her loan
obligation of only P2,100,000.00 (P950,000.00 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 CAs
findings relating to the eleven (11) checks - that the P20,000,000.00 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 Nicdaos
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 Nicdaos civil liability to petitioner Ching in the amount of P20,950,000.00
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
P20,950,000.00. 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.[49] Section 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 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 Chings testimony alone does not constitute preponderant
evidence to establish respondent Nicdaos civil liability to him amounting to P20,950,000.00.
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 Nicdaos 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 P1,200,000.00. The said demand draft was
negotiated to petitioner Chings 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 Nicdaos 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 P5,780,000.00 to Nuguid as of July 21,
1997.[51] Again, 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 P6,980,000.00 to Nuguid and petitioner Ching.
The Court agrees with the CA that the daily payments made by respondent Nicdao
amounting to P5,780,000.00 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 P5,780,000.00 were properly considered by the CA as
applying to the principal amount of her loan obligations.
With respect to the P20,000,000.00 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.
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.
Bank of America vs. Phil Club Javaluyas
G.R. No. 150228 July 30, 2009
Secs. 14, 15, 16
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the
Decision[1] 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 Decision[2] 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 Resolution[3] 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-appellees
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
corporations business. In order not to disrupt operations in their absence, they pre-signed
several checks relating to Current Account No. 58891-012. The intention was to insure
continuity of plaintiff-appellees 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 corporations 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 corporations 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. PRCIs 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 (P220,000.00) Pesos, with legal
interest to be computed from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;
(3) The sum of Ten Thousand (P10,000.00) 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. Petitioners Motion for Reconsideration of
the CA Decision was subsequently denied on September 28, 2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the proximate cause of
respondents loss was petitioners 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
respondents 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 courts award of attorneys
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 attorneys 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) petitioners 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 126[7] and 185[8] 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-clients
genuine signatures. The genuine signatures of the clients 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-clients 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]
There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the respondents authorized joint signatories; namely, Antonia Reyes and
Gregorio Reyes who were respondents 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 clients account meticulously and with the
highest degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family.[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 petitioners 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 petitioners 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. Respondents witness
testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00) it is
the companys 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 banks 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 petitioners employees on guard that the checks were possibly not issued by
the respondent in due course of its business. Petitioners 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 petitioners 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 petitioners 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/tellers questionable action, petitioner insists that pursuant to
Sections 14[16] and 16[17] 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 petitioners 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 respondents
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]
Petitioners 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 15[20] of the NIL applicable in this case.
However, we do agree with petitioner that respondents 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
respondents 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)
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,
petitioners 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] Petitioners 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 respondents own
negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs 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 defendants lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
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, respondents 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 respondents business. As testified to by petitioners 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 drawers
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 respondents accountant turned out to be another employee, purportedly a
clerk in respondents 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 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 attorneys 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 attorneys fees and litigation expenses under Article 2208 of the
NCC[28] demands factual, legal, and equitable justification.
An adverse decision does not ipso facto justify an award of attorneys 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 attorneys fees may not be awarded where no sufficient
showing of bad faith could be reflected in a partys 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 (P220,000.00) with legal interest as
awarded by the trial court and (b) the awards of attorneys fees and litigation expenses in
favor of respondent are deleted.
Proportionate costs.
SO ORDERED.
Rizal banking corp. vs. Hi-Tri Dev corp. Narido
G.R. NO. 192413 June 13, 2002
Sec. 16
DECISION
SERENO, J.:
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 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 CA[4] 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 Owners 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 Managers Check from RCBC-Ermita in
the amount of ₱1,019,514.29, payable to Millans 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 attorneys 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 Managers 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 Managers Check was
available for her withdrawal, she being the payee.
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 RCBCs 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
Managers 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 Managers 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-Tris] RCBC
bank account once an order to debit is issued upon the payees presentation of the Managers
Check. Since the payee rejected the negotiated Managers Check, presentation of the
Managers Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of the
Managers 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 Corporations 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 Managers Check separate from the Corporations 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 Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of
Managers 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.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No. ER034469
does not form part of the Banks own account. By simple operation of law, the funds covered
by the managers 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 Banks
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 Managers 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 Managers 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 Managers 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
banks 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. 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 assails[7] 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 Managers 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.
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 Managers 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 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 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 asserts[22] 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 Managers 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 Managers 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 Managers Check.
In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a legal interest in the
fund allocated for the payment of the Managers 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 Managers 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.[25] The 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 managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself.[28] Typically, a managers or a cashiers check is procured from the bank by allocating
a particular amount of funds to be debited from the depositors 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 managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the managers
or cashiers 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 appears thereon, a
valid and intentional delivery by him is presumed until the contrary is proved. (Emphasis
supplied.)
Petitioner acknowledges that the Managers 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 Managers Check offered by respondents, the latter retained
custody of the instrument instead of cancelling it. As the Managers 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 Managers 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 Managers Check. The
doctrine that the deposit represented by a managers 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.
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 Managers 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 Managers 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.
Republic Planters bank vs CA Olarte
G.R. NO. 93073 December 21, 1992
Sec. 17
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the decision* of the Court
of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank, Plaintiff-Appellee vs.
Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-
Appellant", which affirmed the decision** in Civil Case No. 82-5448 except that it completely
absolved Fermin Canlas from liability under the promissory notes and reduced the award for
damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted
hereunder:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly
Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin
Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest
thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January
29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with
interest from November 27, 1980; under the promissory note (Exhibit "C"), the sum of
P166,466.00 with interest from January 29, 1981; under the promissory note (Exhibit "E"),
the sum of P86,130.31 with interest from January 29, 1981; under the promissory note
(Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the
promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981;
and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation
(formerly named Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi are
ordered to pay, jointly and severally, the plaintiff bank the sum of P367,000.00 with interest
of 16% per annum from January 29, 1981 until fully paid.
Under the promissory note (Exhibit "F"), defendant corporation Pinch (formerly Worldwide)
is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum
from November 27, 1980 until fully paid.
Defendant Pinch (formerly Worldwide) is hereby ordered to pay the plaintiff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the sum
of P331,870.97 with interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of
P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per
annum of the respective principal sums from the dates above stated as penalty charge until
fully paid, plus one percent (1%) of the principal sums as service charge.
With costs against the defendants.
SO ORDERED."[1]
From the above decision only defendant Fermin Canlas appealed to the then Intermediate
Appellate Court (now the Court of Appeals). His contention was that inasmuch as he signed
the promissory notes in his capacity as officer of the defunct Worldwide Garment
Manufacturing, Inc., he should not be held personally liable for such authorized corporate
acts that he performed. It is now the contention of the petitioner Republic Planters Bank that
having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly
and severally, defendant Fermin Canlas is solidarily liable with Shozo Yamaguchi on each of
the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private
respondent Fermin Canlas were President/Chief Operating Officer and Treasurer
respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.
1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas
were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the
forms of export advances and letters of credit/trust receipts accommodations. Petitioner
bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were
uniformly worded in the following manner:
"__________, after date, for value received, I/we, jointly and severally promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of
________ PESOS ( ), Philippine Currency x x x."
On the right bottom margin of the promissory notes appeared the signatures of Shozo
Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his
personal capacity" typewritten below. At the bottom of the promissory notes appeared:
"Please credit proceeds of this note to:
__________ Savings Account xx Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran
horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and
private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. voted to change its
corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money
covered among others, by the nine promissory notes with interest thereon, plus attorney's
fees and penalty charges. The complaint was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing,
Inc. as defendant and substitute Pinch Manufacturing Corporation in its place. Defendants
Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and
failed to appear at the scheduled pre-trial conference despite due notice. Only private
respondent Fermin Canlas filed an Amended Answer wherein he denied having issued the
promissory notes in question since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and
that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing,
Inc., the same were in blank, the typewritten entries not appearing therein prior to the time
he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether
private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory
notes bearing his signature for the following reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable
Instruments Law.[2]
Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such.[3] By signing the notes, the maker
promises to pay to the order of the payee or any holder[4] according to the tenor thereof.[5]
Based on the above provisions of law, there is no denying that private respondent Fermin
Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability
arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.[6] An instrument which
begins with "I", "We", or "Either of us" promise to pay, when signed by two or more persons,
makes them solidarily liable.[7] The fact that the singular pronoun is used indicates that the
promise is individual as to each other; meaning that each of the co-signers is deemed to have
made an independent singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer
and certain, without reason for ambiguity, by the presence of the phrase "joint and several"
as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint
and several note is one in which the makers bind themselves both jointly and individually to
the payee so that all may be sued together for its enforcement, or the creditor may select
one or more as the object of the suit.[8] A joint and several obligation in common law
corresponds to a civil law solidary obligation; that is, one of several debtors bound in such
wise that each is liable for the entire amount, and not merely for his proportionate share.[9]
By making a joint and several promise to pay to the order of Republic Planters Bank, private
respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch
Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the
signatures of the makers in the notes will affect the liability of the makers, We do not find it
necessary to resolve and decide, because it is immaterial and will not affect the liability of
private respondent Fermin Canlas as a joint and several debtor of the notes. With or without
the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-
maker of each of the notes and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a
corporation's Articles of Incorporation effecting a change of corporate name, in this case
from Worldwide Garment Manufacturing, Inc. to Pinch Manufacturing Corporation,
extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and
its character is in no respect changed.[10]
A change in the corporate name does not make a new corporation, and whether effected by
special act or under a general law, has no effect on the identity of the corporation, or on its
property, rights, or liabilities.[11]
The corporation continues, as before, responsible in its new name for all debts or other
liabilities which it had previously contracted or incurred.[12]
As a general rule, officers or directors under the old corporate name bear no personal liability
for acts done or contracts entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of the old corporation and the
change of name meant only the continuation of the old juridical entity, the corporation
bearing the same name is still bound by the acts of its agents if authorized by the Board.
Under the Negotiable Instruments Law, the liability of a person signing as an agent is
specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or
a person adds to his signature words indicating that he signs for or on behalf of a principal,
or in a representative capacity, he is not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity or the name of the third party for whom he might
have acted as agent, the agent is personally liable to the holder of the instrument and cannot
be permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability.[13]
On the private respondent's contention that the promissory notes were delivered to him in
blank for his signature, we rule otherwise. A careful examination of the notes in question
shows that they are the stereotype printed form of promissory notes generally used by
commercial banking institutions to be signed by their clients in obtaining loans. Such printed
notes are incomplete because there are blank spaces to be filled up on material particulars
such as payee's name, amount of the loan, rate of interest, date of issue and the maturity
date. The terms and conditions of the loan are printed on the note for the borrower-debtor's
perusal. An incomplete instrument which has been delivered to the borrower for his
signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so
far as relevant to this case, thus:
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. x x x x 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. x x x x.
Proof that the notes were signed in blank was only the self-serving testimony of private
respondent Fermin Canlas, as determined by the trial court, so that the trial court "doubts
that the defendant (Canlas) signed in blank the promissory notes". We chose to believe the
bank's testimony that the notes were filled up before they were given to private respondent
Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several
promissors. For signing the notes above their typewritten names, they bound themselves as
unconditional makers. We take judicial notice of the customary procedure of commercial
banks of requiring their clientele to sign promissory notes prepared by the banks in printed
form with blank spaces already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions therein printed and to
sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per agreement. The notes were not
incomplete instruments; neither were they given to private respondent Fermin Canlas in
blank as he claims. Thus, Section 14 of the Negotiable Instruments Law is not applicable.
This Court takes note that the respondent Court, relying on Reformina vs. Tomol,[14]
lowered the interest rate on the promissory notes from 16% to 12%.
The ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing
the interest rate on the promissory notes from 16% to 12% per annum does not squarely
apply to the instant petition. In the abovecited case, the rate of 12% was applied to
forebearances of money, goods or credit and court judgments thereon, only in the absence
of any stipulation between the parties.
In the case at bar however, it was found by the trial court that the rate of interest is 9% per
annum, which interest rate the plaintiff may at any time without notice, raise within the
limits allowed by law. And so, as of February 16, 1984, the plaintiff had fixed the interest at
16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree
No. 116, are applicable only to interests by way of compensation for the use or forebearance
of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of
damages.[15] This fine distinction was not taken into consideration by the appellate court,
which instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any
ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rate at
12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling
on interest rates.[16]
In the light of the foregoing analysis and under the plain language of the statute and
jurisprudence on the matter, the decision of the respondent Court of Appeals absolving
private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgment is hereby rendered
declaring private respondent Fermin Canlas jointly and severally liable on all the nine
promissory notes with the following sums and at 16% interest per annum from the dates
indicated, to wit:
Under the promissory note marked as Exhibit A, the sum of P300,000.00 with interest from
January 29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of
P40,000.00 with interest from November 27, 1980; under the promissory note denominated
as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the
promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from
January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount
of P86,130.31 with interest from January 29, 1981; under the promissory note marked as
Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid;
under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from
November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with
interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of
P200,000.00 with interest from January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the
trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent
Fermin Canlas is hereby held jointly and solidarily liable with defendants for the amounts
found by the Court a quo. With costs against private respondent.
SO ORDERED.
Sps. Eduardo Evangelista vs. Finance Corp. Ortiguerra
G.R. NO. 148864 August 21, 2003
Sec. 17
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista (Petitioners), are before this Court on a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court
of Appeals dismissing their petition.
Petitioners filed a complaint[1] for annulment of titles against respondents, Mercator
Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the
Register of Deeds of Bulacan. Petitioners claimed being the registered owners of five (5)
parcels of land[2] contained in the Real Estate Mortgage[3] executed by them and Embassy
Farms, Inc. (Embassy Farms). They alleged that they executed the Real Estate Mortgage in
favor of Mercator Financing Corporation (Mercator) only as officers of Embassy Farms. They
did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to
Embassy Farms. Thus, they contended that the mortgage was without any consideration as
to them since they did not personally obtain any loan or credit accommodations. There being
no principal obligation on which the mortgage rests, the real estate mortgage is void.[4] With
the void mortgage, they assailed the validity of the foreclosure proceedings conducted by
Mercator, the sale to it as the highest bidder in the public auction, the issuance of the
transfer certificates of title to it, the subsequent sale of the same parcels of land to
respondent Lydia P. Salazar (Salazar), and the transfer of the titles to her name, and lastly,
the sale and transfer of the properties to respondent Lamecs Realty & Development
Corporation (Lamecs).
Mercator admitted that petitioners were the owners of the subject parcels of land. It,
however, contended that on February 16, 1982, plaintiffs executed a Mortgage in favor of
defendant Mercator Finance Corporation for and in consideration of certain loans, and/or
other forms of credit accommodations obtained from the Mortgagee (defendant Mercator
Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED
TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the
payment of the same and those others that the MORTGAGEE may extend to the
MORTGAGOR (plaintiffs) x x x.[5] It contended that since petitioners and Embassy Farms
signed the promissory note[6] as co-makers, aside from the Continuing Suretyship
Agreement[7] subsequently executed to guarantee the indebtedness of Embassy Farms, and
the succeeding promissory notes[8] restructuring the loan, then petitioners are jointly and
severally liable with Embassy Farms. Due to their failure to pay the obligation, the
foreclosure and subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and
in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior
ownership of petitioners of the subject parcels of land, but alleged that they are the present
registered owner. Both respondents likewise assailed the long silence and inaction by
petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the
property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs
averred that petitioners are in estoppel and guilty of laches.[9]
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant
Mercator Finance Corp. is null and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels
of land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia
Salazar and that executed by the latter in favor of defendant Lamecs Realty and
Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.[10]
After pre-trial, Mercator moved for summary judgment on the ground that except as to the
amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners
had admitted in their pre-trial brief the existence of the promissory note, the continuing
suretyship agreement and the subsequent promissory notes restructuring the loan, hence,
there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and
the subsequent sales are valid and the complaint must be dismissed.[11]
Petitioners opposed the motion for summary judgment claiming that because their personal
liability to Mercator is at issue, there is a need for a full-blown trial.[12]
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are
solidary in view of the phrase jointly and severally. On the promissory note appears (sic) the
signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another signature of
Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the
plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but
in their personal capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual
capacity have bound themselves as solidary debtor(s) with Embassy Farms, Inc. to pay
defendant Mercator Finance Corporation the amount of indebtedness. That the principal
contract of loan is void for lack of consideration, in the light of the foregoing is untenable.[13]
Petitioners motion for reconsideration was denied for lack of merit.[14] Thus, petitioners
went up to the Court of Appeals, but again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they executed were not
personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The
fact that they signed the subject promissory notes in the(ir) personal capacities and as
officers of the said debtor corporation is manifest on the very face of the said documents of
indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming arguendo that they did not, the
appellants lose sight of the fact that third persons who are not parties to a loan may secure
the latter by pledging or mortgaging their own property (Lustan vs. Court of Appeals, 266
SCRA 663, 675). x x x. In constituting a mortgage over their own property in order to secure
the purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed
the personality of persons interested in the fulfillment of the principal obligation who, to
save the subject realities from foreclosure and with a view towards being subrogated to the
rights of the creditor, were free to discharge the same by payment (Articles 1302 [3] and
1303, Civil Code of the Philippines).[15] (emphases in the original)
The appellate court also observed that if the appellants really felt aggrieved by the
foreclosure of the subject mortgage and the subsequent sales of the realties to other parties,
why then did they commence the suit only on August 12, 1997 (when the certificate of sale
was issued on January 12, 1987, and the certificates of title in the name of Mercator on
September 27, 1988)? Petitioners procrastination for about nine (9) years is difficult to
understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say
that the complaint was not worth the time of the courts.[16]
A motion for reconsideration by petitioners was likewise denied for lack of merit.[17] Thus,
this petition where they allege that:
THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE
TRIAL COURT GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT DESPITE THE
EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS NON-ENTITLEMENT TO A
JUDGMENT AS A MATTER OF LAW, THEREBY DECIDING THE CASE IN A WAY PROBABLY NOT
IN ACCORD WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT.[18]
We affirm.
Summary judgment is a procedural technique aimed at weeding out sham claims or defenses
at an early stage of the litigation.[19] The crucial question in a motion for summary judgment
is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits,
depositions or admissions accompanying the motion. A genuine issue means an issue of fact
which calls for the presentation of evidence, as distinguished from an issue which is fictitious
or contrived so as not to constitute a genuine issue for trial.[20] To forestall summary
judgment, it is essential for the non-moving party to confirm the existence of genuine issues
where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for
the presentation of evidence upon which a reasonable finding of fact could return a verdict
for the non-moving party. The proper inquiry would therefore be whether the affirmative
defenses offered by petitioners constitute genuine issue of fact requiring a full-blown
trial.[21]
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny
that they obtained a loan from Mercator. They merely claim that they got the loan as officers
of Embassy Farms without intending to personally bind themselves or their property.
However, a simple perusal of the promissory note and the continuing suretyship agreement
shows otherwise. These documentary evidence prove that petitioners are solidary obligors
with Embassy Farms.
The promissory note[22] states: prompt payment and discharge of any and all indebtedness of EMBASSY FARMS, INC.
(hereinafter called Principal) to the Creditor.
For value received, I/We jointly and severally promise to pay to the order of MERCATOR
FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR xxxxxxxxx
THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine
currency, x x x, in installments as follows: (3) The obligations hereunder are joint and several and independent of the obligations of the
Principal. A separate action or actions may be brought and prosecuted against the Surety
September 16, 1982 - P154,267.87 whether or not the action is also brought and prosecuted against the Principal and whether
or not the Principal be joined in any such action or actions.
October 16, 1982 - P154,267.87
x x x x x x x x x.
November 16, 1982 - P154,267.87
The agreement was signed by petitioners on February 16, 1982. The promissory notes[24]
December 16, 1982 - P154,267.87 subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise
prove that petitioners are solidarily liable with Embassy Farms.
January 16, 1983 - P154,267.87
Petitioners further allege that there is an ambiguity in the wording of the promissory note
February 16, 1983 - P154,267.87 and claim that since it was Mercator who provided the form, then the ambiguity should be
resolved against it.
x x x x x x x x x.
Courts can interpret a contract only if there is doubt in its letter.[25] But, an examination of
The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an
Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it. ambiguity, Section 17 of the Negotiable Instruments Law states, viz:

The Continuing Suretyship Agreement[23] also proves the solidary obligation of petitioners, SECTION 17. Construction where instrument is ambiguous. Where the language of the
viz: instrument is ambiguous or there are omissions therein, the following rules of construction
apply:
(Embassy Farms, Inc.)
xxxxxxxxx
Principal
(g) Where an instrument containing the word I promise to pay is signed by two or more
(Eduardo B. Evangelista) persons, they are deemed to be jointly and severally liable thereon.

Surety Petitioners also insist that the promissory note does not convey their true intent in executing
the document. The defense is unavailing. Even if petitioners intended to sign the note merely
(Epifania C. Evangelista) as officers of Embassy Farms, still this does not erase the fact that they subsequently
executed a continuing suretyship agreement. A surety is one who is solidarily liable with the
Surety principal.[26] Petitioners cannot claim that they did not personally receive any consideration
for the contract for well-entrenched is the rule that the consideration necessary to support
(Mercator Finance Corporation) a surety obligation need not pass directly to the surety, a consideration moving to the
principal alone being sufficient. A surety is bound by the same consideration that makes the
Creditor contract effective between the principal parties thereto.[27] Having executed the suretyship
agreement, there can be no dispute on the personal liability of petitioners.
To: MERCATOR FINANCE COPORATION
Lastly, the parol evidence rule does not apply in this case.[28] We held in Tarnate v. Court of
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C. Appeals,[29] that where the parties admitted the existence of the loans and the mortgage
EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees deeds and the fact of default on the due repayments but raised the contention that they
(sic) to MERCATOR FINANCE COPORATION (hereinafter called Creditor), the full, faithful and were misled by respondent bank to believe that the loans were long-term accommodations,
then the parties could not be allowed to introduce evidence of conditions allegedly agreed
upon by them other than those stipulated in the loan documents because when they
reduced their agreement in writing, it is presumed that they have made the writing the only
repository and memorial of truth, and whatever is not found in the writing must be
understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.
Adalia Francisco vs. CA Panlaqui
G.R. NO. 116320 November, 29, 1999
Secs. 19, 20, 23
ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY COMMERCIAL &
CONSTRUCTION CORPORATION AND JAIME C. ONG, respondents.
DECISION
GONZAGA_REYES, J.:
Assailed in this petition for review on certiorari is the decision[1] of the Court of Appeals
affirming the decision[2] rendered by Branch 168 of the Regional Trial Court of Pasig in Civil
Case No. 35231 in favor of private respondents.
The controversy before this Court finds its origins in a Land Development and Construction
Contract which was entered into on June 23, 1977 by A. Francisco Realty & Development
Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the president, and
private respondent Herby Commercial & Construction Corporation (HCCC), represented by
its President and General Manager private respondent Jaime C. Ong (Ong), pursuant to a
housing project of AFRDC at San Jose del Monte, Bulacan, financed by the Government
Service Insurance System (GSIS). Under the contract, HCCC agreed to undertake the
construction of 35 housing units and the development of 35 hectares of land. The payment
of HCCC for its services was on a turn-key basis, that is, HCCC was to be paid on the basis of
the completed houses and developed lands delivered to and accepted by AFRDC and the
GSIS. To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable
the latter to collect payments directly from the GSIS. Furthermore, the GSIS and AFRDC put
up an Executive Committee Account with the Insular Bank of Asia & America (IBAA) in the
amount of P4,000,000.00 from which checks would be issued and co-signed by petitioner
Francisco and the GSIS Vice-President Armando Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint[3] with the Regional Trial Court of Quezon City
against Francisco, AFRDC and the GSIS for the collection of the unpaid balance under the
Land Development and Construction Contract in the amount of P515,493.89 for completed
and delivered housing units and land development. However, the parties eventually arrived
at an amicable settlement of their differences, which was embodied in a Memorandum
Agreement executed by HCCC and AFRDC on July 21, 1978. Under the agreement, the parties
stipulated that HCCC had turned over 83 housing units which have been accepted and paid
for by the GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50 representing
incomplete construction of housing units, incomplete land development and 5% retention,
which amount will be discharged when the defects and deficiencies are finally completed by
HCCC. It was also provided that HCCC was indebted to AFRDC in the amount of P180,234.91
which the former agreed would be paid out of the proceeds from the 40 housing units still
to be turned over by HCCC or from any amount due to HCCC from the GSIS. Consequently,
the trial court dismissed the case upon the filing by the parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the records of the GSIS, Ong discovered that Diaz
and Francisco had executed and signed seven checks[4], of various dates and amounts,
drawn against the IBAA and payable to HCCC for completed and delivered work under the
contract. Ong, however, claims that these checks were never delivered to HCCC. Upon
inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the checks since she
promised that she would deliver the same to HCCC. Instead, Francisco forged the signature
of Ong, without his knowledge or consent, at the dorsal portion of the said checks to make
it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a second
time by signing her name at the back of the checks and deposited the checks in her IBAA
savings account. IBAA credited Franciscos account with the amount of the checks and the
latter withdrew the amount so credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon City,
charging Francisco with estafa thru falsification of commercial documents. Francisco denied
having forged Ongs signature on the checks, claiming that Ong himself indorsed the seven
checks in behalf of HCCC and delivered the same to Francisco in payment of the loans
extended by Francisco to HCCC. According to Francisco, she agreed to grant HCCC the loans
in the total amount of P585,000.00 and covered by eighteen promissory notes in order to
obviate the risk of the non-completion of the project. As a means of repayment, Ong
allegedly issued a Certification authorizing Francisco to collect HCCCs receivables from the
GSIS. Assistant City Fiscal Ramon M. Gerona gave credence to Franciscos claims and
accordingly, dismissed the complaints, which dismissal was affirmed by the Minister of
Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19, 1979 against
Francisco and IBAA for the recovery of P370,475.00, representing the total value of the seven
checks, and for damages, attorneys fees, expenses of litigation and costs. After trial on the
merits, the trial court rendered its decision in favor of private respondents, the dispositive
portion of which provides -
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
and against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA
FRANCISCO, to jointly and severally pay the plaintiffs the amount of P370.475.00 plus
interest thereon at the rate of 12% per annum from the date of the filing of the complaint
until the full amount is paid; moral damages to plaintiff Jaime Ong in the sum of P50,000.00;
exemplary damages of P50,000.00; litigation expenses of P5,000.00; and attorneys fees of
P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia
Francisco, the latter is ordered to reimburse the former for the sums that the Bank shall pay
to the plaintiff on the forged checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National Bureau of Investigation
(NBI), the trial court held that Francisco had indeed forged the signature of Ong to make it
appear that he had indorsed the checks. Also, the court ruled that there were no loans
extended, reasoning that it was unbelievable that HCCC was experiencing financial
difficulties so as to compel it to obtain the loans from AFRDC in view of the fact that the GSIS
had issued checks in favor of HCCC at about the same time that the alleged advances were
made. The trial court stated that it was plausible that Francisco concealed the fact of issuance
of the checks from private respondents in order to make it appear as if she were
accommodating private respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between AFRDC and HCCC in
Civil Case No. Q-24628, the trial court held that the same did not make any mention of the
forged checks since private respondents were as of yet unaware of their existence, that fact
having been effectively concealed by Francisco, until private respondents acquired
knowledge of Franciscos misdeeds in 1979.
IBAA was held liable to private respondents for having honored the checks despite such
obvious irregularities as the lack of initials to validate the alterations made on the check, the
absence of the signature of a co-signatory in the corporate checks of HCCC and the deposit
of the checks on a second indorsement in the savings account of Francisco. However, the
trial court allowed IBAA recourse against Francisco, who was ordered to reimburse the IBAA
for any sums it shall have to pay to private respondents.[5]
Both Francisco and IBAA appealed the trial courts decision, but the Court of Appeals
dismissed IBAAs appeal for its failure to file its brief within the 45-day extension granted by
the appellate court. IBAAs motion for reconsideration and petition for review on certiorari
filed with this Court were also similarly denied. On November 21, 1989, IBAA and HCCC
entered into a Compromise Agreement which was approved by the trial court, wherein HCCC
acknowledged receipt of the amount of P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of the latter to pursue its claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial courts ruling, hence this petition
for review on certiorari filed by petitioner, assigning the following errors to the appealed
decision
1. The respondent Court of Appeals erred in concluding that private respondents did not owe
Petitioner the sum covered by the Promissory Notes Exh.2-2-A-2-P (FRANCISCO). Such
conclusion was based mainly on conjectures, surmises and speculation contrary to the
unrebutted pleadings and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified the signature of
private respondent ONG on the checks in question without any authority therefor which is
patently contradictory to the unrebutted pleading and evidence that petitioner was
expressly authorized by respondent HERBY thru ONG to collect all receivables of HERBY from
GSIS to pay the loans extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks in question were
not taken up in the liquidation and reconciliation of all outstanding account between AFRDC
and HERBY as acknowledged by the parties in Memorandum Agreement (Exh. 5) is a pure
conjecture, surmise and speculation contrary to the unrebutted evidence presented by
petitioners. It is an inference made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the lower court and
dismissing the appeal.[6]
The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the
seven checks. In this connection, we uphold the lower courts finding that the subject matter
of the present case, specifically the seven checks, drawn by GSIS and AFRDC, dated between
October to November 1977, in the total amount of P370,475.00 and payable to HCCC, was
not included in the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No.
Q-24628. As observed by the trial court, aside from there being absolutely no mention of the
checks in the said agreement, the amounts represented by said checks could not have been
included in the Memorandum Agreement executed in 1978 because private respondents
only discovered Franciscos acts of forgery in 1979. The lower courts found that Francisco was
able to easily conceal from private respondents even the fact of the issuance of the checks
since she was a co-signatory thereof.[7] We also note that Francisco had custody of the
checks, as proven by the check vouchers bearing her uncontested signature,[8] by which she,
in effect, acknowledged having received the checks intended for HCCC. This contradicts
Franciscos claims that the checks were issued to Ong who delivered them to Francisco
already indorsed.[9]
As regards the forgery, we concur with the lower courts finding that Francisco forged the
signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that,
after indorsing the checks for a second time by signing her name at the back of the checks,
Francisco deposited said checks in her savings account with IBAA. The forgery was
satisfactorily established in the trial court upon the strength of the findings of the NBI
handwriting expert.[10] Other than petitioners self-serving denials, there is nothing in the
records to rebut the NBIs findings. Well-entrenched is the rule that findings of trial courts
which are factual in nature, especially when affirmed by the Court of Appeals, deserve to be
respected and affirmed by the Supreme Court, provided it is supported by substantial
evidence on record,[11] as it is in the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ongs name on the checks by
virtue of the Certification executed by Ong in her favor giving her the authority to collect all
the receivables of HCCC from the GSIS, including the questioned checks.[12] Petitioners
alternative defense must similarly fail. The Negotiable Instruments Law provides that where
any person is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability.[13] An agent, when so signing, should indicate that
he is merely signing in behalf of the principal and must disclose the name of his principal;
otherwise he shall be held personally liable.[14] Even assuming that Francisco was
authorized by HCCC to sign Ongs name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ongs name, Francisco should have signed her own
name and expressly indicated that she was signing as an agent of HCCC. Thus, the
Certification cannot be used by Francisco to validate her act of forgery.
Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.[15] Due to her forgery of Ongs signature which enabled
her to deposit the checks in her own account, Francisco deprived HCCC of the money due it
from the GSIS pursuant to the Land Development and Construction Contract. Thus, we affirm
respondent courts award of compensatory damages in the amount of P370,475.00, but with
a modification as to the interest rate which shall be six percent (6%) per annum, to be
computed from the date of the filing of the complaint since the amount of damages was
alleged in the complaint;[16] however, the rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case becomes final and executory until its
satisfaction and the basis for the computation of this twelve percent (12%) rate of interest
shall be the amount of P370,475.00. This is in accordance with the doctrine enunciated in
Eastern Shipping Lines, Inc. vs. Court of Appeals, et al.,[17] which was reiterated in Philippine
National Bank vs. Court of Appeals,[18] Philippine Airlines, Inc. vs. Court of Appeals[19]and
in Keng Hua Paper Products Co., Inc. vs. Court of Appeals,[20] which provides that -
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of six percent (6%) per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be twelve percent (12%) per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary damages in the amount of P50,000.00. Under Article
2229 of the Civil Code, exemplary damages are imposed by way of example or correction for
the public good, in addition to the moral, temperate, liquidated or compensatory damages.
Considering petitioners fraudulent act, we hold that an award of P50,000.00 would be
adequate, fair and reasonable. The grant of exemplary damages justifies the award of
attorneys fees in the amount of P50,000.00, and the award of P5,000.00 for litigation
expenses.[21]
The appellate courts award of P50,000.00 in moral damages is warranted. Under Article 2217
of the Civil Code, moral damages may be granted upon proof of physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury.[22] Ong testitified that he suffered sleepless nights,
embarrassment, humiliation and anxiety upon discovering that the checks due his company
were forged by petitioner and that petitioner had filed baseless criminal complaints against
him before the fiscals office of Quezon City which disrupted HCCCs business operations.[23]
WHEREFORE, we AFFIRM the respondent courts decision promulgated on June 29, 1992,
upholding the February 16, 1988 decision of the trial court in favor of private respondents,
with the modification that the interest upon the actual damages awarded shall be at six
percent (6%) per annum, which interest rate shall be computed from the time of the filing of
the complaint on November 19, 1979. However, the interest rate shall be twelve percent
(12%) per annum from the time the judgment in this case becomes final and executory and
until such amount is fully paid. The basis for computation of the six percent and twelve
percent rates of interest shall be the amount of P370,475.00. No pronouncement as to costs.
SO ORDERED.
Equitable PCi bank vs Rowena Ong Porcuincula
G.R. NO. 156207 Sept. 15, 2006
Secs. 24, 26, 28, 52, 62, 187
DECISION
CHICO-NAZARIO, J.:
On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial
International (PCI) Bank Magsaysay Avenue, Santa Ana District, Davao City Branch, under
Account No. 8502-00347-6, a PCI Bank General Santos City Branch, TCBT[1] Check No.
0249188 in the amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5 December
1991 on whether TCBT Check No. 0249188 had been cleared, she received an affirmative
answer. Relying on this assurance, she issued two checks drawn against the proceeds of TCBT
Check No. 0249188. One of these was PCI Bank Check No. 073661 dated 5 December
1991 for P132,000.00 which Sarande issued to respondent Rowena Ong Owing to a business
transaction. On the same day, Ong presented to PCI Bank Magsaysay Avenue Branch said
Check No. 073661, and instead of encashing it, requested PCI Bank to convert the proceeds
thereof into a managers check, which the PCI Bank obliged.Whereupon, Ong was issued PCI
Bank Managers Check No. 10983 dated 5 December 1991 for the sum of P132,000.00, the
value of Check No. 073661.
The next day, 6 December 1991, Ong deposited PCI Bank Managers Check No. 10983 in her
account with Equitable Banking Corporation Davao City Branch. On 9 December 1991, she
received a check return-slip informing her that PCI Bank had stopped the payment of the
said check on the ground of irregular issuance. Despite several demands made by her to PCI
Bank for the payment of the amount in PCI Bank Managers Check No. 10983, the same was
met with refusal; thus, Ong was constrained to file a Complaint for sum of money, damages
and attorneys fees against PCI Bank.[2]
From PCI Banks version, TCBT-General Santos City Check No. 0249188 was returned on 5
December 1991 at 5:00 pm on the ground that the account against which it was drawn was
already closed. According to PCI Bank, it immediately gave notice to Sarande and Ong about
the return of Check No. 0249188 and requested Ong to return PCI Bank Managers Check No.
10983 inasmuch as the return of Check No. 0249188 on the ground that the account from
which it was drawn had already been closed resulted in a failure or want of consideration for
the issuance of PCI Bank Managers Check No. 10983.[3]
After the pre-trial conference, Ong filed a motion for summary judgment.[4] Though they
were duly furnished with a copy of the motion for summary judgment, PCI Bank and its
counsel failed to appear at the scheduled hearing.[5] Neither did they file any written
comment or opposition thereto. The trial court thereafter ordered Ong to formally offer her
exhibits in writing, furnishing copies of the same to PCI Bank which was directed to file its
comment or objection.[6]
Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or
objection within the period given to it despite receipt of the same order.[7] The trial court
then granted the motion for summary judgment and in its Order dated 2 March 1995, it held:
IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED, ordering
defendant Philippine Commercial International Bank to pay the plaintiff the amount of ONE
HUNDRED THIRTY-TWO THOUSAND PESOS (P132,000.00) equivalent to the amount of PCIB
Managers Check No. 10983.
Set the reception of the plaintiffs evidence with respect to the damages claimed in the
complaint.[8]
PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11
April 1996.[9] After the reception of Ongs evidence in support of her claim for damages, the
trial court rendered its Decision[10] dated 3 May 1999 wherein it ruled:
IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has preponderantly
established by competent evidence her claims in the Complaint, judgment in hereby
rendered for the plaintiff against the defendant-bank ordering the latter:
1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the concept of
moral damages;
2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary
damages;
3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00)
representing actual expenses;
4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for
attorneys fees; and
5. To pay the costs.[11]
From this decision, PCI Bank sought recourse before the Court of Appeals. In a
Decision[12] dated 29 October 2002, the appellate court denied the appeal of PCI Bank and
affirmed the orders and decision of the trial court.
Unperturbed, PCI Bank then filed the present petition for review before this Court and raised
the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE
ERROR WHEN IT SUSTAINED THE LOWER COURTS ORDER DATED 2 MARCH 1999 GRANTING
RESPONDENTS MOTION FOR SUMMARY JUDGMENT NOTWITHSTANDING THE GLARING
FACT THAT THERE ARE GENUINE, MATERIAL AND FACTUAL ISSUES WHICH REQUIRE THE
PRESENTATION OF EVIDENCE.
2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED
THE LOWER COURTS DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN
RESPONDENT ONGS COMPLAINT INSPITE OF THE FACT THAT RESPONDENT ONG WOULD BE
UNJUSTLY ENRICHED AT THE EXPENSE OF PETITIONER BANK, IF PETITIONER BANK WOULD
BE REQUIRED TO PAY AN UNFUNDED CHECK.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS WHEN IT
AFFIRMED THE COURT A QUOS DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO
RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG HAD PREPONDERANTLY
ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN THE COMPLAINT INSPITE OF THE
FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF DAMAGES.
4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
AFFIRMED THE LOWER COURTS FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999
HOLDING RESPONDENT ONG A HOLDER IN DUE COURSE INSPITE OF THE FACT THAT THE
REQUISITE OF GOOD FAITH AND FOR VALUE IS LACKING AND DESPITE THE ABSENCE OF A
PROPER TRIAL TO DETERMINE SUCH FACTUAL ISSUE.
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
UPHELD THE LOWER COURTS DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI
BANKS COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS SHOWN THAT RESPONDENT
ONGS COMPLAINT LACKS MERIT.[13]
We affirm the Decision of the trial court and the Court of Appeals.
The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court:
SECTION 1. Summary judgment for claimant. A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the
pleading in answer thereto has been served, move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all or any part thereof.
Thus, it has been held that a summary judgment is proper where, upon a motion filed after
the issues had been joined and on the basis of the pleadings and papers filed, the court finds
that there is no genuine issue as to any material fact to except as to the amount of
damages. A genuine issue has been defined as an issue of fact which calls for the
presentation of evidence, as distinguished from an issue which is sham, fictitious, contrived
and patently unsubstantial so as not to constitute a genuine issue for trial.[14]
A court may grant summary judgment to settle expeditiously a case if, on motion of either
party, there appears from the pleadings, depositions, admissions, and affidavits that no
important issues of fact are involved, except the amount of damages.[15]Rule 35, Section 3,
of the Rules of Court provides two requisites for summary judgment to be proper: (1) there
must be no genuine issue as to any material fact, except for the amount of damages; and (2)
the party presenting the motion for summary judgment must be entitled to a judgment as a
matter of law.[16]
Certainly, when the facts as pleaded appear uncontested or undisputed, then theres no real
or genuine issue or question as to the facts, and summary judgment is called for.[17]
By admitting it committed an error, clearing the check of Sarande and issuing in favor
of Ong not just any check but a managers check for that matter, PCI Banks liability is
fixed. Under the circumstances, we find that summary judgment was proper and a hearing
would serve no purpose. That summary judgment is appropriate was incisively expounded
by the trial court when it made the following observation:
[D]efendant-bank had certified plaintiffs PCIB Check No. 073661 and since certification is
equivalent to acceptance, defendant-bank as drawee bank is bound on the instrument upon
certification and it is immaterial to such liability in favor of the plaintiff who is a holder in due
course whether the drawer (Warliza Sarande) had funds or not with the defendant-bank
(Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the bank for more
than the amount of the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the
certifying bank as all the liabilities under Sec. 62 of the Negotiable Instruments Law which
refers to liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36).
It may be true that plaintiffs PCIB Check No. 073661 for P132,000.00 which was paid to her
by Warliza Sarande was actually not funded but since plaintiff became a holder in due
course, defendant-bank cannot interpose a defense of want or lack of consideration because
that defense is equitable or personal and cannot prosper against a holder in due course
pursuant to Section 28 of the Negotiable Instruments Law. Therefore, when the
aforementioned check was endorsed and presented by the plaintiff and certified to and
accepted by defendant-bank in the purchase of PCIB Managers Check No. 1983 in the
amount of P132,000.00, there was a valid consideration.[18]
The property of summary judgment was further explained by this Court when it pronounced
that:
The theory of summary judgment is that although an answer may on its face appear to tender
issues requiring trial yet if it is demonstrated by affidavits, depositions, or admissions that
those issues are not genuine, but sham or fictitious, the Court is unjustified in dispensing
with the trial and rendering summary judgment for plaintiff. The court is expected to act
chiefly on the basis of the affidavits, depositions, admissions submitted by the movant, and
those of the other party in opposition thereto. The hearing contemplated (with 10-day
notice) is for the purpose of determining whether the issues are genuine or not, not to
receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer. The
matter may be resolved, and usually is, on the basis of affidavits, depositions,
admissions. This is not to say that a hearing may be regarded as a superfluity. It is not, and
the Court has plenary discretion to determine the necessity therefore.[19]
The second and fourth issues are inter-related and so they shall be resolved together. The
second issue has reference to PCI Banks claim of unjust enrichment on the part of Ong if it
would be compelled to make good the managers check it had issued.As asserted by PCI Bank
under the fourth issue, Ong is not a holder in due course because the managers check was
drawn against a closed account; therefore, the same was issued without consideration.
On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the
transfer of value without just cause or consideration. The elements of this doctrine are:
enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and
lack of cause. The main objective is to prevent one to enrich himself at the expense of
another.[20] It is based on the equitable postulate that it is unjust for a person to retain
benefit without paying for it.[21] It is well to stress that the check of Sarande had been cleared
by the PCI Bank for which reason the former issued the check to Ong. A check which has
been cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor of cash in an amount equal to the amount credited to his account.[22]
Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot
allege want or failure of consideration between it and Sarande. Under settled
jurisprudence, Ong is a stranger as regards the transaction between PCI Bank
and Sarande.[23]
PCI Bank next insists that since there was no consideration for the issuance of the managers
check, ergo, Ong is not a holder in due course. This claim is equally without basis. Pertinent
provisions of the Negotiable Instruments Law are hereunder quoted:
SECTION 52. What constitutes a holder in due course. 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 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.
The same law provides further:

Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.
Sec. 26. What constitutes holder for value. Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who become
such prior to that time.
Sec. 28. Effect of want of consideration. Absence or failure of consideration is a matter of
defense as against any person not a holder in due course; and partial failure of consideration
is a defense pro tanto, whether the failure is an ascertained and liquidated amount or
otherwise.
Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check
but a managers check. A managers check is an order of the bank to pay, drawn upon itself,
committing in effect its total resources, integrity and honor behind its issuance. By its
peculiar character and general use in commerce, a managers check is regarded substantially
to be as good as the money it represents.[24]
A managers check stands on the same footing as a certified check.[25] The effect of
certification is found in Section 187, Negotiable Instruments Law.
Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which it
is drawn, the certification is equivalent to an acceptance. [26]
The effect of issuing a managers check was incontrovertibly elucidated when we declared
that:
A managers check is one drawn by the banks manager upon the bank itself. It is similar to a
cashiers check both as to effect and use. A cashiers check is a check of the banks cashier on
his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank
upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks
own check and may be treated as a promissory note with the bank as a maker. The check
becomes the primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand. The mere issuance of it is considered an acceptance thereof.
x x x.[27]
In the case of New Pacific Timber & Supply Co., Inc. v. Seneris[28]:
[S]ince the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee
or holder, and for all intents and purposes, the latter becomes the depositor of
the drawee bank, with rights and duties of one in such situation. Where a check is certified
by the bank on which it is drawn, the certification is equivalent to acceptance. Said
certification implies that the check is drawn upon sufficient funds in the hands of the drawee,
that they have been set apart for its satisfaction, and that they shall be so applied whenever
the check is presented for payment. It is an understanding that the check is good then, and
shall continue good, and this agreement is as binding on the bank as its notes circulation, a
certificate of deposit payable to the order of depositor, or any other obligation it can
assume. The object of certifying a check, as regards both parties, is to enable the holder to
use it as money. When the holder procures the check to be certified, the check operates as
an assignment of a part of the funds to the creditors. Hence, the exception to the rule
enunciated under Section 63 of the Central Bank Act to the effect that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor in cash in an amount equal to the amount credited to his account shall apply in
this case x x x.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a
managers check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will
pay it according to the tenor of his acceptance; and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
With the above jurisprudential basis, the issues on Ong being not a holder in due course and
failure or want of consideration for PCI Banks issuance of the managers check is out of sync.
Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees:
SEC. 2. Declaration of Policy. The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the
fiduciary nature of banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and responsive to the demands of a
developing economy.
In Associated Bank v. Tan,[29] it was reiterated:
x x x the degree of diligence required of banks is more than that of a good father of a family
where the fiduciary nature of their relationship with their depositors is concerned. Indeed,
the banking business is vested with the trust and confidence of the public; hence the
appropriate standard of diligence must be very high, if not the highest degree of diligence.
Measured against these standards, the next question that needs to be addressed is: Did PCI
Bank exercise the requisite degree of diligence required of it? From all indications, it did
not. PCI Bank distinctly made the following uncontested admission:
1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI
Banks Magsaysay Avenue Branch, TCBT-General Santos Branch Check No. 0249188
for P225,000.00. Said check, however, was inadvertently sent by PCI Bank through local
clearing when it should have been sent through inter-regional clearing since the check was
drawn at TCBT-General Santos City.
2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had
been cleared. Not having received any advice from the drawee bank within the regular
clearing period for the return of locally cleared checks, and unaware then of the error of not
having sent the check through inter-regional clearing, PCI Bank advised her that Check No.
024188 is treated as cleared. x x x.[30] (Emphasis supplied.)
From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the
highest degree of care[31] required of it under the law.
In the case of Philippine National Bank v. Court of Appeals,[32] we declared:
The banking system has become an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized society. Whether as mere passive entities
for the safe-keeping and saving of money or as active instruments of business and
commerce, banks have attained an ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and, most of all, confidence.
Having settled the other issues, we now resolve the question on the award of moral and
exemplary damages by the trial court to the respondent.
Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendants wrongful act or omission.[33] The requisites for an
award of moral damages are well-defined, thus, firstly, evidence of besmirched reputation
or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable
act or omission factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant; and fourthly,
that the case is predicated on any of the instances expressed or envisioned by Article
2219[34] and Article 2220[35] of the Civil Code. All these elements are present in the instant
case.[36]
In the first place, by refusing to make good the managers check it has issued, Ong suffered
embarrassment and humiliation arising from the dishonor of the said check.[37] Secondly, the
culpable act of PCI Bank in having cleared the check of Serandeand issuing the managers
check to Ong is undeniable. Thirdly, the proximate cause of the loss is attributable to PCI
Bank. Proximate cause is defined as 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.[38] In this case, the proximate cause of the loss is the act of
PCI Bank in having cleared the check of Sarande and its failure to exercise that degree of
diligence required of it under the law which resulted in the loss to Ong.
On exemplary damages, Article 2229 of the Civil Code states:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction
for the public good, in addition to the moral, temperate, liquidated or compensatory
damages.
The law allows the grant of exemplary damages to set an example for the public good. The
banking system has become an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized society. Whether as mere passive entities for
the safe-keeping and saving of money or as active instruments of business and commerce,
banks have attained an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and most of all, confidence. For this reason, banks
should guard against injury attributable to negligence or bad faith on its part. [39] Without a
doubt, it has been repeatedly emphasized that since the banking business is impressed with
public interest, of paramount importance thereto is the trust and confidence of the public in
general. Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it.[40] Having failed in this respect, the award
of exemplary damages is warranted.
Article 2216 of the Civil Code provides:
ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated. The assessment of such damages,
except liquidated ones, is left to the discretion of the court, according to the circumstances
of each case.
Based on the above provision, the determination of the amount to be awarded (except
liquidated damages) is left to the sound discretion of the court according to the
circumstances of each case.[41] In the case before us, we find that the award of moral
damages in the amount of P50,000.00 and exemplary damages in the amount of P20,000.00
is reasonable and justified.
With the above disquisition, there is no necessity of further discussing the last issue on the
PCI Banks counterclaim based on the supposed lack of merit of Ongs complaint.

WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of
Appeals dated 29 October 2002 in CA-G.R. CV No. 65000 affirming the Decision dated 3 may
1999, of the Regional Trial Court of Davao City, Branch 14, in Civil Case No. 21458-92,
are AFFIRMED.
SO ORDERED.
DECISION
BPI vs. Casa Montessori Protacio
G.R. NO. 149507 May 28, 2004
Sec. 23
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the deposits of
its clients, who have the right to expect high standards of integrity and performance from
it. Among its obligations in furtherance thereof is knowing the signatures of its
clients. Depositors are not estopped from questioning wrongful withdrawals, even if they
have failed to question those errors in the statements sent by the bank to them for
verification.
The Case
Before us are two Petitions for Review[1] under Rule 45 of the Rules of Court, assailing
the March 23, 2001 Decision[2] and the August 17, 2001 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows:
WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the
modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for
one-half of the value of the forged checks in the amount of P547,115.00 after deductions
subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to
pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)].[4]
The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
On November 8, 1982, plaintiff CASA Montessori International[5] opened Current Account
No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as
one of its authorized signatories.
In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had
been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00,
on the following dates and amounts:
Check No. Date Amount
1. 839700 April 24, 1990 P 43,400.00
2. 839459 Nov. 2, 1990 110,500.00
3. 839609 Oct. 17, 1990 47,723.00
4. 839549 April 7, 1990 90,700.00
5. 839569 Sept. 23, 1990 52,277.00
6. 729149 Mar. 22, 1990 148,000.00
7. 729129 Mar. 16, 1990 51,015.00
8. 839684 Dec. 1, 1990 140,000.00
9. 729034 Mar. 2, 1990 98,985.00
Total -- P 782,600.00[6]
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious
name used by third party defendant Leonardo T. Yabut who worked as external auditor of
CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron
and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded
that the handwritings thereon compared to the standard signature of Ms. Lebron were not
written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank praying that the latter be ordered to reinstate the amount
of P782,500.00[7] in the current and savings accounts of the plaintiff with interest at 6% per
annum.
On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff.[8]
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss
between BPI and CASA. The appellate court took into account CASAs contributory negligence
that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI
half the total amount claimed; and CASA, the other half. It also disallowed attorneys fees and
moral and exemplary damages.
Hence, these Petitions.[9]
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our consideration:
I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the
applicable decisions of this Honorable Court to the effect that forgery cannot be presumed;
that it must be proved by clear, positive and convincing evidence; and that the burden of
proof lies on the party alleging the forgery.
II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable
laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account
of its own negligence, from asserting its forgery claim against BPI, specially taking into
account the absence of any negligence on the part of BPI.[10]
In GR No. 149507, Petitioner CASA submits the following issues:
1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI],
although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys
fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred
when it did not order [BPI] to pay interest on the amounts due to [CASA].
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent
in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00
be apportioned between [CASA] and [BPI] x x x.[11]
These issues can be narrowed down to three. First, was there forgery under the Negotiable
Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded
from setting up forgery as a defense? Third, should moral and exemplary damages, attorneys
fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
Section 23. Forged signature; effect of. -- When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right x x x to enforce payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.[12]
Under this provision, a forged signature is a real[13] or absolute defense,[14] and a person
whose signature on a negotiable instrument is forged is deemed to have never become a
party thereto and to have never consented to the contract that allegedly gave rise to it.[15]
The counterfeiting of any writing, consisting in the signing of anothers name with intent to
defraud, is forgery.[16]
In the present case, we hold that there was forgery of the drawers signature on the check.
First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had voluntarily
admitted, through an Affidavit, that he had forged the drawers signature and encashed the
checks.[19] He never refuted these findings.[20] That he had been coerced into admission was
not corroborated by any evidence on record.[21]
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its
examination of the said checks,[22] had concluded that the handwritings thereon -- compared
to the standard signature of the drawer -- were not hers.[23] This conclusion was the same as
that in the Report[24] that the PNP Crime Laboratory had earlier issued to BPI -- the drawee
bank -- upon the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA,
since these are supported by substantial evidence on record.[25]
Voluntary Admission Not
Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial
investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation. [26] His Affidavit was executed in
private and before private individuals.[27] The mantle of protection under Section 12 of
Article III of the 1987 Constitution[28] covers only the period from the time a person is taken
into custody for investigation of his possible participation in the commission of a crime or
from the time he is singled out as a suspect in the commission of a crime although not yet in
custody.[29]
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a
deprivation of freedom, with questions propounded on him by the police authorities for the
purpose of eliciting admissions, confessions, or any information. [30] The said constitutional
provision does not apply to spontaneous statements made in a voluntary
manner[31] whereby an individual orally admits to authorship of a crime.[32] What the
Constitution proscribes is the compulsory or coercive disclosure of incriminating facts.[33]
Moreover, the right against self-incrimination[34] under Section 17 of Article III[35] of the
Constitution, which is ordinarily available only in criminal prosecutions, extends to all other
government proceedings -- including civil actions, legislative investigations,[36] and
administrative proceedings that possess a criminal or penal aspect[37] -- but not to private
investigations done by private individuals. Even in such government proceedings, this right
may be waived,[38] provided the waiver is certain; unequivocal; and intelligently,
understandingly and willingly made.[39]
If in these government proceedings waiver is allowed, all the more is it so in private
investigations. It is of no moment that no criminal case has yet been filed against Yabut. The
filing thereof is entirely up to the appropriate authorities or to the private individuals upon
whom damage has been caused. As we shall also explain later, it is not mandatory for CASA
-- the plaintiff below -- to implead Yabut in the civil case before the lower court.
Under these two constitutional provisions, [t]he Bill of Rights[40] does not concern itself with
the relation between a private individual and another individual. It governs the relationship
between the individual and the State.[41] Moreover, the Bill of Rights is a charter of liberties
for the individual and a limitation upon the power of the [S]tate. [42] These rights[43] are
guaranteed to preclude the slightest coercion by the State that may lead the accused to
admit something false, not prevent him from freely and voluntarily telling the truth.[44]
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights does not
automatically entitle him to the constitutional protection.[45] When he freely and voluntarily
executed[46] his Affidavit, the State was not even involved. Such Affidavit may therefore be
admitted without violating his constitutional rights while under custodial investigation and
against self-incrimination.
Clear, Positive and Convincing
Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear, positive and
convincing.
Forgery cannot be presumed.[47] It must be established by clear, positive and convincing
evidence.[48] Under the best evidence rule as applied to documentary evidence like the
checks in question, no secondary or substitutionary evidence may inceptively be introduced,
as the original writing itself must be produced in court. [49] But when, without bad faith on
the part of the offeror, the original checks have already been destroyed or cannot be
produced in court, secondary evidence may be produced. [50] Without bad faith on its part,
CASA proved the loss or destruction of the original checks through the Affidavit of the one
person who knew of that fact[51] -- Yabut. He clearly admitted to discarding the paid checks
to cover up his misdeed.[52] In such a situation, secondary evidence like microfilm copies may
be introduced in court.
The drawers signatures on the microfilm copies were compared with the standard
signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that
two different persons had written them.[53] Although no conclusive report could be issued in
the absence of the original checks,[54] she affirmed that her findings were 90 percent
conclusive.[55] According to her, even if the microfilm copies were the only basis of
comparison, the differences were evident.[56] Besides, the RTC explained that although the
Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in
the absence of the original checks.[57] This explanation is valid; otherwise, no such report can
ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only when the
contents of a document -- such as the drawers signature on a check -- is the subject of
inquiry.[58] As to whether the document has been actually executed, this rule does not apply;
and testimonial as well as any other secondary evidence is admissible.[59] Carina Lebron
herself, the drawers authorized signatory, testified many times that she had never signed
those checks. Her testimonial evidence is admissible; the checks have not been actually
executed. The genuineness of her handwriting is proved, not only through the courts
comparison of the questioned handwritings and admittedly genuine specimens
thereof,[60] but above all by her.
The failure of CASA to produce the original checks neither gives rise to the presumption of
suppression of evidence[61] nor creates an unfavorable inference against it.[62] Such failure
merely authorizes the introduction of secondary evidence[63] in the form of microfilm
copies. Of no consequence is the fact that CASA did not present the signature card containing
the signatures with which those on the checks were compared.[64] Specimens of standard
signatures are not limited to such a card. Considering that it was not produced in evidence,
other documents that bear the drawers authentic signature may be resorted to.[65] Besides,
that card was in the possession of BPI -- the adverse party.
We have held that without the original document containing the allegedly forged signature,
one cannot make a definitive comparison that would establish forgery;[66] and that a
comparison based on a mere reproduction of the document under controversy cannot
produce reliable results.[67] We have also said, however, that a judge cannot merely rely on
a handwriting experts testimony,[68] but should also exercise independent judgment in
evaluating the authenticity of a signature under scrutiny.[69] In the present case, both the
RTC and the CA conducted independent examinations of the evidence presented and arrived
at reasonable and similar conclusions. Not only did they admit secondary evidence; they also
appositely considered testimonial and other documentary evidence in the form of the
Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first of
these has been met.[70] The result of examining a questioned handwriting, even with the aid
of experts and scientific instruments, may be inconclusive;[71] but it is a non sequitur to say
that such result is not clear, positive and convincing. The preponderance of evidence
required in this case has been satisfied.[72]
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making
payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the
drawer whose authorized signatures do not appear on the negotiable instruments -- cannot
be held liable thereon. Neither is the latter precluded from setting up forgery as a real
defense.
Clear Negligence
in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since the banking business is impressed with public
interest, of paramount importance thereto is the trust and confidence of the public in
general. Consequently, the highest degree of diligence[73] is expected,[74] and high standards
of integrity and performance are even required, of it.[75] By the nature of its functions, a bank
is under obligation to treat the accounts of its depositors with meticulous care, [76] always
having in mind the fiduciary nature of their relationship.[77]
BPI contends that it has a signature verification procedure, in which checks are honored only
when the signatures therein are verified to be the same with or similar to the specimen
signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of
forgery. Its negligence consisted in the omission of that degree of diligence required[78] of a
bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is
bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.[79] In fact, BPI was
the same bank involved when we issued this ruling seventy years ago.
Neither Waiver nor Estoppel
Results from Failure to
Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows: If no
error is reported in ten (10) days, account will be correct.[80] Such notice cannot be
considered a waiver, even if CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation[81] or circularization -- in accounting parlance -- that
requests client-depositors to affirm the accuracy of items recorded by the banks.[82] Its
purpose is to obtain from the depositors a direct corroboration of the correctness of their
account balances with their respective banks.[83] Internal or external auditors of a bank use
it as a basic audit procedure[84] -- the results of which its client-depositors are neither
interested in nor privy to -- to test the details of transactions and balances in the banks
records.[85] Evidential matter obtained from independent sources outside a bank only serves
to provide greater assurance of reliability[86] than that obtained solely within it for purposes
of an audit of its own financial statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be detected [87] for various
reasons. One, materiality is a consideration in audit planning; [88] and two, the information
obtained from such a substantive test is merely presumptive and cannot be the basis of a
valid waiver.[89] BPI has no right to impose a condition unilaterally and thereafter consider
failure to meet such condition a waiver. Neither may CASA renounce a right[90] it has never
possessed.[91]
Every right has subjects -- active and passive. While the active subject is entitled to demand
its enforcement, the passive one is duty-bound to suffer such enforcement.[92]
On the one hand, BPI could not have been an active subject, because it could not have
demanded from CASA a response to its notice. Besides, the notice was a measly request
worded as follows: Please examine x x x and report x x x.[93] CASA, on the other hand, could
not have been a passive subject, either, because it had no obligation to respond. It could --
as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that established as the truth, in legal
contemplation.[94] Our rules on evidence even make a juris et de jure presumption[95] that
whenever one has, by ones own act or omission, intentionally and deliberately led another
to believe a particular thing to be true and to act upon that belief, one cannot -- in any
litigation arising from such act or omission -- be permitted to falsify that supposed truth.[96]
In the instant case, CASA never made any deed or representation that misled BPI. The
formers omission, if any, may only be deemed an innocent mistake oblivious to the
procedures and consequences of periodic audits. Since its conduct was due to such
ignorance founded upon an innocent mistake, estoppel will not arise.[97] A person who has
no knowledge of or consent to a transaction may not be estopped by it. [98] Estoppel cannot
be sustained by mere argument or doubtful inference x x x. [99] CASA is not barred from
questioning BPIs error even after the lapse of the period given in the notice.
Loss Borne by
Proximate Source
of Negligence
For allowing payment[100] on the checks to a wrongful and fictitious payee, BPI -- the drawee
bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its
branches,[101] BPI can easily go after it and hold it liable for reimbursement.[102] It may not
debit the drawers account[103] and is not entitled to indemnification from the drawer.[104] In
both law and equity, when one of two innocent persons must suffer by the wrongful act of
a third person, the loss must be borne by the one whose negligence was the proximate cause
of the loss or who put it into the power of the third person to perpetrate the wrong.[105]
Proximate cause is determined by the facts of the case.[106] It 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.[107]
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-
depositors on checks being encashed, BPI is expected to use reasonable business
prudence.[108] In the performance of that obligation, it is bound by its internal banking rules
and regulations that form part of the contract it enters into with its depositors.[109]
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of
its branches without privity;[110] that is, without the proper verification of his corresponding
identification papers. Second, BPI was unable to discover early on not only this irregularity,
but also the marked differences in the signatures on the checks and those on the signature
card. Third, despite the examination procedures it conducted, the Central Verification
Unit[111] of the bank even passed off these evidently different signatures as genuine. Without
exercising the required prudence on its part, BPI accepted and encashed the eight checks
presented to it. As a result, it proximately contributed to the fraud and should be held
primarily liable[112] for the negligence of its officers or agents when acting within the course
and scope of their employment.[113] It must bear the loss.
CASA Not Negligent
in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as an
exception[114] to the general rule that a forged signature is wholly inoperative.[115] Contrary
to BPIs claim, however, we do not find CASA negligent in handling its financial affairs.CASA,
we stress, is not precluded from setting up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and determine objectively if the
financial statements submitted for audit by a corporation have been prepared in accordance
with the appropriate financial reporting practices[116] of private entities. The relationship
that arises therefrom is both legal and moral.[117] It begins with the execution of the
engagement letter[118] that embodies the terms and conditions of the audit and ends with
the fulfilled expectation of the auditors ethical[119] and competent performance in all aspects
of the audit.[120]
The financial statements are representations of the client; but it is the auditor who has the
responsibility for the accuracy in the recording of data that underlies their preparation, their
form of presentation, and the opinion[121] expressed therein.[122] The auditor does not
assume the role of employee or of management in the clients conduct of operations[123] and
is never under the control or supervision[124] of the client.
Yabut was an independent auditor[125] hired by CASA. He handled its monthly bank
reconciliations and had access to all relevant documents and checkbooks. [126] In him was
reposed the clients[127] trust and confidence[128] that he would perform precisely those
functions and apply the appropriate procedures in accordance with generally accepted
auditing standards.[129] Yet he did not meet these expectations. Nothing could be more
horrible to a client than to discover later on that the person tasked to detect fraud was the
same one who perpetrated it.
Cash Balances
Open to Manipulation
It is a non sequitur to say that the person who receives the monthly bank statements,
together with the cancelled checks and other debit/credit memoranda, shall examine the
contents and give notice of any discrepancies within a reasonable time. Awareness is not
equipollent with discernment.
Besides, in the internal accounting control system prudently installed by CASA, [130] it was
Yabut who should examine those documents in order to prepare the bank
reconciliations.[131] He owned his working papers,[132] and his output consisted of his opinion
as well as the clients financial statements and accompanying notes thereto. CASA had every
right to rely solely upon his output -- based on the terms of the audit engagement -- and
could thus be unwittingly duped into believing that everything was in order. Besides, [g]ood
faith is always presumed and it is the burden of the party claiming otherwise to adduce clear
and convincing evidence to the contrary.[133]
Moreover, there was a time gap between the period covered by the bank statement and the
date of its actual receipt. Lebron personally received the December 1990 bank statement
only in January 1991[134] -- when she was also informed of the forgery for the first time, after
which she immediately requested a stop payment order. She cannot be faulted for the late
detection of the forged December check. After all, the bank account with BPI was not
personal but corporate, and she could not be expected to monitor closely all its finances. A
preschool teacher charged with molding the minds of the youth cannot be burdened with
the intricacies or complexities of corporate existence.
There is also a cutoff period such that checks issued during a given month, but not presented
for payment within that period, will not be reflected therein.[135] An experienced auditor with
intent to defraud can easily conceal any devious scheme from a client unwary of the
accounting processes involved by manipulating the cash balances on record -- especially
when bank transactions are numerous, large and frequent. CASA could only be blamed, if at
all, for its unintelligent choice in the selection and appointment of an auditor -- a fault that
is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it.[136] Its mere existence is not
sufficient without proof that it, and no other cause,[137] has given rise to damages.[138] In
addition, this fault is common to, if not prevalent among, small and medium-sized business
entities, thus leading the Professional Regulation Commission (PRC), through the Board of
Accountancy (BOA), to require today not only accreditation for the practice of public
accountancy,[139] but also the registration of firms in the practice thereof. In fact, among the
attachments now required upon registration are the code of good governance[140] and a
sworn statement on adequate and effective training.[141]
The missing checks were certainly reported by the bookkeeper[142] to the accountant[143] --
her immediate supervisor -- and by the latter to the auditor. However, both the accountant
and the auditor, for reasons known only to them, assured the bookkeeper that there were
no irregularities.
The bookkeeper[144] who had exclusive custody of the checkbooks[145] did not have to go
directly to CASAs president or to BPI. Although she rightfully reported the matter, neither an
investigation was conducted nor a resolution of it was arrived at, precisely because the
person at the top of the helm was the culprit. The vouchers, invoices and check stubs in
support of all check disbursements could be concealed or fabricated -- even in collusion --
and management would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If
auditors may be held liable for breach of contract and negligence, [146] with all the more
reason may they be charged with the perpetration of fraud upon an unsuspecting
client.CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or
munificence or both. Money paid under a mistake may rightfully be recovered,[147] and under
such terms as the injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission,[148] or of fraud or bad faith,[149] moral damages
cannot be awarded.[150] The adverse result of an action does not per se make the action
wrongful, or the party liable for it. One may err, but error alone is not a ground for granting
such damages.[151] While no proof of pecuniary loss is necessary therefor -- with the amount
to be awarded left to the courts discretion[152] -- the claimant must nonetheless satisfactorily
prove the existence of its factual basis[153] and causal relation[154] to the claimants act or
omission.[155]
Regrettably, in this case CASA was unable to identify the particular instance -- enumerated
in the Civil Code -- upon which its claim for moral damages is predicated. [156] Neither bad
faith nor negligence so gross that it amounts to malice[157] can be imputed to BPI.Bad faith,
under the law, does not simply connote bad judgment or negligence; [158] it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill will that partakes of the nature of
fraud.[159]
As a general rule, a corporation -- being an artificial person without feelings, emotions and
senses, and having existence only in legal contemplation -- is not entitled to moral
damages,[160] because it cannot experience physical suffering and mental
anguish.[161]However, for breach of the fiduciary duty required of a bank, a corporate client
may claim such damages when its good reputation is besmirched by such breach, and social
humiliation results therefrom.[162] CASA was unable to prove that BPI had debased the good
reputation of,[163] and consequently caused incalculable embarrassment to, the
former. CASAs mere allegation or supposition thereof, without any sufficient evidence on
record,[164] is not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction[165] for the public good,[166] exemplary damages cannot be
recovered as a matter of right.[167] As we have said earlier, there is no bad faith on the part
of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot
be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.[168] The latter, having no right to moral damages, cannot demand exemplary
damages.[169]
Attorneys Fees Granted
Although it is a sound policy not to set a premium on the right to litigate, [170] we find that
CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable
justification.[171]
When the act or omission of the defendant has compelled the plaintiff to incur expenses to
protect the latters interest,[172] or where the court deems it just and equitable, [173] attorneys
fees may be recovered. In the present case, BPI persistently denied the claim of CASA under
the NIL to recredit the latters account for the value of the forged checks. This denial
constrained CASA to incur expenses and exert effort for more than ten years in order to
protect its corporate interest in its bank account. Besides, we have already cautioned BPI on
a similar act of negligence it had committed seventy years ago, but it has remained
unrelenting. Therefore, the Court deems it just and equitable to grant ten percent
(10%)[174] of the total value adjudged to CASA as attorneys fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the
courts to obtain payment, legal interest may be adjudicated at the discretion of the Court,
the same to run from the filing[175] of the Complaint.[176] Since a court judgment is not a loan
or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum.[177] If
the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of x
x x legal interest, which is six percent per annum.[178] The actual base for its computation
shall be on the amount finally adjudged,[179] compounded[180] annually to make up for the
cost of money[181] already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us from granting it upon
damages awarded for breach of contract.[182] Because BPI evidently breached its contract of
deposit with CASA, we award interest in addition to the total amount adjudged.Under
Section 196 of the NIL, any case not provided for shall be governed by the provisions of
existing legislation or, in default thereof, by the rules of the law merchant.[183] Damages are
not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil
Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its
provisions and, in their absence, by the usages of commerce generally observed in each
place; and in the absence of both rules, by those of the civil law.[184] This law being silent, we
look at Article 18 of the Civil Code, which states: In matters which are governed by the Code
of Commerce and special laws, their deficiency shall be supplied by its provisions. A perusal
of these three statutes unmistakably shows that the award of interest under our civil law is
justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No.
149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with
modification: BPI is held liable for P547,115, the total value of the forged checks less the
amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of
six percent (6%) per annum -- compounded annually, from the filing of the complaint until
paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting attorneys fees. Let a copy of this
Decision be furnished the Board of Accountancy of the Professional Regulation Commission
for such action as it may deem appropriate against Respondent Yabut. No costs.
SO ORDERED.
Ramon K. Ilusorio vs. CA Quintana
G.R. NO. 139130 Nov. 27, 2002
Sec. 23
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the decision[1] promulgated on January 28, 1999 by
the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then Court of
First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati, Branch 138)
dismissing Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to this case, was the
Managing Director of Multinational Investment Bancorporation and the Chairman and/or
President of several other corporations. He was a depositor in good standing of respondent
bank, the Manila Banking Corporation, under current Checking Account No. 06-09037-0. As
he was then running about 20 corporations, and was going out of the country a number of
times, petitioner entrusted to his secretary, Katherine[2] E. Eugenio, his credit cards and his
checkbook with blank checks. It was also Eugenio who verified and reconciled the statements
of said checking account.[3]
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash
and deposit to her personal account about seventeen (17) checks drawn against the account
of the petitioner at the respondent bank, with an aggregate amount of P119,634.34.
Petitioner did not bother to check his statement of account until a business partner apprised
him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and
instituted a criminal action against her for estafa thru falsification before the Office of the
Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee,
Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial
documents against Eugenio on the basis of petitioners statement that his signatures in the
checks were forged.[4] Mr. Razons affidavit states:
That I have examined and scrutinized the following checks in accordance with prescribed
verification procedures with utmost care and diligence by comparing the signatures affixed
thereat against the specimen signatures of Mr. Ramon K. Ilusorio which we have on file at
our said office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank in favor of its
client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary
of MR. RAMON K. ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she
personally encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature
appearing on the checks further alleged to have not authorized the issuance and encashment
of the same.[5]
Petitioner then requested the respondent bank to credit back and restore to its account the
value of the checks which were wrongfully encashed but respondent bank refused. Hence,
petitioner filed the instant case.[6]
At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances
as narrated above, and how he discovered the alleged forgeries. Several employees of
Manila Bank were also called to the witness stand as hostile witnesses. They testified that it
is the banks standard operating procedure that whenever a check is presented for
encashment or clearing, the signature on the check is first verified against the specimen
signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in
determining the genuineness of the signatures appearing on the checks. However, in a letter
dated March 25, 1987, the NBI informed the trial court that they could not conduct the
desired examination for the reason that the standard specimens submitted were not
sufficient for purposes of rendering a definitive opinion. The NBI then suggested that
petitioner be asked to submit seven (7) or more additional standard signatures executed
before or about, and immediately after the dates of the questioned checks. Petitioner,
however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered judgment on May 12,
1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank,
in the light of the foregoing considerations and established facts, this case would have to be,
as it is hereby DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.
SO ORDERED.[7]
Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for
review but without success. The appellate court held that petitioners own negligence was
the proximate cause of his loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
SO ORDERED.[8]
Before us, petitioner ascribes the following errors to the Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS
ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES
OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL
COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST
KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES
WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.[9]
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS
LAW.[10]
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE
RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE
PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF
ITS EMPLOYEES.[11]
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR
THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST
KATHERINE EUGENIO ESTEBAN.[12]
Essentially the issues in this case are: (1) whether or not petitioner has a cause of action
against private respondent; and (2) whether or not private respondent, in filing an estafa
case against petitioners secretary, is barred from raising the defense that the fact of forgery
was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in failing to
detect the discrepant checks. He adds that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of the payees signature
and which collects the amount of the check from the drawee is liable for the proceeds
thereof to the payee. Petitioner invokes the doctrine of estoppel, saying that having itself
instituted a forgery case against Eugenio, Manila Bank is now estopped from asserting that
the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart from the
accepted and usual course of judicial proceedings, hence there is no reason for the reversal
of its ruling. Manila Bank additionally points out that Section 23[13] of the Negotiable
Instruments Law is inapplicable, considering that the fact of forgery was never proven. Lastly,
the bank negates petitioners claim of estoppel.[14]
On the first issue, we find that petitioner has no cause of action against Manila Bank. To be
entitled to damages, petitioner has the burden of proving negligence on the part of the bank
for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon
petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and
comparing them with those on the questioned checks. Curiously though, petitioner failed to
submit additional specimen signatures as requested by the National Bureau of Investigation
from which to draw a conclusive finding regarding forgery. The Court of Appeals found that
petitioner, by his own inaction, was precluded from setting up forgery. Said the appellate
court:
We cannot fault the court a quo for such declaration, considering that the plaintiffs evidence
on the alleged forgery is not convincing enough. The burden to prove forgery was upon the
plaintiff, which burden he failed to discharge. Aside from his own testimony, the appellant
presented no other evidence to prove the fact of forgery. He did not even submit his own
specimen signatures, taken on or about the date of the questioned checks, for examination
and comparison with those of the subject checks. On the other hand, the appellee presented
specimen signature cards of the appellant, taken at various years, namely, in 1976, 1979 and
1981 (Exhibits 1, 2, 3 and 7), showing variances in the appellants unquestioned signatures.
The evidence further shows that the appellee, as soon as it was informed by the appellant
about his questioned signatures, sought to borrow the questioned checks from the appellant
for purposes of analysis and examination (Exhibit 9), but the same was denied by the
appellant. It was also the former which sought the assistance of the NBI for an expert analysis
of the signatures on the questioned checks, but the same was unsuccessful for lack of
sufficient specimen signatures.[15]
Moreover, petitioners contention that Manila Bank was remiss in the exercise of its duty as
drawee lacks factual basis. Consistently, the CA and the RTC found that Manila Bank
employees exercised due diligence in cashing the checks. The banks employees in the
present case did not have a hint as to Eugenios modus operandi because she was a regular
customer of the bank, having been designated by petitioner himself to transact in his behalf.
According to the appellate court, the employees of the bank exercised due diligence in the
performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBCs employees exercised due diligence before
encashing the checks. Its verifiers first verified the drawers signatures thereon as against his
specimen signature cards, and when in doubt, the verifier went further, such as by referring
to a more experienced verifier for further verification. In some instances the verifier made a
confirmation by calling the depositor by phone. It is only after taking such precautionary
measures that the subject checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing to
detect any forgery -- if indeed there was. However, a mistake is not equivalent to negligence
if they were honest mistakes. In the instant case, we believe and so hold that if there were
mistakes, the same were not deliberate, since the bank took all the precautions.[16]
As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is
the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would do.[17] In the present case, it appears that
petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit
cards, passbooks, check books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts. Said the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for purposes of
reconciliation of his account, through a letter dated July 14, 1980 (Exhibit 8). Thus, the said
secretary became a familiar figure in the bank. What is worse, whenever the bank verifiers
call the office of the appellant, it is the same secretary who answers and confirms the checks.
The trouble is, the appellant had put so much trust and confidence in the said secretary, by
entrusting not only his credit cards with her but also his checkbook with blank checks. He
also entrusted to her the verification and reconciliation of his account. Further adding to his
injury was the fact that while the bank was sending him the monthly Statements of Accounts,
he was not personally checking the same. His testimony did not indicate that he was out of
the country during the period covered by the checks. Thus, he had all the opportunities to
verify his account as well as the cancelled checks issued thereunder -- month after month.
But he did not, until his partner asked him whether he had entrusted his credit card to his
secretary because the said partner had seen her use the same. It was only then that he was
minded to verify the records of his account. [18]
The abovecited findings are binding upon the reviewing court. We stress the rule that the
factual findings of a trial court, especially when affirmed by the appellate court, are binding
upon us[19] and entitled to utmost respect[20] and even finality. We find no palpable error
that would warrant a reversal of the appellate courts assessment of facts anchored upon the
evidence on record.
Petitioners failure to examine his bank statements appears as the proximate cause of his
own damage. 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.[21] In the instant case, the bank was not shown to be remiss
in its duty of sending monthly bank statements to petitioner so that any error or discrepancy
in the entries therein could be brought to the banks attention at the earliest opportunity.
But, petitioner failed to examine these bank statements not because he was prevented by
some cause in not doing so, but because he did not pay sufficient attention to the matter.
Had he done so, he could have been alerted to any anomaly committed against him. In other
words, petitioner had sufficient opportunity to prevent or detect any misappropriation by
his secretary had he only reviewed the status of his accounts based on the bank statements
sent to him regularly. In view of Article 2179 of the New Civil Code,[22] when the plaintiffs
own negligence was the immediate and proximate cause of his injury, no recovery could be
had for damages.
Petitioner further contends that under Section 23 of the Negotiable Instruments Law a
forged check is inoperative, and that Manila Bank had no authority to pay the forged checks.
True, it is a rule that when a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party,
can be acquired through or under such signature. However, the rule does provide for an
exception, namely: unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority. In the instant case, it is the
exception that applies. In our view, petitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals[23] and Philippine Bank of
Commerce vs. CA[24] to buttress his contention that respondent Manila Bank as the
collecting or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements is misplaced. In the cited cases, the fact of forgery
was not in issue. In the present case, the fact of forgery was not established with certainty.
In those cited cases, the collecting banks were held to be negligent for failing to observe
precautionary measures to detect the forgery. In the case before us, both courts below
uniformly found that Manila Banks personnel diligently performed their duties, having
compared the signature in the checks from the specimen signatures on record and satisfied
themselves that it was petitioners.
On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio
would not estop it from asserting the fact that forgery has not been clearly established.
Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to
the criminal action. In a criminal action, the State is the plaintiff, for the commission of a
felony is an offense against the State.[25] Thus, under Section 2, Rule 110 of the Rules of
Court the complaint or information filed in court is required to be brought in the name of
the People of the Philippines. [26]
Further, as petitioner himself stated in his petition, respondent bank filed the estafa case
against Eugenio on the basis of petitioners own affidavit,[27] but without admitting that he
had any personal knowledge of the alleged forgery. It is, therefore, easy to understand that
the filing of the estafa case by respondent bank was a last ditch effort to salvage its ties with
the petitioner as a valuable client, by bolstering the estafa case which he filed against his
secretary.
All told, we find no reversible error that can be ascribed to the Court of Appeals.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the
Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Metropolitan Waterworks vs. CA Ramos
G.R. NO. L-62943 July 14, 1986
Sec. 23
DECISION
GUTIERREZ, JR., J.:
This petition for review asks us to set aside the October 29, 1982 decision of the respondent
Court of Appeals, now Intermediate Appellate Court which reversed the decision of the Court
of First Instance of Manila, Branch XL, and dismissed the plaintiff’s complaint, the third party
complaint, as well as the defendant’s counterclaim.
The background facts which led to the filing of the instant petition are summarized in the
decision of the respondent Court of Appeals:
Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a
government owned and controlled corporation created under Republic Act No. 6234 as the
successor-in- interest of the defunct NWSA. The Philippine National Bank (PNB for short), on 16. 59581 4-8-69 Manila Chronicle 110.00 5-12-69
the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA.
Among the several accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as 17. 59588 4-8-69 Treago Tunnel 21,583.00 4-11-69
Account No. 381-777 and which is presently allocated No. 010-500281. The authorized
signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor 18. 59587 4-8-69 Delfin Santiago 120,000.00 4-11-69
Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen
signatures were submitted by the MWSS to and on file with the PNB. By special arrangement 19. 59589 4-10-69 Deogracias Estrella 1,257.49 4-16-69
with the PNB, the MWSS used personalized checks in drawing from this account. These
checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal 20. 59594 4-14-69 Philam Accident Inc. 33.03 4-29-69
Extension, Caloocan City.
21. 59577 4-8-69 Esla 9,429.78 4-29-69
During the months of March, April and May 1969, twenty-three (23) checks were prepared,
processed, issued and released by NWSA, all of which were paid and cleared by PNB and 22. 59601 4-16-69 Justino Torres 20,000.00 4-18-69
debited by PNB against NWSA Account No. 6, to wit:
23. 59595 4-14-69 Neris Phil. Inc. 4,274.00 5-20-69
“Check No. Date Payee Amount Date Paid
————————–
By PNB
P320,636.26″
1. 59546 8-21-69 Deogracias Estrella P3,187.79 4-2-69
During the same months of March, April and May 1969, twenty-three (23) checks bearing
2. 59548 3-31-69 Natividad Rosario 2,848.86 4-23-69 the same numbers as the aforementioned NWSA checks were likewise paid and cleared by
PNB and debited against NWSA Account No. 6, to wit:
3. 59547 3-31-69 Pangilinan Enterprises 195.00 Unreleased
“Check Date Payee Amount Date Paid
4. 59549 3-31-69 Natividad Rosario 3,239.88 4-23-69
No. Issued—-By PNB
5. 59552 4-1-69 Villarama & Sons 987.59 5-6-69
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
6. 59554 4-1-69 Gascom Engineering 6,057.60 4-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
7. 59558 4-2-69 The Evening News 112.00 Unreleased
3. 59547 3-14-69 Arturo Sison 56,903.00 4-1169
8. 59544 3-27-69 Progressive Const. 18,391.20 4-18-69
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
9. 59564 4-2-69 Ind. Insp. Int. Inc. 594.56 4-18-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
10. 59568 4-7-69 Roberto Marsan 800.00 4-22-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
11. 59570 4-7-69 Paz Andres 200.00 4-22-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
12. 59574 4-8-69 Florentino Santos 100,000.00 4-11-69
8. 59544 3-16-69 Antonio Mendoza 38,490.00 4-22-69
13. 59578 4-8-69 Mla. Daily Bulletin 95.00 Unreleased
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
10. 59568 4-2-69 Arturo Sison 134,940.00 4-25-69
15. 59582 4-8-69 Galauran & Pilar 7,729.09 5-6-69
11. 59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12. 59574 4-2-69 Arturo Sison 148,610.00
13. 59578 4-10-69 Antonio Mendoza 93,950.00
14. 59580 4-8-69 Arturo Sison 160,000.00
4-29-69 In its answer, PNB contended among others, that the checks in question were regular on its
face in all respects, including the genuineness of the signatures of authorized NWSA signing
4-29-69 officers and there was nothing on its face that could have aroused any suspicion as to its
genuineness and due execution and; that NWSA was guilty of negligence which was the
5-2-69 proximate cause of the loss.

15. 59582 4-10-69 Arturo Sison 155,400.00 5-5-69 PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the
ground that they failed to ascertain the Identity of the payees and their title to the checks
16. 59581 4-8-69 Antonio Mendoza176,580.00 5-6-69 which were deposited in the respective new accounts of the payees with them.

17. 59588 4-16-69 Arturo Sison 176,000.00 5-8-69 xxx xxx xxx

18. 59587 4-16-69 Arturo Sison 300,000.00
19. 59589 4-18-69 Arturo Sison 122,000.00
20. 59594 4-18-69 Arturo Sison 280,000.00
21. 59577 4-14-69 Antonio Mendoza260,000.00
22. 59601 4-18-69 Arturo Sison 400,000.00
23. 59595 4-28-69 Arturo Sison 190,800.00
5-12-69 On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the
MWSS. The dispositive portion of the decision reads:
5-14-69
WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance
5-15-69 with Section 23 of the Negotiable Instruments Law, the Court hereby renders judgment in
favor of the plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering
5-16-69 the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION
FOUR HUNDRED FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to
5-19-69 plaintiff’s Account No. 6, otherwise known as Account No. 010-50030-3, with legal interest
thereon computed from the date of the filing of the complaint and until as restored in the
5-21-69 said Account No. 6.

———————- On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment
in favor of the third party defendants Philippine Bank of Commerce (PBC) and Philippine
P3,457,903.00” Commercial and Industrial Bank (PCIB) by dismissing the Third Party Complaint.

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio
Mendoza in their respective current accounts with the Philippine Commercial and Industrial
Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March, April and May
1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and
PCIB to the defendant PNB, and paid, also in the months of March, April and May 1969. At
the time of their presentation to PNB these checks bear the standard indorsement which
reads ‘all prior indorsement and/or lack of endorsement guaranteed.’
Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo
Sison and Antonio Mendoza were all fictitious persons. The respective balances in their
current account with the PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April
30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison Pl,398.92 as of
June 30, 1969.
On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to
its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of
these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks. “In
view of the refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00
MWSS filed the instant complaint on November 10, 1972 before the Court of First Instance
of Manila and docketed thereat as Civil Case No. 88950.
The counterclaims of the third party defendants are likewise dismissed for lack of evidence.
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the Court of First Instance of
Manila and rendered judgment in favor of the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the respondent
court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this petition:
I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE DRAWEE
BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS
LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE
SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING
IDENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY
FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED
DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which provides:
Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a party
thereto for value.
The petitioner submits that the above provision does not apply to the facts of the instant
case because the questioned checks were not those of the MWSS and neither were they
drawn by its authorized signatories. The petitioner states that granting that Section 24 of the
Negotiable Instruments Law is applicable, the same creates only a prima facie presumption
which was overcome by the following documents, to wit: (1) the NBI Report of November 2,
1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891;
(4) the Memorandum of Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank
addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent bank’s
counsel in open court that the National Bureau of Investigation found the signature on the
twenty-three (23) checks in question to be forgeries; and (6) the admission of the respondent
bank’s witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed by his
printing press. The petitioner contends that since the signatures of the checks were forgeries,
the respondent drawee bank must bear the loss under the rulings of this Court.
A bank is bound to know the signatures of its customers; and if it pays a forged check it must
be considered as making the payment out of its obligation funds, and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was forged.
xxx xxx xxx
The signatures to the checks being forged, under Section 23 of the Negotiable Instruments
Law they are not a charge against plaintiff nor are the checks of any value to the defendant.
It must therefore be held that the proximate cause of loss was due to the negligence of the
Bank of the Philippine Islands in honoring and cashing the two forged checks. (San Carlos
Milling Co. v. Bank of the P. I., 59 Phil. 59)
It is admitted that the Philippine National Bank cashed the check upon a forged signature,
and placed the money to the credit of Maasim, who was the forger. That the Philippine
National Bank then endorsed the chock and forwarded it to the Shanghai Bank by whom it
was paid. The Philippine National Bank had no license or authority to pay the money to
Maasim or anyone else upon a forged signature. It was its legal duty to know that Malicor’s
endorsement was genuine before cashing the check. Its remedy is against Maasim to whom
it paid the money. (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678).
We have carefully reviewed the documents cited by the petitioner. There is no express and
categorical finding in these documents that the twenty-three (23) questioned checks were
indeed signed by persons other than the authorized MWSS signatories. On the contrary, the
findings of the National Bureau of Investigation in its Report dated November 2, 1970 show
that the MWSS fraud was an “inside job” and that the petitioner’s delay in the reconciliation
of bank statements and the laxity and loose records control in the printing of its personalized
checks facilitated the fraud. Likewise, the questioned Documents Report No. 159-1074 dated
November 21, 1974 of the National Bureau of Investigation does not declare or prove that
the signatures appearing on the questioned checks are forgeries. The report merely
mentions the alleged differences in the type face, checkwriting, and printing characteristics
appearing in the standard or submitted models and the questioned typewritings. The NBI
Chemistry Report No. C-74-891 merely describes the inks and pens used in writing the
alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to
sustain its allegations of forgery. These reports did not touch on the inherent qualities of the
signatures which are indispensable in the determination of the existence of forgery. There
must be conclusive findings that there is a variance in the inherent characteristics of the
signatures and that they were written by two or more different persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA
238). It must be established by clear, positive, and convincing evidence. This was not done
in the present case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59)
and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by
the petitioner are inapplicable in this case because the forgeries in those cases were either
clearly established or admitted while in the instant case, the allegations of forgery were not
clearly established during trial.
Considering the absence of sufficient security in the printing of the checks coupled with the
very close similarities between the genuine signatures and the alleged forgeries, the twenty-
three (23) checks in question could have been presented to the petitioner’s signatories
without their knowing that they were bogus checks. Indeed, the cashier of the petitioner
whose signatures were allegedly forged was unable to ten the difference between the
allegedly forged signature and his own genuine signature. On the other hand, the MWSS
officials admitted that these checks could easily be passed on as genuine.
The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee
Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner dated
June 9, 1969 cites an instance where even the concerned NWSA officials could not ten the
differences between the genuine checks and the alleged forged checks.
At about 12:00 o’clock on June 6, 1969, VP Maramag requested me to see him in his office
at the Cashier’s Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo
Oliva of the same office were present. Upon my arrival I observed the NAWASA officials
questioning the issue of the NAWASA checks appearing in their own list, xerox copy attached.
For verification purposes, therefore, the checks were taken from our file. To everybody there
present namely VIP Maramag, the two abovementioned NAWASA officials, AVP, Buhain,
Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L. Lechuga, both C/A
bookkeepers, no one was able to point out any difference on the signatures of the NAWASA
officials appearing on the checks compared to their official signatures on file. In fact 3 checks,
one of those under question, were presented to the NAWASA treasurer for verification but
he could not point out which was his genuine signature. After intent comparison, he pointed
on the questioned check as bearing his correct signature.
xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23
of the Negotiable Instruments Law which provides that:
“SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.”
because it was guilty of negligence not only before the questioned checks were negotiated
but even after the same had already been negotiated. (See Republic v. Equitable Banking
Corporation, 10 SCRA 8)
The records show that at the time the twenty-three (23) checks were prepared, negotiated,
and encashed, the petitioner was using its own personalized checks, instead of the official
PNB Commercial blank checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. That there was gross negligence
in the printing of its personalized checks is shown by the following uncontroverted facts, to
wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative
to the safekeeping and disposition of excess forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing of
said checks;
(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting,
cheek writing, and print used by its printer in the printing of its checks and of the inks and
pens used in signing the same; and
(5) The petitioner failed to send a representative to the printing office during the printing of
said checks.
This gross negligence of the petitioner is very evident from the sworn statement dated June
19, 1969 of Faustino Mesina, Jr., the owner of the printing press which printed the
petitioner’s personalized checks:
xxx xxx xxx
7. Q: Do you have any business transaction with the National Waterworks and Sewerage
Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA
Check
xxx xxx xxx
15. Q: Were you given any instruction by the NAWASA in connection with the printing of
these check vouchers?
A: There is none, sir. No instruction whatsoever was given to me.
16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?
A: Only as per sample, sir.
xxx xxx xxx
20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In
front of the Metropolitan Bank).
xxx xxx xxx
24. Q: Were all these check vouchers printed by you submitted to NAWASA?
A: Not all, sir. Because we have to make reservations or allowances for spoilage.
25. Q: Out of these vouchers printed by you, how many were spoiled and how many were
the excess printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the
excess and spoiled because the final act of perforating these check vouchers has not yet been
done and spoilage can only be determined after this final act of printing.
26. Q: What did you do with these excess check vouchers?
A: I keep it under lock and key in my firing cabinet.
xxx xxx xxx
28. Q: Were you not instructed by the NAWASA authorities to bum these excess check
vouchers?
A: No, sir. I was not instructed.
30. Q: What do you intend to do with these excess printed check vouchers?

A: I intend to use them for future orders from the
xxx xxx xxx
32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many
sheets were actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.
33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in the garbage can.
34. Q: Was there any representative of the NAWASA to supervise the printing or watch the
printing of these check vouchers?
A: None, sir.
xxx xxx xxx
39. Q: During the period of printing after the days work, what measures do you undertake
to safeguard the mold and other paraphernalia used in the printing of these particular orders
of NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do
the guarding, we just leave the mold attached to the machine and the other finished or
unfinished work check vouchers are left in the rack so that the work could be continued the
following day.
The National Bureau of Investigation Report dated November 2, 1970 is even more explicit.
Thus—
xxx xxx xxx
60. We observed also that there is some laxity and loose control in the printing of NAWASA
cheeks. We gathered from MESINA ENTERPRISES, the printing firm that undertook the
printing of the check vouchers of NAWASA that NAWASA had no representative at the
printing press during the process of the printing and no particular security measure
instructions adopted to safeguard the interest of the government in connection with printing
of this accountable form.
Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks
in question was the failure of the petitioner to reconcile the bank statements with its own
records.
It is accepted banking procedure for the depository bank to furnish its depositors bank
statements and debt and credit memos through the mail. The records show that the
petitioner requested the respondent drawee bank to discontinue the practice of mailing the
bank statements, but instead to deliver the same to a certain Mr. Emiliano Zaporteza. For
reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking
prompt deliveries of the said bank statements and credit and debit memos. As a
consequence, Mr. Zaporteza failed to reconcile the bank statements with the petitioner’s
records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and
reconciling them with the petitioner’s records, the fraudulent encashments of the first
checks should have been discovered, and further frauds prevented. This negligence was,
therefore, the proximate cause of the failure to discover the fraud. Thus,
When a person opens a checking account with a bank, he is given blank checks which he may
fill out and use whenever he wishes. Each time he issues a check, he should also fill out the
check stub to which the check is usually attached. This stub, if properly kept, will contain the
number of the check, the date of its issue, the name of the payee and the amount thereof.
The drawer would therefore have a complete record of the checks he issues. It is the custom
of banks to send to its depositors a monthly statement of the status of their accounts,
together with all the cancelled checks which have been cashed by their respective holders.
If the depositor has filled out his check stubs properly, a comparison between them and the
cancelled checks will reveal any forged check not taken from his checkbook. It is the duty of
a depositor to carefully examine the bank’s statement, his cancelled checks, his check stubs
and other pertinent records within a reasonable time, and to report any errors without
unreasonable delay. If his negligence should cause the bank to honor a forged check or
prevent it from recovering the amount it may have already paid on such check, he cannot
later complain should the bank refuse to recredit his account with the amount of such check.
(First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744
[1907]. See also Leather Manufacturers’ Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer
Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]).
Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp.
267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled checks was
noted by the National Bureau of Investigation in its report dated November 2, 1970:
58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB)
statements with the NAWASA bank accounts. x x x. Had the NAWASA representative come
to the PNB early for the statements and had the bank been advised promptly of the reported
bogus check, the negotiation of practically all of the remaining checks on May, 1969, totaling
P2,224,736.00 could have been prevented.
The records likewise show that the petitioner failed to provide appropriate security
measures over its own records thereby laying confidential records open to unauthorized
persons. The petitioner’s own Fact Finding Committee, in its report submitted to their
General manager underscored this laxity of records control. It observed that the “office of
Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to
any person known to him or his staff members and that the check writer is merely on top of
his table.”
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of
Investigation. Mr. Ongtengco could only state that:
A. Generally my order is not to allow anybody to enter my office. Only authorized persons
are allowed to enter my office. There are some cases, however, where some persons enter
my office because they are following up their checks. Maybe, these persons may have been
authorized by Mr. Pantig. Most of the people entering my office are changing checks as
allowed by the Resolution of the Board of Directors of the NAWASA and the Treasurer. The
check writer was never placed on my table. There is a place for the check write which is also
under lock and key.
Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?
A. No, sir.
Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?
A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are
employees of the NAWASA.
Q. Was the authority given by the Board of Directors and the approval by the Treasurer for
employees, and other persons to encash their checks carry with it their authority to enter
your office?
A. No, sir.
xxx xxx xxx
Q. From the answers that you have given to us we observed that actually there is laxity and
poor control on your part with regards to the preparations of check payments inasmuch as
you allow unauthorized persons to follow up their vouchers inside your office which may
leak out confidential informations or your books of account. After being apprised of all the
shortcomings in your office, as head of the Cashiers’ Office of the Treasury Department what
remedial measures do you intend to undertake?
A. Time and again the Treasurer has been calling our attention not to allow interested
persons to hand carry their voucher checks and we are trying our best and if I can do it to
follow the instructions to the letter, I will do it but unfortunately the persons who are allowed
to enter my office are my co-employees and persons who have connections with our higher
ups and I cannot possibly antagonize them. Rest assured that even though that everybody
will get hurt, I win do my best not to allow unauthorized persons to enter my office.
xxx xxx xxx
Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in
your books that leakage of payments to the banks came from your office?
A. I am not aware of it but it only takes us a couple of minutes to process the checks. And
there are cases wherein every information about the checks may be obtained from the
Accounting Department, Auditing Department, or the Office of the General Manager.
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation
concluded in its Report dated November 2, 1970 that the fraudulent encashment of the
twenty-three (23) checks in question was an “inside job”. Thus-
We have all the reasons to believe that this fraudulent act was an inside job or one pulled
with inside connivance at NAWASA. As pointed earlier in this report, the serial numbers of
these checks in question conform with the numbers in current use of NAWASA, aside from
the fact that these fraudulent checks were found to be of the same kind and design as that
of NAWASA’s own checks. While knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider without information from the
inside cannot possibly pinpoint which of NAWASA’s various accounts has sufficient balance
to cover all these fraudulent checks. None of these checks, it should be noted, was
dishonored for insufficiency of funds. . .
Even if the twenty-three (23) checks in question are considered forgeries, considering the
petitioner’s gross negligence, it is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine
National Bank that was the proximate cause of the loss. The petitioner relies on our ruling in
Philippine National Bank v. Court of Appeals (25 SCRA 693) that:
Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found
nothing wrong with the check and would honor the same, and by actually paying its amount
to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and
good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB
was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.
The argument has no merit. The records show that the respondent drawee bank, had taken
the necessary measures in the detection of forged checks and the prevention of their
fraudulent encashment. In fact, long before the encashment of the twenty-three (23) checks
in question, the respondent Bank had issued constant reminders to all Current Account
Bookkeepers informing them of the activities of forgery syndicates. The Memorandum of the
Assistant Vice-President and Chief Accountant of the Philippine National Bank dated
February 17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
From reliable information we have gathered that personalized checks of current account
depositors are now the target of the forgery syndicate. To protect the interest of the bank,
you are hereby enjoined to be more careful in examining said checks especially those coming
from the clearing, mails and window transactions. As a reminder please be guided with the
following:
1. Signatures of drawers should be properly scrutinized and compared with those we have
on file.
2. The serial numbers of the checks should be compared with the serial numbers registered
with the Cashier’s Dept.
3. The texture of the paper used and the printing of the checks should be compared with the
sample we have on file with the Cashier’s Dept.
4. Checks bearing several indorsements should be given a special attention.
5. Alteration in amount both in figures and words should be carefully examined even if signed
by the drawer.
6. Checks issued in substantial amounts particularly by depositors who do not usually issue
checks in big amounts should be brought to the attention of the drawer by telephone or any
fastest means of communication for purposes of confirmation.
And your attention is also invited to keep abreast of previous circulars and memo
instructions issued to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner’s personalized checks was
not done under the supervision and control of the Bank. There is no evidence on record
indicating that because of this private printing the petitioner furnished the respondent Bank
with samples of checks, pens, and inks or took other precautionary measures with the PNB
to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and
prevent the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The
decision of the respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Samsung vs. FEBTC Rivera
G.R. NO. 129015 Aug. 13, 2004
Sec. 23
DECISION
TINGA, J.:
Called to fore in the present petition is a classic textbook question if a bank pays out on a
forged check, is it liable to reimburse the drawer from whose account the funds were paid
out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked
tenuous reasoning to acquit the bank of liability. We reverse, applying time-honored
principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction), while
based in Bian, Laguna, maintained a current account with defendant Far East Bank and Trust
Company[1] (FEBTC) at the latters Bel-Air, Makati branch.[2] The sole signatory to Samsung
Constructions account was Jong Kyu Lee (Jong), its Project Manager,[3] while the checks
remained in the custody of the companys accountant, Kyu Yong Lee (Kyu).[4]
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No.
432100 to the banks branch in Bel-Air, Makati. The check, payable to cash and drawn against
Samsung Constructions current account, was in the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked
the balance of Samsung Constructions account. After ascertaining there were enough funds
to cover the check,[5] she compared the signature appearing on the check with the specimen
signature of Jong as contained in the specimen signature card with the bank. After comparing
the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on
the check. She then asked Gonzaga to submit proof of his identity, and the latter presented
three (3) identification cards.[6]
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez, as it was bank policy that two bank branch officers approve checks exceeding
One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked
the signature on the check as against that on the signature card. He too concluded that the
check was indeed signed by Jong. Velez then forwarded the check and signature card to
Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III
(Sempio), the assistant accountant of Samsung Construction, was also in the bank. Sempio
was well-known to Syfu and the other bank officers, he being the assistant accountant of
Samsung Construction. Syfu showed the check to Sempio, who vouched for the genuineness
of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for
the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the
signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the balance of
the bank account and discovered that a check in the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had not
prepared such a check for Jongs signature, Kyu perused the checkbook and found that the
last blank check was missing.[7] He reported the matter to Jong, who then proceeded to the
bank. Jong learned of the encashment of the check, and realized that his signature had been
forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount
of the check.[8] Jong proceeded to the police station and consulted with his lawyers.[9]
Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna
court.[10]
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC
credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00), with interest.[11] In response, FEBTC said that it was still conducting an
investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June
1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the
payment of the amount debited as a result of the questioned check plus interest, and
attorneys fees.[12] The case was docketed as Civil Case No. 92-61506 before the Regional
Trial Court (RTC) of Manila, Branch 9.[13]
During the trial, both sides presented their respective expert witnesses to testify on the claim
that Jongs signature was forged. Samsung Corporation, which had referred the check for
investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She
testified that based on her examination, she concluded that Jongs signature had been forged
on the check. On the other hand, FEBTC, which had sought the assistance of the Philippine
National Police (PNP),[14] presented Rosario C. Perez, a document examiner from the PNP
Crime Laboratory. She testified that her findings showed that Jongs signature on the check
was genuine.[15]
Confronted with conflicting expert testimony, the RTC chose to believe the findings of the
NBI expert. In a Decision dated 25 April 1994, the RTC held that Jongs signature on the check
was forged and accordingly directed the bank to pay or credit back to Samsung Constructions
account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00), together with interest tolled from the time the complaint was filed, and
attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special
Fourteenth Division of the Court of Appeals rendered a Decision,[16] reversing the RTC
Decision and absolving FEBTC from any liability. The Court of Appeals held that the
contradictory findings of the NBI and the PNP created doubt as to whether there was
forgery.[17] Moreover, the appellate court also held that assuming there was forgery, it
occurred due to the negligence of Samsung Construction, imputing blame on the accountant
Kyu for lack of care and prudence in keeping the checks, which if observed would have
prevented Sempio from gaining access thereto.[18] The Court of Appeals invoked the ruling
in PNB v. National City Bank of New York[19] that, if a loss, which must be borne by one or
two innocent persons, can be traced to the neglect or fault of either, such loss would be
borne by the negligent party, even if innocent of intentional fraud.[20]
Samsung Construction now argues that the Court of Appeals had seriously misapprehended
the facts when it overturned the RTCs finding of forgery. It also contends that the appellate
court erred in finding that it had been negligent in safekeeping the check, and in applying
the equity principle enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on questions of
fact, the Court is obliged to examine the record to draw out the correct conclusions. Upon
examination of the record, and based on the applicable laws and jurisprudence, we reverse
the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority. (Emphasis supplied)
The general rule is to the effect that a forged signature is wholly inoperative, and payment
made through or under such signature is ineffectual or does not discharge the
instrument.[21] If payment is made, the drawee cannot charge it to the drawers account.
The traditional justification for the result is that the drawee is in a superior position to detect
a forgery because he has the makers signature and is expected to know and compare it.[22]
The rule has a healthy cautionary effect on banks by encouraging care in the comparison of
the signatures against those on the signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute the cost among its customers who use
checks makes the drawee an ideal party to spread the risk to insurance.[23]
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the
privilege of drawing checks in the ordinary course of business, the relationship between the
bank and the depositor is that of debtor and creditor. So far as the legal relationship between
the two is concerned, the situation is the same as though the bank had borrowed money
from the depositor, agreeing to repay it on demand, or had bought goods from the depositor,
agreeing to pay for them on demand. The bank owes the depositor money in the same sense
that any debtor owes money to his creditor. Added to this, in the case of bank and depositor,
there is, of course, the banks obligation to pay checks drawn by the depositor in proper form
and presented in due course. When the bank receives the deposit, it impliedly agrees to pay
only upon the depositors order. When the bank pays a check, on which the depositors
signature is a forgery, it has failed to comply with its contract in this respect. Therefore, the
bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so closely
resemble the genuine as to defy detection by the depositor himself. And yet, if a bank pays
the check, it is paying out its own money and not the depositors.
The forgery may be committed by a trusted employee or confidential agent. The bank still
must bear the loss. Even in a case where the forged check was drawn by the depositors
partner, the loss was placed upon the bank. The case referred to is Robinson v. Security Bank,
Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank
for money which had been deposited to the plaintiffs credit and which the bank had paid out
on checks bearing forgeries of the plaintiffs signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff waited
eight or nine months after discovering the forgery, before notifying the bank, did not, as a
matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from
holding the bank liable. xxx
This rule of liability can be stated briefly in these words: A bank is bound to know its
depositors signature. The rule is variously expressed in the many decisions in which the
question has been considered. But they all sum up to the proposition that a bank must know
the signatures of those whose general deposits it carries.[24]
By no means is the principle rendered obsolete with the advent of modern commercial
transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in his
book Negotiable Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customers account by specifying whose signature is necessary on checks that are
chargeable against the customers account. Therefore, a check drawn against the account of
an individual customer that is signed by someone other than the customer, and without
authority from her, is not properly payable and is not chargeable to the customers account,
inasmuch as any unauthorized signature on an instrument is ineffective as the signature of
the person whose name is signed.[25]
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by
the party whose signature is forged.[26] On the premise that Jongs signature was indeed
forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such
liability attaches even if the bank exerts due diligence and care in preventing such faulty
discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank
has been so deceived, it is a harsh rule which compels it to suffer although no one has
suffered by its being deceived.[27] The forgery may be so near like the genuine as to defy
detection by the depositor himself, and yet the bank is liable to the depositor if it pays the
check.[28]
Thus, the first matter of inquiry is into whether the check was indeed forged. A document
formally presented is presumed to be genuine until it is proved to be fraudulent. In a forgery
trial, this presumption must be overcome but this can only be done by convincing testimony
and effective illustrations.[29]
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view
of the conflicting conclusions made by handwriting experts from the NBI and the PNP, both
agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In the
case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held that
forgery cannot be presumed; it must be proved by clear, positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an
opponents expert witness to stand uncontradicted, thus the spectacle of competing expert
witnesses is not unusual. The trier of fact will have to decide which version to believe, and
explain why or why not such version is more credible than the other. Reliance therefore
cannot be placed merely on the fact that there are colliding opinions of two experts, both
clothed with the presumption of official duty, in order to draw a conclusion, especially one
which is extremely crucial. Doing so is tantamount to a jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial
hierarchy. This Court has long deferred to the appellate court as to its findings of fact in the
understanding that it has the appropriate skill and competence to plough through the
minutiae that scatters the factual field. In failing to thoroughly evaluate the evidence before
it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was sadly
remiss. Of course, courts, like humans, are fallible, and not every error deserves a stern
rebuke. Yet, the appellate courts error in this case warrants special attention, as it is absurd
and even dangerous as a precedent. If this rationale were adopted as a governing standard
by every court in the land, barely any actionable claim would prosper, defeated as it would
be by the mere invocation of the existence of a contrary expert opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible
than that of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the
conclusion that the testimony of the NBI document examiner is more credible because the
testimony of the PNP Crime Laboratory Services document examiner reveals that there are
a lot of differences in the questioned signature as compared to the standard specimen
signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the manner of
execution of the standard signatures used reveals that it is a free rapid continuous execution
or stroke as shown by the tampering terminal stroke of the signatures whereas the
questioned signature is a hesitating slow drawn execution stroke. Clearly, the person who
executed the questioned signature was hesitant when the signature was made.[30]
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that apparently,
there [are] differences on that questioned signature and the standard signatures.[31] This
Court, in examining the signatures, makes a similar finding. The PNP expert excused the
noted differences by asserting that they were mere variations, which are normal deviations
found in writing.[32] Yet the RTC, which had the opportunity to examine the relevant
documents and to personally observe the expert witness, clearly disbelieved the PNP expert.
The Court similarly finds the testimony of the PNP expert as unconvincing. During the trial,
she was confronted several times with apparent differences between strokes in the
questioned signature and the genuine samples. Each time, she would just blandly assert that
these differences were just variations,[33] as if the mere conjuration of the word would
sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing alone,
would be of little or no value unless supported by sufficiently cogent reasons which might
amount almost to a demonstration.[34]
The most telling difference between the questioned and genuine signatures examined by
the PNP is in the final upward stroke in the signature, or the point to the short stroke of the
terminal in the capital letter L, as referred to by the PNP examiner who had marked it in her
comparison chart as point no. 6. To the plain eye, such upward final stroke consists of a
vertical line which forms a ninety degree (90) angle with the previous stroke. Of the twenty
one (21) other genuine samples examined by the PNP, at least nine (9) ended with an upward
stroke.[35] However, unlike the questioned signature, the upward strokes of eight (8) of
these signatures are looped, while the upward stroke of the seventh[36] forms a severe
forty-five degree (45) with the previous stroke. The difference is glaring, and indeed, the PNP
examiner was confronted with the inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the s stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or
the last stroke s is pointing directly upwards?
A: There is none in the standard signature, sir.[37]
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned
signature as a mere variation,[38] the same excuse she proffered for the other marked
differences noted by the Court and the counsel for petitioner.[39]
There is no reason to doubt why the RTC gave credence to the testimony of the NBI
examiner, and not the PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as an
expert witness. A document examiner for fifteen years, she had been promoted to the rank
of Senior Document Examiner with the NBI, and had held that rank for twelve years prior to
her testimony. She had placed among the top five examinees in the Competitive Seminar in
Question Document Examination, conducted by the NBI Academy, which qualified her as a
document examiner.[40] She had trained with the Royal Hongkong Police Laboratory and is
a member of the International Association for Identification.[41] As of the time she testified,
she had examined more than fifty to fifty-five thousand questioned documents, on an
average of fifteen to twenty documents a day.[42] In comparison, PNP document examiner
Perez admitted to having examined only around five hundred documents as of her
testimony.[43]
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative
examination method consisting of analysis, recognition, comparison and evaluation of the
writing habits with the use of instruments such as a magnifying lense, a stereoscopic
microscope, and varied lighting substances. She also prepared enlarged photographs of the
signatures in order to facilitate the necessary comparisons.[44] She compared the
questioned signature as against ten (10) other sample signatures of Jong. Five of these
signatures were executed on checks previously issued by Jong, while the other five contained
in business letters Jong had signed.[45] The NBI found that there were significant differences
in the handwriting characteristics existing between the questioned and the sample
signatures, as to manner of execution, link/connecting strokes, proportion characteristics,
and other identifying details.[46]
The RTC was sufficiently convinced by the NBI examiners testimony, and explained her
reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings of the
PNP, it failed to convincingly demonstrate why such findings were more credible than those
of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not the NBI,
had the opportunity to examine the specimen signature card signed by Jong, which was
relied upon by the employees of FEBTC in authenticating Jongs signature. The distinction is
irrelevant in establishing forgery. Forgery can be established comparing the contested
signatures as against those of any sample signature duly established as that of the persons
whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned
signature against the bank signature cards. The crucial fact in question is whether or not the
check was forged, not whether the bank could have detected the forgery. The latter issue
becomes relevant only if there is need to weigh the comparative negligence between the
bank and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the
signature on the check was not his.[47] The assertion may seem self-serving at first blush,
yet it cannot be ignored that Jong was in the best position to know whether or not the
signature on the check was his. While his claim should not be taken at face value, any
averments he would have on the matter, if adjudged as truthful, deserve primacy in
consideration. Jongs testimony is supported by the findings of the NBI examiner. They are
also backed by factual circumstances that support the conclusion that the assailed check was
indeed forged. Judicial notice can be taken that is highly unusual in practice for a business
establishment to draw a check for close to a million pesos and make it payable to cash or
bearer, and not to order. Jong immediately reported the forgery upon its discovery. He filed
the appropriate criminal charges against Sempio, the putative forger.[48]
Now for determination is whether Samsung Construction was precluded from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law. The Court of Appeals
concluded that Samsung Construction was negligent, and invoked the doctrines that where
a loss must be borne by one of two innocent person, can be traced to the neglect or fault of
either, it is reasonable that it would be borne by him, even if innocent of any intentional
fraud, through whose means it has succeeded[49] or who put into the power of the third
person to perpetuate the wrong.[50] Applying these rules, the Court of Appeals determined
that it was the negligence of Samsung Construction that allowed the encashment of the
forged check.
In the case at bar, the forgery appears to have been made possible through the acts of one
Jose Sempio III, an assistant accountant employed by the plaintiff Samsung [Construction]
Co. Philippines, Inc. who supposedly stole the blank check and who presumably is
responsible for its encashment through a forged signature of Jong Kyu Lee. Sempio was
assistant to the Korean accountant who was in possession of the blank checks and who
through negligence, enabled Sempio to have access to the same. Had the Korean accountant
been more careful and prudent in keeping the blank checks Sempio would not have had the
chance to steal a page thereof and to effect the forgery. Besides, Sempio was an employee
who appears to have had dealings with the defendant Bank in behalf of the plaintiff
corporation and on the date the check was encashed, he was there to certify that it was a
genuine check issued to purchase equipment for the company.[51]
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting
up the defense of forgery if it is guilty of negligence.[52] Yet, we are unable to conclude that
Samsung Construction was guilty of negligence in this case. The appellate court failed to
explain precisely how the Korean accountant was negligent or how more care and prudence
on his part would have prevented the forgery. We cannot sustain this tar and feathering
resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose signature
was forged cannot necessarily imply that such partys negligence was the cause for the
forgery. Employers do not possess the preternatural gift of cognition as to the evil that may
lurk within the hearts and minds of their employees. The Courts pronouncement in PCI Bank
v. Court of Appeals[53] applies in this case, to wit:

[T]he mere fact that the forgery was committed by a drawer-payors confidential employee
or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the drawer.[54]
Admittedly, the record does not clearly establish what measures Samsung Construction
employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the
checks inside a safety box,[55] and no contrary version was presented by FEBTC. However,
such testimony cannot prove that the checks were indeed kept in a safety box, as Jongs
testimony on that point is hearsay, since Kyu, and not Jong, would have the personal
knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Constructions part. The presumption remains that every person
takes ordinary care of his concerns,[56] and that the ordinary course of business has been
followed.[57] Negligence is not presumed, but must be proven by him who alleges it.[58]
While the complaint was lodged at the instance of Samsung Construction, the matter it had
to prove was the claim it had alleged - whether the check was forged. It cannot be required
as well to prove that it was not negligent, because the legal presumption remains that
ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung
Construction was negligent. While the payee, as in this case, may not have the personal
knowledge as to the standard procedures observed by the drawer, it well has the means of
disputing the presumption of regularity. Proving a negative fact may be a difficult office,[59]
but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to
dispute the presumption of ordinary care exercised by Samsung Construction, hence we
cannot agree with the Court of Appeals finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that
there was no negligence on the part of the bank in its acceptance and payment of the forged
check. However, the degree of diligence exercised by the bank would be irrelevant if the
drawer is not precluded from setting up the defense of forgery under Section 23 by his own
negligence. The rule of equity enunciated in PNB v. National City Bank of New York, [60] as
relied upon by the Court of Appeals, deserves careful examination.
The point in issue has sometimes been said to be that of negligence. The drawee who has
paid upon the forged signature is held to bear the loss, because he has been negligent in
failing to recognize that the handwriting is not that of his customer. But it follows obviously
that if the payee, holder, or presenter of the forged paper has himself been in default, if he
has himself been guilty of a negligence prior to that of the banker, or if by any act of his own
he has at all contributed to induce the banker's negligence, then he may lose his right to cast
the loss upon the banker.[61] (Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged
signature bears the loss. The exception to this rule arises only when negligence can be traced
on the part of the drawer whose signature was forged, and the need arises to weigh the
comparative negligence between the drawer and the drawee to determine who should bear
the burden of loss. The Court finds no basis to conclude that Samsung Construction was
negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that
the depositor leaves his check book lying around does not constitute such negligence as will
free the bank from liability to him, where a clerk of the depositor or other persons, taking
advantage of the opportunity, abstract some of the check blanks, forges the depositors
signature and collect on the checks from the bank.[62] And for another, in point of fact
Samsung Construction was not negligent at all since it reported the forgery almost
immediately upon discovery.[63]
It is also worth noting that the forged signatures in PNB v. National City Bank of New York
were not of the drawer, but of indorsers. The same circumstance attends PNB v. Court of
Appeals,[64] which was also cited by the Court of Appeals. It is accepted that a forged
signature of the drawer differs in treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawers signature
by comparison with one in his hands, but has ordinarily no opportunity to verify an
indorsement.[65]
Thus, a drawee bank is generally liable to its depositor in paying a check which bears either
a forgery of the drawers signature or a forged indorsement. But the bank may, as a general
rule, recover back the money which it has paid on a check bearing a forged indorsement,
whereas it has not this right to the same extent with reference to a check bearing a forgery
of the drawers signature.[66]
The general rule imputing liability on the drawee who paid out on the forgery holds in this
case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the forged
check, we might as well comment on the banks performance of its duty. It might be so that
the bank complied with its own internal rules prior to paying out on the questionable check.
Yet, there are several troubling circumstances that lead us to believe that the bank itself was
remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is unusual
enough to require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms
this through its own internal procedures. Checks below twenty-five thousand pesos require
only the approval of the teller; those between twenty-five thousand to one hundred
thousand pesos necessitate the approval of one bank officer; and should the amount exceed
one hundred thousand pesos, the concurrence of two bank officers is required.[67]
In this case, not only did the amount in the check nearly total one million pesos, it was also
payable to cash. That latter circumstance should have aroused the suspicion of the bank, as
it is not ordinary business practice for a check for such large amount to be made payable to
cash or to bearer, instead of to the order of a specified person.[68] Moreover, the check was
presented for payment by one Roberto Gonzaga, who was not designated as the payee of
the check, and who did not carry with him any written proof that he was authorized by
Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an
employee of Samsung Construction.[69] These circumstances are already suspicious if taken
independently, much more so if they are evaluated in concurrence. Given the shadiness
attending Gonzagas presentment of the check, it was not sufficient for FEBTC to have merely
complied with its internal procedures, but mandatory that all earnest efforts be undertaken
to ensure the validity of the check, and of the authority of Gonzaga to collect payment
therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to
contact Jong over the phone to verify the check.[70] She added that calling the issuer or
drawer of the check to verify the same was not part of the standard procedure of the bank,
but an extra effort.[71] Even assuming that such personal verification is tantamount to
extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the
absence of any proof of verification from the drawer. Instead, the bank seems to have relied
heavily on the say-so of Sempio, who was present at the bank at the time the check was
presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly
transacted with the bank in behalf of Samsung Construction. It was even claimed that
everytime FEBTC would contact Jong about problems with his account, Jong would hand the
phone over to Sempio.[72] However, the only proof of such allegations is the testimony of
Gemma Velez, who also testified that she did not know Sempio personally,[73] and had met
Sempio for the first time only on the day the check was encashed.[74] In fact, Velez had to
inquire with the other officers of the bank as to whether Sempio was actually known to the
employees of the bank.[75] Obviously, Velez had no personal knowledge as to the past
relationship between FEBTC and Sempio, and any averments of her to that effect should be
deemed hearsay evidence. Interestingly, FEBTC did not present as a witness any other
employee of their Bel-Air branch, including those who supposedly had transacted with
Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of
Samsung Construction, the irregular circumstances attending the presentment of the forged
check should have put the bank on the highest degree of alert. The Court recently
emphasized that the highest degree of care and diligence is required of banks.
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 clients account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family.[76]
Given the circumstances, extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature was
forged may still recover from the bank as long as he or she is not precluded from setting up
the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states
that no right to enforce the payment of a check can arise out of a forged signature. Since the
drawer, Samsung Construction, is not precluded by negligence from setting up the forgery,
the general rule should apply. Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge the amount so paid to the account
of the depositor.[77] A bank is liable, irrespective of its good faith, in paying a forged
check.[78]
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28
November 1996 is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch
9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
Engr. Jose E. Cayanan vs. North Star Salvador
G.R. NO. 172954 Oct. 5, 2011
Sec. 24
DECISION
VILLARAMA, JR., J.:
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision[1] of the Court of
Appeals (CA) in CA-G.R. SP No. 65538 finding him civilly liable for the value of the five checks
which are the subject of Criminal Case Nos. 166549-53.
The antecedent facts are as follows:
North Star International Travel Incorporated (North Star) is a corporation engaged in the
travel agency business while petitioner is the owner/general manager of JEAC International
Management and Contractor Services, a recruitment agency.
On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, in
accommodation and upon the instruction of its client, petitioner herein, sent the amount of
US$60,000[3] to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank
Makati. On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by
telegraphic transfer,[4] with US$15,000 coming from petitioner. Likewise, on various dates,
North Star extended credit to petitioner for the airplane tickets of his clients, with the total
amount of such indebtedness under the credit extensions eventually reaching
P510,035.47.[5]
To cover payment of the foregoing obligations, petitioner issued the following five checks to
North Star:
Check No : 246822
Drawn Against : Republic Planters Bank
Amount : P695,000.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.
 of a stop payment order from petitioner.[7] North Star, through its counsel, wrote petitioner
Check No : 246823 on September 14, 1994[8] informing him that the checks he issued had been dishonored.
North Star demanded payment, but petitioner failed to settle his obligations. Hence, North
Drawn Against : Republic Planters Bank Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation of Batas
Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC)
Amount : P278,000.00 of Makati City.

Dated/Postdated : May 15, 1994 The Informations,[9] which were similarly worded except as to the check numbers, the dates
and amounts of the checks, alleged:
Payable to : North Star International Travel, Inc.
That on or about and during the month of March 1994 in the Municipality of Makati, Metro
Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named
accused, being the authorized signatory of [JEAC] Intl Mgt & Cont. Serv. did then and there
Check No : 246824 willfully, unlawfully and feloniously make out[,] draw and issue to North Star Intl. Travel Inc.
herein rep. by Virginia D. Balagtas to apply on account or for value the checks described
Drawn Against : Republic Planters Bank below:

Amount : P22,703.00 xxxx

Dated/Postdated : May 15, 1994 said accused well knowing that at the time of issue thereof, did not have sufficient funds in
or credit with the drawee bank for the payment in full of the face amount of such check upon
Payable to : North Star International Travel, Inc. its presentment, which check when presented for payment within ninety (90) days from the
date thereof was subsequently dishonored by the drawee bank for the reason PAYMENT
STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the
payee the face amount of said check or to make arrangement for full payment thereof within
Check No : 687803 five (5) banking days after receiving notice.

Drawn Against : PCIB Contrary to law.

Amount : P1,500,000.00 Upon arraignment, petitioner pleaded not guilty to the charges.

Dated/Postdated : April 14, 1994 After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22.
Thus:
Payable to : North Star International Travel, Inc.
WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable doubt
of Violation of Batas Pambansa Blg. 22 he is hereby sentenced to suffer imprisonment of one
(1) year for each of the offense committed.
Check No : 687804
Accused is likewise ordered to indemnify the complainant North Star International Travel,
Drawn Against : PCIB Inc. represented in this case by Virginia Balagtas, the sum of TWO MILLION FIVE HUNDRED
THIRTY THOUSAND AND SEVEN HUNDRED THREE PESOS (P2,530,703.00) representing the
Amount : P35,000.00 total value of the checks in [question] plus FOUR HUNDRED EIGHTY[-]FOUR THOUSAND
SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS (P484,078.42) as interest of the
Dated/Postdated : April 14, 1994 value of the checks subject matter of the instant case, deducting therefrom the amount of
TWO HUNDRED TWENTY THOUSAND PESOS (P220,000.00) paid by the accused as interest
Payable to : North Star International Travel, Inc.[6] on the value of the checks duly receipted by the complainant and marked as Exhibit FF of the
record.
When presented for payment, the checks in the amount of P1,500,000 and P35,000 were
dishonored for insufficiency of funds while the other three checks were dishonored because xxxx

SO ORDERED.[10]
On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The
RTC also held that there is no basis for the imposition of the civil liability on petitioner. The
RTC ratiocinated that:
In the instant cases, the checks issued by the accused were presented beyond the period of
NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa
Blg. 22 and the accused is not considered to have committed the offense. There being no
offense committed, accused is not criminally liable and there would be no basis for the
imposition of the civil liability arising from the offense.[11]
Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA reversed the
decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable
for the value of the subject checks. The fallo of the CA decision reads:
WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as Cayanan's
civil liability is concerned, is NULLIFIED and SET ASIDE. The indemnity awarded by the MeTC
in its September 1, 1999 Decision is REINSTATED.
SO ORDERED.[12]
The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be
held civilly liable for the checks he issued since he never denied having issued the five
postdated checks which were dishonored.
Petitioner now assails the CA decision raising the lone issue of whether the CA erred in
holding him civilly liable to North Star for the value of the checks.[13]
Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of
the checks since North Star did not give any valuable consideration for the checks. He insists
that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but
for the account of Virginia as her investment. He points out that said amount was taken from
Virginias personal dollar account in Citibank and not from North Stars corporate account.
Respondent North Star, for its part, counters that petitioner is liable for the value of the five
subject checks as they were issued for value. Respondent insists that petitioner owes North
Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner paid to North
Star is conclusive proof that the checks were issued for value.
The petition is bereft of merit.
We have held that upon issuance of a check, in the absence of evidence to the contrary, it is
presumed that the same was issued for valuable consideration which may consist either in
some right, interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered
or undertaken by the other side.[14] Under the Negotiable Instruments Law, it is presumed
that every party to an instrument acquires the same for a consideration or for value.[15] As
petitioner alleged that there was no consideration for the issuance of the subject checks, it
devolved upon him to present convincing evidence to overthrow the presumption and prove
that the checks were in fact issued without valuable consideration.[16] Sadly, however,
petitioner has not presented any credible evidence to rebut the presumption, as well as
North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner
owed.
Notably, petitioner anchors his defense of lack of consideration on the fact that he did not
personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he
never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures.
Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star
the peso equivalent of the amount remitted plus interest. As testified to by Virginia, Check
No. 246822 dated May 15, 1994 in the amount of P695,000.00 is equivalent to US$25,000;
Check No. 246823 dated May 15, 1994 in the amount of P278,000 is equivalent to
US$10,000; Check No. 246824 in the amount of P22,703 represents the one month interest
for P695,000 and P278,000 at the rate of twenty-eight (28%) percent per annum;[17] Check
No. 687803 dated April 14, 1994 in the amount of P1,500,000 is equivalent to US$50,000 and
Check No. 687804 dated 14 April 1994 in the amount of P35,000 represents the one month
interest for P1,500,000 at the rate of twenty-eight (28%) percent per annum.[18] Petitioner
has not substantially refuted these averments.
Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account of
Virginia Balagtas and as her own investment with View Sea Ventures deserves no credence.
Virginia has not been shown to have any business transactions with View Sea Ventures and
from all indications, she only remitted the money upon the request and in accordance with
petitioners instructions. The evidence shows that it was petitioner who had a contract with
View Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtass
participation was merely to send the money through telegraphic transfer in exchange for the
checks issued by petitioner to North Star. Indeed, the transaction between petitioner and
North Star is actually in the nature of a loan and the checks were issued as payment of the
principal and the interest.
As aptly found by the trial court:
It is to be noted that the checks subject matter of the instant case were issued in the name
of North Star International Inc., represented by private complainant Virginia Balagtas in
replacement of the amount of dollars remitted by the latter to Vie[w] Sea Ventures in
Nigeria. x x x But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures
where accused has been sending his contract workers and the North Star provided the trip
tickets for said workers sent by the accused. North Star International has no participation at
all in the transaction between accused and the Vie[w] Sea Ventures except in providing plane
ticket used by the contract workers of the accused upon its understanding with the latter.
The contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria as
business investment has not been shown by any proof to set aside the foregoing negative
presumptions, thus negates accused contentions regarding the absence of consideration for
the issuance of checks. x x x[19]
Petitioner claims that North Star did not give any valuable consideration for the checks since
the US$85,000 was taken from the personal dollar account of Virginia and not the corporate
funds of North Star. The contention, however, deserves scant consideration. The subject
checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself
specifically named North Star as the payee of the checks is an admission of his liability to
North Star and not to Virginia Balagtas, who as manager merely facilitated the transfer of
funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner
would issue various checks in sizeable amounts to a payee if these are without consideration.
Moreover, we note that Virginia Balagtas averred in her Affidavit[20] that North Star caused
the payment of the US$60,000 and US$25,000 to View Sea Ventures to accommodate
petitioner, which statement petitioner failed to refute. In addition, petitioner did not
question the Statement of Account No. 8639[21] dated August 31, 1994 issued by North Star
which contained itemized amounts including the US$60,000 and US$25,000 sent through
telegraphic transfer to View Sea Ventures per his instruction. Thus, the inevitable conclusion
is that when petitioner issued the subject checks to North Star as payee, he did so to settle
his obligation with North Star for the US$85,000. And since the only payment petitioner
made to North Star was in the amount of P220,000.00, which was applied to interest due,
his liability is not extinguished. Having failed to fully settle his obligation under the checks,
the appellate court was correct in holding petitioner liable to pay the value of the five checks
he issued in favor of North Star.
WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for
lack of merit. The Decision dated May 31, 2006 of the Court of Appeals in CA-G.R. SP No.
65538 is AFFIRMED.
With costs against petitioner.
SO ORDERED.
Bayani vs. People Santos
G.R. NO. 154947 Aug. 11, 2004
Secs. 24 and 28
ECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R.
CR No. 22861 affirming on appeal the Decision[2] of the Regional Trial Court of Lucena City,
Branch 59, in Criminal Case No. 93-135 convicting the accused therein, now the petitioner,
for violation of Batas Pambansa (B.P.) Blg. 22.
On February 9, 1993, Leodegario Bayani was charged with violation of B.P. Blg. 22 in an
Information which reads:
That on or about the 20th day of August 1992, in the Municipality of Candelaria, Province of
Quezon, Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused did then and there willfully, unlawfully and feloniously issue and make out Check
No. 054936 dated August 29, 1992, in the amount of FIFTY-FIVE THOUSAND PESOS
(P55,000.00) Philippine Currency, drawn against the PSBank, Candelaria Branch, Candelaria,
Quezon, payable to Cash and give the said check to one Dolores Evangelista in exchange for
cash although the said accused knew fully well at the time of issuance of said check that he
did not have sufficient funds in or credit with the drawee bank for payment of said check in
full upon presentment; that upon presentation of said check to the bank for payment, the
same was dishonored and refused payment for the reason that the drawer thereof, the
herein accused, had no sufficient fund therein, and that despite due notice, said accused
failed to deposit the necessary amount to cover said check or to pay in full the amount of
said check, to the damage and prejudice of said Dolores Evangelista in the aforesaid amount.
Contrary to law.[3]
The Case for the Prosecution
At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store of Dolores
Evangelista in Candelaria, Quezon, and asked the latter to rediscount Philippine Savings Bank
(PSBank) Check No. 054936 in the amount of P55,000.00. The check was drawn by
Leodegario Bayani against his account with the PSBank and postdated August 29, 1992.[4]
Rubia told Evangelista that Bayani asked her to rediscount the check for him because he
needed the money.[5] Considering that Rubia and Bayani were long-time customers at the
store and she knew Bayani to be a good man, Evangelista agreed to rediscount the check.[6]
After Rubia endorsed the check, Evangelista gave her the amount of P55,000.00.[7]
However, when Evangelista deposited the check in her account with the Far East Bank &
Trust Company on September 11, 1992, it was dishonored by the drawee bank for the reason
that on September 1, 1992, Bayani closed his account with the PSBank.[8] The reason for the
dishonor of the check was stamped at its dorsal portion. As of August 27, 1992, the balance
of Bayanis account with the bank was P2,414.96.[9] Evangelista then informed Rubia of the
dishonor of the check and demanded the return of her P55,000.00. Rubia replied that she
was only requested by Bayani to have the check rediscounted and advised Evangelista to see
him. When Evangelista talked to Bayani, she was told that Rubia borrowed the check from
him.[10]
Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in the office
of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the Barangay Captain
Nestor Baera, Evangelista showed Bayani a photocopy of the dishonored check and
demanded payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other,
pointed to each other and denied liability thereon. Aniceta told Rubia that she should be the
one to pay since the P55,000.00 was with her, but the latter insisted that the said amount
was in payment of the pieces of jewelry Aniceta purchased from her.[11] Upon Atty. Velascos
prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and
Rubio pointed to the other as the one solely liable for the amount of the check.[12] Rubia
reminded Aniceta that she was given the check as payment of the pieces of jewelry Aniceta
bought from her.
The Case for the Petitioner
Bayani testified that he was the proprietor of a funeral parlor in Candelaria, Quezon. He
maintained an account with the PSBank in Candelaria, Quezon, and was issued a checkbook
which was kept by his wife, Aniceta Bayani. Sometime in 1992, he changed his residence. In
the process, his wife lost four (4) blank checks, one of which was Check No. 054936[13] which
formed part of the checks in the checkbook issued to him by the PSBank.[14] He did not
report the loss to the police authorities. He reported such loss to the bank after Evangelista
demanded the refund of the P55,000.00 from his wife.[15] He then closed his account with
the bank on September 11, 1992, but was informed that he had closed his account much
earlier. He denied ever receiving the amount of P55,000.00 from Rubia.[16]
Bayani further testified that his wife discovered the loss of the checks when he brought his
wife to the office of Atty. Emmanuel Velasco.[17] He did not see Evangelista in the office of
the lawyer, and was only later informed by his wife that she had a conference with
Evangelista. His wife narrated that according to Evangelista, Rubia had rediscounted a check
he issued, which turned out to be the check she (Aniceta) had lost. He was also told that
Evangelista had demanded the refund of the amount of the check.[18] He later tried to
contact Rubia but failed. He finally testified that he could not recall having affixed his
signature on the check.[19]
Aniceta Bayani corroborated the testimony of her husband. She testified that she was invited
to go to the office of Atty. Velasco where she, Rubia and Evangelista had a conference. It was
only then that she met Evangelista. Rubia admitted that she rediscounted the complainants
check with Evangelista. When Evangelista asked her to pay the amount of the check, she
asked that the check be shown to her, but Evangelista refused to do so. She further testified
that her husband was not with her and was in their office at the time.
At the conclusion of the trial, the court rendered judgment finding Bayani guilty beyond
reasonable doubt of violation of Section 1 of B.P. Blg. 22. The decretal portion of the decision
reads:
WHEREFORE, premises considered, the Court finds the accused Leodegario Bayani guilty
beyond reasonable doubt of violation of Section 1, Batas Pambansa Bilang 22 and hereby
sentences him to suffer an imprisonment of ONE (1) YEAR, or to pay a fine of ONE HUNDRED
TEN THOUSAND PESOS (P110,000.00), to pay to complaining witness Dolores Evangelista the
sum of FIFTY-FIVE THOUSAND PESOS (P55,000.00), the value of the check and to pay the
costs.
SO ORDERED.[20]
On appeal, the petitioner averred that the prosecution failed to adduce evidence that he
affixed his signature on the check, or received from Rubia the amount of P55,000.00, thus
negating his guilt of the crime charged.
The petitioner asserts that even Teresita Macabulag, the bank manager of PSB who
authenticated his specimen signatures on the signature card he submitted upon opening his
account with the bank, failed to testify that the signature on the check was his genuine
signature.
On January 30, 2002, the Court of Appeals rendered judgment[21] affirming the decision of
the RTC with modification as to the penalty imposed on the petitioner.
The petitioner asserts in the petition at bar that
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION
THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR ALLEGED VIOLATION OF BATAS
PAMBANSA BLG. 22 NOTWITHSTANDING THAT THE PROSECUTION MISERABLY FAILED TO
PROVE THAT THE CHECK WAS ISSUED FOR A VALUABLE CONSIDERATION.[22]
The petitioner contends that the prosecution failed to prove all the essential elements of the
crime of violation of Section 1, B.P. Blg. 22. He asserts that the prosecution failed to prove
that he issued the check. He avers that even assuming that he issued the check, the
prosecution failed to prove that it was issued for valuable consideration, and that he received
the amount of P55,000.00 from Rubia. Hence, in light of the ruling of this Court in Magno vs.
Court of Appeals,[23] he is entitled to an acquittal on such grounds.
The petitioner further contends that Evangelistas testimony, that Rubia told her that it was
the petitioner who asked her to have the check rediscounted, is hearsay and, as such, even
if he did not object thereto is inadmissible in evidence against him. He avers that the
prosecution failed to present Rubia as a witness, depriving him of his right to cross-examine
her. He contends that any declaration made by Rubia to Evangelista is inadmissible in
evidence against him.
The petition is denied.
We agree with the submission of the petitioner that Evangelistas testimony, that Rubia told
her that the petitioner requested that the subject check be rediscounted, is hearsay.
Evangelista had no personal knowledge of such request of the petitioner to Rubia. Neither is
the information relayed by Rubia to Evangelista as to the petitioners request admissible in
evidence against the latter, because the prosecution failed to present Rubia as a witness,
thus, depriving the petitioner of his right of cross-examination.
However, the evidence belies the petitioners assertion that the prosecution failed to adduce
evidence that he issued the subject check. Evangelista testified that when she talked to the
petitioner upon Rubias suggestion, the petitioner admitted that he gave the check to Rubia,
but claimed that the latter borrowed the check from him.
Q When this check in question was returned to you because of the closed account, what did
you do, if you did anything?
A I talked to Alicia Rubia, Sir.
Q And what did Alicia Rubia tell you in connection with the check in question?
A Alicia Rubia told me that she was just requested by Leodegario Bayani, Sir.
Q And what else did she tell you?
A She advised me to go to Leodegario Bayani, Sir.
Q Did you go to Leodegario Bayani as per instruction of Alicia Rubia?

A Yes, Sir.
Q And what did Leodegario Bayani tell you in connection with this check?
A He told me that Alicia Rubia borrowed the check from him, Sir.[24]
Evangelista testified that she showed to the petitioner and his wife, Aniceta, a photocopy of
the subject check in the office of Atty. Velasco, where they admitted to her that they owned
the check:
ATTY. ALZAGA (TO WITNESS)
Q When you shown (sic) the check to Leodegario Bayani and his wife in the law office of Atty.
Velasco, what did they tell you?
ATTY. VELASCO:
Misleading. The question is misleading because according to the question, Your Honor, he
had shown the check but that was not the testimony. The testimony was the xerox copy of
the check was the one shown.
ATTY. ALZAGA
The xerox copy of the check.
COURT
As modified, answer the question.
WITNESS
A They told me they owned the check but they were pointing to each other as to who will
pay the amount, Sir.[25]
The petitioner cannot escape criminal liability by denying that he received the amount of
P55,000.00 from Rubia after he issued the check to her. As we ruled in Lozano vs.
Martinez:[26]
The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless
check or a check that is dishonored upon its presentation for payment. It is not the non-
payment of an obligation which the law punishes. The law is not intended or designed to
coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in circulation. Because of its
deleterious effects on the public interest, the practice is proscribed by the law. The law
punishes the act not as an offense against property, but an offense against public order.[27]
The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00
to Rubia after the latter endorsed the same. As such, Evangelista is a holder of the check in
due course.[28] Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure
of consideration is a matter of defense only as against any person not a holder in due course,
thus:
SECTION 28. Effect of want of consideration. Absence or failure of consideration is a matter
of defense as against any person not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure is an ascertained and liquidated
amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of consideration, viz:
SECTION 24. Presumption of consideration. Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
Such presumption cannot be overcome by the petitioners bare denial of receipt of the
amount of P55,000.00 from Rubia.
The petitioner cannot, likewise, seek refuge in the ruling of this Court in Magno vs. Court of
Appeals[29] because the facts and issues raised therein are substantially different from those
extant in this case. Indeed, the Court ruled in the said case that:
It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was she
who accommodated petitioners request for Joey Gomez, to source out the needed funds for
the warranty deposit. Thus, it unfolds the kind of transaction that is shrouded with mystery,
gimmickry and doubtful legality. It is in simple language, a scheme whereby Mrs. Teng as the
supplier of the equipment in the name of her corporation, Mancor, would be able to sell or
lease its goods as in this case, and at the same time, privately financing those who
desperately need petty accommodations as this one. This modus operandi has in so many
instances victimized unsuspecting businessmen, who likewise need protection from the law,
by availing of the deceptively called warranty deposit not realizing that they also fall prey to
leasing equipment under the guise of lease-purchase agreement when it is a scheme
designed to skim off business clients.[30]
Equally futile is the petitioners contention that the prosecution failed to prove the crime
charged. For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the prosecution
is mandated to prove the essential elements thereof, to wit:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for value.
3. That the person who makes or draws and issues the check knows at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds
or credit, or would have been dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment.[31]
In this case, the prosecution adduced documentary evidence that when the petitioner issued
the subject check on or about August 20, 1992, the balance of his account with the drawee
bank was only P2,414.96. During the conference in the office of Atty. Emmanuel Velasco,
Evangelista showed to the petitioner and his wife a photocopy of the subject check, with the
notation at its dorsal portion that it was dishonored for the reason account closed. Despite
Evangelistas demands, the petitioner refused to pay the amount of the check and, with his
wife, pointed to Rubia as the one liable for the amount. The collective evidence of the
prosecution points to the fact that at the time the petitioner drew and issued the check, he
knew that the residue of the funds in his account with the drawee bank was insufficient to
pay the amount of the check.
In the Complaint,[4] respondent Bank alleged that on October 3 and 9, 1978, the defendants
obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO-78-382,
and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the
loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978,
respectively. In addition, subsequent amendments[5] to the promissory notes as well as the
disclosure statements[6] stipulated that the loan would earn 14% interest rate per annum,
2% service charge per annum, 1% penalty charge per month from due date until fully paid,
and attorneys fees equivalent to 20% of the outstanding obligation.

IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE. The decision of the Despite repeated demands for payment, the latest of which were on September 13, 1988
Court of Appeals is AFFIRMED. and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent
Bank claimed that the defendants failed and refused to settle their obligation, resulting in a
No costs. total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:

SO ORDERED.

PN-No. DVO-78-382 PN-No. DVO-78-390

Tomas Ang vs. associated bank Tante
Outstanding Balance P50,000.00 P30,000.00
G.R. NO. 146511 Sept. 5, 2007
Add Past due charges for 4,199 Past due charges for 4,253
Sec. 29
days (from 01-31-79 to 07- days (from 12-8-78 to 07-
31-90) 31-90)
14% Interest P203,538.98 P125,334.41
DECISION
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
AZCUNA, J.: Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the
October 9, 2000 Decision[1] and December 26, 2000 Resolution[2] of the Court of Appeals in
CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision[3] of the
Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the
complaint filed by respondents for collection of a sum of money.
In his Answer,[7] Antonio Ang Eng Liong only admitted to have secured a loan amounting to
P80,000. He pleaded though that the bank be ordered to submit a more reasonable
computation considering that there had been no correct and reasonable statement of
account sent to him by the bank, which was allegedly collecting excessive interest, penalty
charges, and attorneys fees despite knowledge that his business was destroyed by fire,
hence, he had no source of income for several years.

On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation
and now known as United Overseas Bank Philippines) filed a collection suit against Antonio
Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed
as principal debtor and co-maker, respectively.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim.[8] He
interposed the affirmative defenses that: the bank is not the real party in interest as it is not
the holder of the promissory notes, much less a holder for value or a holder in due course;
the bank knew that he did not receive any valuable consideration for affixing his signatures
on the notes but merely lent his name as an accommodation party; he accepted the
promissory notes in blank, with only the printed provisions and the signature of Antonio Ang
Eng Liong appearing therein; it was the bank which completed the notes upon the orders,
instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in
excess of or contrary to the authority given by him to his co-defendant who represented that
he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390 was
procured through fraudulent means when his co-defendant claimed that his first loan did
not push through; the promissory notes did not indicate in what capacity he was intended
to be bound; the bank granted his co-defendant successive extensions of time within which
to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and
additional stipulations on interest, penalties, services charges and attorneys fees more
onerous than the terms of the notes, without his knowledge and consent, in the absence of
legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the
promissory notes of stipulations such as waiver of presentment for payment and notice of
dishonor which are against public policy; and the notes had been impaired since they were
never presented for payment and demands were made only several years after they fell due
when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the banks acts or omissions,
it should be held liable for the amount of P50,000 for attorneys fees and expenses of
litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he
should be reimbursed by his co-defendant any and all sums that he may be adjudged liable
to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorneys
fees, respectively.
In its Reply,[9] respondent Bank countered that it is the real party in interest and is the holder
of the notes since the Associated Banking Corporation and Associated Citizens Bank are its
predecessors-in-interest. The fact that Tomas Ang never received any moneys in
consideration of the two (2) loans and that such was known to the bank are immaterial
because, as an accommodation maker, he is considered as a solidary debtor who is primarily
liable for the payment of the promissory notes. Citing Section 29 of the Negotiable
Instruments Law (NIL), the bank posited that absence or failure of consideration is not a
matter of defense; neither is the fact that the holder knew him to be only an accommodation
party.
Respondent Bank likewise retorted that the promissory notes were completely filled up at
the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides
that the bank has the prima facie authority to complete the blank form. Moreover, it is
presumed that one who has signed as a maker acted with care and had signed the document
with full knowledge of its content. The bank noted that Tomas Ang is a prominent
businessman in Davao City who has been engaged in the auto parts business for several
years, hence, certainly he is not so nave as to sign the notes without knowing or bothering
to verify the amounts of the loans covered by them. Further, he is already in estoppel since
despite receipt of several demand letters there was not a single protest raised by him that
he signed for only one note in the amount of P30,000.
It was denied by the bank that there were extensions of time for payment accorded to
Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not
relieve Tomas Ang from liability as he would still be liable for the whole obligation less the
share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new stipulations imposed other than
those agreed upon. The penalty charge, service charge, and attorneys fees were reflected in
the amendments to the promissory notes and disclosure statements. Reference to the Usury
Law was misplaced as usury is legally non-existent; at present, interest can be charged
depending on the agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for payment and notice of
dishonor were expressly waived by Tomas Ang and that such waiver is not against public
policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity
therefor since being a solidary debtor he is absolutely required to pay and primarily liable on
both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties
to submit their respective pre-trial guide.[10] When Antonio Ang Eng Liong failed to submit
his brief, the bank filed an ex-parte motion to declare him in default.[11] Per Order of
November 23, 1990, the court granted the motion and set the ex-parte hearing for the
presentation of the banks evidence.[12] Despite Tomas Angs motion[13] to modify the Order
so as to exclude or cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old Rules
of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing
nonetheless proceeded.[14]
Eventually, a decision[15] was rendered by the trial court on February 21, 1991. For his
supposed bad faith and obstinate refusal despite several demands from the bank, Antonio
Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per
annum and 2% service charge per annum. The overdue penalty charge and attorneys fees
were, however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of
plaintiff, ordering the former to pay the latter:
On the first cause of action: prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA
G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November
23, 1990 setting the ex-parte presentation of the banks evidence against Antonio Ang Eng
Liong, the Decision dated February 21, 1991 rendered against him based on such evidence,
1) the amount of P50,000.00 representing the principal obligation with 14% interest and the Writ of Execution issued on April 5, 1991.[23]
per annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per
annum until fully paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge. Trial then ensued between the bank and Tomas Ang. Upon the latters motion during the pre-
trial conference, Antonio Ang Eng Liong was again declared in default for his failure to answer
the cross-claim within the reglementary period.[24]
On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with 14% When Tomas Ang was about to present evidence in his behalf, he filed a Motion for
interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges per Production of Documents,[25] reasoning:
annum until fully paid;

2) P7,088.34 representing accrued service charge;

3) P21,265.00 as accrued overdue penalty charge xxx
4) the amount of P10,000.00 as attorneys fees; and
5) the amount of P620.00 as litigation expenses and to pay the costs.

2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need
for him to examine original records in the custody and possession of plaintiff, viz:
SO ORDERED.[16]

a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]
The decision became final and executory as no appeal was taken therefrom. Upon the banks
ex-parte motion, the court accordingly issued a writ of execution on April 5, 1991.[17] b. original of Disclosure Statement in reference to PN # DVO-78-382;

c. original of PN # DVO-78-390 dated October 9, 1978;

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and
Tomas Ang,[18] who, in turn, filed a Motion to Dismiss[19] on the ground of lack of
jurisdiction over the case in view of the alleged finality of the February 21, 1991 Decision. He
contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several
defendants, one of whom is declared in default. Moreover, in his Supplemental Motion to
Dismiss,[20] Tomas Ang maintained that he is released from his obligation as a solidary
guarantor and accommodation party because, by the banks actions, he is now precluded
from asserting his cross-claim against Antonio Ang Eng Liong, upon whom a final and
executory judgment had already been issued.
d. original of Disclosure Statement in reference to PN # DVO-78-390;
e. Statement or Record of Account with the Associated Banking Corporation or its
successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips,
notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA
No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos.
DVO-78-382 and DVO-78-390 (supra);

The court denied the motion as well as the motion for reconsideration thereon.[21] Tomas
Ang subsequently filed a petition for certiorari and prohibition before this Court, which,
however, resolved to refer the same to the Court of Appeals.[22] In accordance with the
g. Other supporting papers and documents submitted by Antonio Ang Eng Liong
relative to his loan application vis--vis PN. Nos. DVO-78-382 and DVO-78-390 such as financial
statements, income tax returns, etc. as required by the Central Bank or bank rules and
regulations.

3. That the above matters are very material to the defenses of defendant Tomas Ang, viz:
- the bank is not a holder in due course when it accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.
- That the PAYEE not being a holder in due course and knowing that defendant
Tomas Ang is merely an accommodation party, the latter may raise against such payee or
holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as
FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249
of the Civil Code, NEGLIGENCE in delaying collection despite Eng Liongs OVERDRAFT in C.A.
No. 470, etc.[26]
In its Order dated May 16, 1994,[27] the court denied the motion stating that the promissory
notes and the disclosure statements have already been shown to and inspected by Tomas
Ang during the trial, as in fact he has already copies of the same; the Statements or Records
of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial
since, pursuant to the previous ruling of the court, he is being sued for the notes and not for
the overdraft which is personal to Antonio Ang Eng Liong; and besides its non-existence in
the banks records, there would be legal obstacle for the production and inspection of the
income tax return of Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a
petition for certiorari and prohibition with application for preliminary injunction and
restraining order before the Court of Appeals docketed as CA G.R. SP No. 34840.[28] On
August 17, 1994, however, the Court of Appeals denied the issuance of a Temporary
Restraining Order.[29]
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived
his right to present evidence for failure to appear during the pendency of his petition before
the Court of Appeals, the trial court decided to continue with the hearing of the case.[30]
After the trial, Tomas Ang offered in evidence several documents, which included a copy of
the Trust Agreement between the Republic of the Philippines and the Asset Privatization
Trust, as certified by the notary public, and news clippings from the Manila Bulletin dated
May 18, 1994 and May 30, 1994.[31] All the documentary exhibits were admitted for failure
of the bank to submit its comment to the formal offer.[32] Thereafter, Tomas Ang elected to
withdraw his petition in CA G.R. SP No. 34840 before the Court of Appeals, which was then
granted.[33]
On January 5, 1996, the trial court rendered judgment against the bank, dismissing the
complaint for lack of cause of action.[34] It held that:
Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense
shows that: the Associated Bank as of June 30, 1986 is one of DBPs or Development Bank of
the [Philippines] non-performing accounts for transfer; on February 27, 1987 through Deeds
of Transfer executed by and between the Philippine National Bank and Development Bank
of the Philippines and the National Government, both financial institutions assigned,
transferred and conveyed their non-performing assets to the National Government; the
National Government in turn and as TRUSTOR, transferred, conveyed and assigned by way
of trust unto the Asset Privatization Trust said non-performing assets, [which] took title to
and possession of, [to] conserve, provisionally manage and dispose[,] of said assets identified
for privatization or disposition; one of the powers and duties of the APT with respect to trust
properties consisting of receivables is to handle the administration, collection and
enforcement of the receivables; to bring suit to enforce payment of the obligations or any
installment thereof or to settle or compromise any of such obligations, or any other claim or
demand which the government may have against any person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. 9-A, 9-B, 9-
C, and 9-D, show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the
rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan
included the financial assistance for the bank by the Philippine Deposit Insurance
Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a
buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme,
which included the purchase of ABs bad loans worth P1.86 at 25% discount. This will then be
paid by AB within a 10-year period plus a yield comparable to the prevailing market rates x x
x.
Based then on the evidence presented by the defendant Tomas Ang, it would readily appear
that at the time this suit for Sum of Money was filed which was on August [28], 1990, the
notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust
Agreement, which was empowered to bring suit to enforce payment of the obligations.
Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this
suit was filed was not the holder of the notes to warrant the dismissal of the complaint.[35]
Respondent Bank then elevated the case to the Court of Appeals. In the appellants brief
captioned, ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and
TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee, the following errors were
alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND
DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID
LOANS DESPITE THE LATTERS DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANTS COMPLAINT ON THE
BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND
IMPROPER FOR JUDICIAL NOTICE.[36]
The bank stressed that it has established the causes of action outlined in its Complaint by a
preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it
contended that the same were never authenticated by any witness in the course of the trial;
the Agreement, which was not even legible, did not mention the promissory notes subject
of the Complaint; the bank is not a party to the Agreement, which showed that it was
between the Government of the Philippines, acting through the Committee on Privatization
represented by the Secretary of Finance as trustor and the Asset Privatization Trust, which
was created by virtue of Proclamation No. 50; and the Agreement did not reflect the
signatures of the contracting parties. Lastly, the bank averred that the news items appearing
in the Manila Bulletin could not be the subject of judicial notice since they were completely
hearsay in character.[37]
On October 9, 2000, the Court of Appeals reversed and set aside the trial courts ruling. The
dispositive portion of the Decision[38] reads:
WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City,
Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one
entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank
the following:
P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382 plus
14% interest thereon per annum computed from January 31, 1979 until the full amount
thereof is paid
P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390 plus
14% interest thereon per annum computed from December 8, 1978 until the full amount
thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-
appellees counterclaim is likewise DISMISSED for lack of legal and factual bases.
No pronouncement as to costs.
SO ORDERED.[39]
The appellate court disregarded the banks first assigned error for being irrelevant in the final
determination of the case and found its second assigned error as not meritorious. Instead, it
posed for resolution the issue of whether the trial court erred in dismissing the complaint
for collection of sum of money for lack of cause of action as the bank was said to be not the
holder of the notes at the time the collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank is a holder under Sec.
191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust
Agreement, the Asset Privatization Trust cannot be declared as the holder of the subject
promissory notes for the reason that it is neither the payee or indorsee of the notes in
possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the
bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the
execution of the Deeds of Transfer and Trust Agreement and that the notes continued to
remain with the bank until the institution of the collection suit.
With the bank as the holder of the promissory notes, the Court of Appeals held that Tomas
Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the
NIL, he is liable to the bank in spite of the latters knowledge, at the time of taking the notes,
that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly
and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense
that he did not receive any consideration therefor as the fact that the loan was granted to
the principal debtor already constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in
business rendered it implausible that he would just sign the promissory notes as a co-maker
without even checking the real amount of the debt to be incurred, or that he merely acted
on the belief that the first loan application was cancelled. According to the appellate court,
it is apparent that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such
fact would not serve to exonerate him from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and
overdue charges as well as attorneys fees on the ground that the promissory notes made no
mention of such charges/fees.
In his motion for reconsideration,[40] Tomas Ang raised for the first time the assigned errors
as follows:
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently
discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional
rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of
compounded interest at 14% per annum, service charges at 2% per annum and overdue
penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although the total sum
involved as of that time was P647,566.75 including 20% attorneys fees. In fact, the stated
interest in the body of the complaint alone amount to P328,373.39 (which is actually
compounded and capitalized) in both causes of action and the total service and overdue
penalties and charges and attorneys fees further amount to P239,193.36 in both causes of
action, as of July 31, 1990, the time of filing of the complaint. Significantly, appellant
fraudulently misled the Court, describing the 14% imposition as interest, when in fact the
same was capitalized as principal by appellant bank every month to earn more interest, as
stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case
and the same may not be now corrected by the filing of deficiency fees because the causes
of action had already prescribed and more importantly, the jurisdiction of the Municipal Trial
Court had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant
to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987
Administrative Code. In other words, as of today, jurisdiction over the subject falls within the
exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the
stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG
LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANGS
CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG
BECOME FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Angs right of
subrogation against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES
foreclosed because of the fault or negligence of appellant bank since 1979 up to its insistence
of an ex-parte trial, and now when it failed to serve notice of appeal and appellants brief
upon him. Accordingly, appellee Tomas Ang should be released from his suretyship
obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues above-
stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of
appellant bank which defrauded the judiciary by the payment of deficient docket fees.[41]
Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied
the motion in its Resolution dated December 26, 2000.[42]
Petitioner now submits the following issues for resolution:
Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as
accommodation maker or surety because of the failure of [private] respondent bank to serve
its notice of appeal upon the principal debtor, respondent Eng Liong?
Did the trial court have jurisdiction over the case at all?
Did the Court of Appeals [commit] error in assigning its own error and raising its own issue?
Are petitioners other real and personal defenses such as successive extensions coupled with
fraudulent collusion to hide Eng Liongs default, the payees grant of additional burdens,
coupled with the insolvency of the principal debtor, and the defense of incomplete but
delivered instrument, meritorious?[43]
Petitioner allegedly learned after the promulgation of the Court of Appeals decision that,
pursuant to the parties agreement on the compounding of interest with the principal amount
(per month in case of default), the interest on the promissory notes as of July 31, 1990 should
have been only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33
for PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date
should increase to P647,566.75 (instead of P539,638.96). He submits that the bank carefully
and shrewdly hid the fact by describing the amounts as interest instead of being part of
either the principal or penalty in order to pay a lesser amount of docket fees. According to
him, the total fees that should have been paid at the time of the filing of the complaint on
August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%. Petitioner contends
that the bank may not now pay the deficiency because the last demand letter sent to him
was dated September 9, 1986, or more than twenty years have elapsed such that
prescription had already set in. Consequently, the banks claim must be dismissed as the trial
court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have assigned its own error and
raised it as an issue of the case, contending that no question should be entertained on appeal
unless it has been advanced in the court below or is within the issues made by the parties in
the pleadings. At any rate, he opines that the appellate courts decision that the bank is the
real party in interest because it is the payee named in the note or the holder thereof is too
simplistic since: (1) the power and control of Asset Privatization Trust over the bank are clear
from the explicit terms of the duly certified trust documents and deeds of transfer and are
confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking
Act, where a corporation or a bank is under receivership, conservation or rehabilitation, it is
only the representative (liquidator, receiver, trustee or conservator) who may properly act
for said entity, and, in this case, the bank was held by Asset Privatization Trust as trustee;
and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all
cases is the real party in interest because the rights of the payee may be subject of an
assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of appeal and
appellants brief only on him, it rendered the judgment of the trial court final and executory
with respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong)
from any and all liability under the promissory notes and, thereby, foreclosed petitioners
cross-claims. By such act, the bank, even if it be the holder of the promissory notes, allegedly
discharged a simple contract for the payment of money (Sections 119 [d] and 122, NIL [Act
No. 2031]), prevented a surety like petitioner from being subrogated in the shoes of his
principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment
(Article 1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper
under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v.
Bautista,[44] this Court recognized the broad discretionary power of an appellate court to
waive the lack of proper assignment of errors and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration. Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our
rules recognize the broad discretionary power of an appellate court to waive the lack of
proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the
Rules of Court provides:
SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over
the subject matter or the validity of the judgment appealed from or the proceedings therein
will be considered, unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are
not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but
affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal
but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned
as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the
trial court and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on
appeal but closely related to an error assigned; and (f) matters not assigned as errors on
appeal but upon which the determination of a question properly assigned is dependent.
(Citations omitted)[45]
To the Courts mind, even if the Court of Appeals regarded petitioners two assigned errors as
irrelevant and not meritorious, the issue of whether the trial court erred in dismissing the
complaint for collection of sum of money for lack of cause of action (on the ground that the
bank was not the holder of the notes at the time of the filing of the action) is in reality closely
related to and determinant of the resolution of whether the lower court correctly ruled in
not holding Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their
unpaid loans despite documentary exhibits allegedly proving their obligations and in
dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed
to the Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest at the time of the
institution of the complaint, is it the bank or the Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset Privatization Trust is proper.
Taking into account the imperative need of formally launching a program for the
rationalization of the government corporate sector, then President Corazon C. Aquino issued
Proclamation No. 50[46] on December 8, 1986. As one of the twin cornerstones of the
program was to establish the privatization of a good number of government corporations,
the proclamation created the Asset Privatization Trust, which would, for the benefit of the
National Government, take title to and possession of, conserve, provisionally manage and
dispose of transferred assets that were identified for privatization or disposition.[47]
In accordance with the provisions of Section 23[48] of the proclamation, then President
Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which
approved the identification of and transfer to the National Government of certain assets
(consisting of loans, equity investments, accrued interest receivables, acquired assets and
other assets) and liabilities (consisting of deposits, borrowings, other liabilities and
contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine
National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer
executed on February 27, 1987 between the National Government, on one hand, and the
DBP and PNB, on the other. In turn, the National Government designated the Asset
Privatization Trust to act as its trustee through a Trust Agreement, whereby the non-
performing accounts of DBP and PNB, including, among others, the DBPs equity with
respondent Bank, were entrusted to the Asset Privatization Trust.[49] As provided for in the
Agreement, among the powers and duties of the Asset Privatization Trust with respect to the
trust properties consisting of receivables was to handle their administration and collection
by bringing suit to enforce payment of the obligations or any installment thereof or settling
or compromising any of such obligations or any other claim or demand which the
Government may have against any person or persons, and to do all acts, institute all
proceedings, and to exercise all other rights, powers, and privileges of ownership that an
absolute owner of the properties would otherwise have the right to do.[50]
Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years
from the date of issuance of Proclamation No. 50.[51] However, its original term was
extended from December 8, 1991 up to August 31, 1992,[52] and again from December 31,
1993 until June 30, 1995,[53] and then from July 1, 1995 up to December 31, 1999,[54] and
further from January 1, 2000 until December 31, 2000.[55] Thenceforth, the Privatization
and Management Office was established and took over, among others, the powers, duties
and functions of the Asset Privatization Trust under the proclamation.[56]
Based on the above backdrop, respondent Bank does not appear to be the real party in
interest when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng
Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was
the Asset Privatization Trust which had the authority to enforce its claims against both
debtors. In fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank,
openly admitted that it was under the trusteeship of the Asset Privatization Trust.[57] The
Asset Privatization Trust, which should have been represented by the Office of the
Government Corporate Counsel, had the authority to file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily subscribe to
petitioners insistence that the case must be dismissed. Significantly, it stands without refute,
both in the pleadings as well as in the evidence presented during the trial and up to the time
this case reached the Court, that the issue had been rendered moot with the occurrence of
a supervening event the buy-back of the bank by its former owner, Leonardo Ty, sometime
in October 1993. By such re-acquisition from the Asset Privatization Trust when the case was
still pending in the lower court, the bank reclaimed its real and actual interest over the
unpaid promissory notes; hence, it could rightfully qualify as a holder[58] thereof under the
NIL.
Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person." As gleaned from the text,
an accommodation party is one who meets all the three requisites, viz: (1) he must be a party
to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive
value therefor; and (3) he must sign for the purpose of lending his name or credit to some
other person.[59] An accommodation party lends his name to enable the accommodated
party to obtain credit or to raise money; he receives no part of the consideration for the
instrument but assumes liability to the other party/ies thereto.[60] The accommodation
party is liable on the instrument to a holder for value even though the holder, at the
time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.[61]
As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety the accommodation party being the
surety.[62] As such, he is deemed an original promisor and debtor from the beginning;[63]
he is considered in law as the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are interwoven as to be
inseparable.[64] Although a contract of suretyship is in essence accessory or collateral to a
valid principal obligation, the surety's liability to the creditor is immediate, primary and
absolute; he is directly and equally bound with the principal.[65] As an equivalent of a regular
party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the obligations nor does he receive
any benefit therefrom.[66]
Contrary to petitioners adamant stand, however, Article 2080[67] of the Civil Code does not
apply in a contract of suretyship.[68] Art. 2047 of the Civil Code states that if a person binds
himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I,
Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code
(on joint and solidary obligations) shall govern the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA[69] is illuminating:
Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor,
and against Pantanosas, his co-maker, constituted a release of his obligation, especially
because the dismissal of the case against Pantanosas was upon the motion of private
respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which
provides that:
"The guarantors, even though they be solidary, are released from their obligation whenever
by come act of the creditor, they cannot be subrogated to the rights, mortgages, and
preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker
and not as a guarantor. This is patent even from the first sentence of the promissory note
which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise
to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de
Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency,
together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. On the other hand,
Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a
suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes.
There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later,
outside of the liability he assumes to pay the debt before the property of the principal debtor
has been exhausted, retains all the other rights, actions and benefits which pertain to him
by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the
same obligation, the presumption is that obligation is joint so that each of the debtors is
liable only for a proportionate part of the debt. There is a solidarily liability only when the
obligation expressly so states, when the law so provides or when the nature of the obligation
so requires.
Because the promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be proceeded
against for the entire obligation. The choice is left to the solidary creditor to determine
against whom he will enforce collection. (Citations omitted)[70]
In the instant case, petitioner agreed to be jointly and severally liable under the two
promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This
being so, it is completely immaterial if the bank would opt to proceed only against petitioner
or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the
prerogative to choose whether to enforce the entire obligation against any one, some or all
of the debtors. Nonetheless, petitioner, as an accommodation party, may seek
reimbursement from Antonio Ang Eng Liong, being the party accommodated.[71]
It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice
of appeal and appellants brief to Antonio Ang Eng Liong, the trial courts judgment, in effect,
became final and executory as against the latter and, thereby, bars his (petitioners) cross-
claims against him: First, although no notice of appeal and appellants brief were served to
Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared
in the caption of both the notice and the brief as one of the defendants-appellees;[72]
Second, despite including in the caption of the appellees brief his co-debtor as one of the
defendants-appellees, petitioner did not also serve him a copy thereof;[73] Third, in the
caption of the Court of Appeals decision, Antonio Ang Eng Liong was expressly named as one
of the defendants-appellees;[74] and Fourth, it was only in his motion for reconsideration
from the adverse judgment of the Court of Appeals that petitioner belatedly chose to serve
notice to the counsel of his co-defendant-appellee.[75]
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his special
appearance through counsel, that the Court of Appeals, much less this Court, already lacked
jurisdiction over his person or over the subject matter relating to him because he was not a
party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself
in default one, in not filing a pre-trial brief and another, in not filing his answer to petitioners
cross-claims. As a matter of course, Antonio Ang Eng Liong, being a party declared in default,
already waived his right to take part in the trial proceedings and had to contend with the
judgment rendered by the court based on the evidence presented by the bank and
petitioner. Moreover, even without considering these default judgments, Antonio Ang Eng
Liong even categorically admitted having secured a loan totaling P80,000. In his Answer to
the complaint, he did not deny such liability but merely pleaded that the bank be ordered to
submit a more reasonable computation instead of collecting excessive interest, penalty
charges, and attorneys fees. For failing to tender an issue and in not denying the material
allegations stated in the complaint, a judgment on the pleadings[76] would have also been
proper since not a single issue was generated by the Answer he filed.
As the promissory notes were not discharged or impaired through any act or omission of the
bank, Sections 119 (d)[77] and 122[78] of the NIL as well as Art. 1249[79] of the Civil Code
would necessarily find no application. Again, neither was petitioners right of reimbursement
barred nor was the banks right to proceed against Antonio Ang Eng Liong expressly
renounced by the omission to serve notice of appeal and appellants brief to a party already
declared in default.
Consequently, in issuing the two promissory notes, petitioner as accommodating party
warranted to the holder in due course that he would pay the same according to its tenor.[80]
It is no defense to state on his part that he did not receive any value therefor[81] because
the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without
receiving value by virtue of the instrument" and not as it is apparently supposed to mean,
"without receiving payment for lending his name."[82] Stated differently, when a third
person advances the face value of the note to the accommodated party at the time of its
creation, the consideration for the note as regards its maker is the money advanced to the
accommodated party. It is enough that value was given for the note at the time of its
creation.[83] As in the instant case, a sum of money was received by virtue of the notes,
hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the use of his name.[84]
Under the law, upon the maturity of the note, a surety may pay the debt, demand the
collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate
himself in the place of the creditor with the right to enforce the guaranty against the other
signers of the note for the reimbursement of what he is entitled to recover from them.[85]
Regrettably, none of these were prudently done by petitioner. When he was first notified by
the bank sometime in 1982 regarding his accountabilities under the promissory notes, he
lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of
the matter, instead of directly communicating with the bank for its settlement.[86] Thus,
petitioner cannot now claim that he was prejudiced by the supposed extension of time given
by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not only primary but
also unconditional to a holder for value, even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the
latter is still liable for the whole obligation and such extension does not release him because
as far as a holder for value is concerned, he is a solidary co-debtor.[87] In Clark v. Sellner,[88]
this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired
his action against the defendant. It should not be lost sight of that the defendant's signature
on the note is an assurance to the creditor that the collateral guaranty will remain good, and
that otherwise, he, the defendant, will be personally responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was impaired in its value,
or discharged, such an act would have wholly or partially released the surety; but it must be
born in mind that it is a recognized doctrine in the matter of suretyship that with respect to
the surety, the creditor is under no obligation to display any diligence in the enforcement of
his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding
against the principal debtor, or the fact that he did not enforce the guaranty or apply on the
payment of such funds as were available, constitute no defense at all for the surety, unless
the contract expressly requires diligence and promptness on the part of the creditor, which
is not the case in the present action. There is in some decisions a tendency toward holding
that the creditor's laches may discharge the surety, meaning by laches a negligent
forbearance. This theory, however, is not generally accepted and the courts almost
universally consider it essentially inconsistent with the relation of the parties to the note. (21
R.C.L., 1032-1034)[89]
Neither can petitioner benefit from the alleged insolvency of Antonio Ang Eng Liong for want
of clear and convincing evidence proving the same. Assuming it to be true, he also did not
exercise diligence in demanding security to protect himself from the danger thereof in the
event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner
may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his
liability to the bank; the said remedy is a matter of concern exclusively between themselves
as accommodation party and accommodated party. The fact that petitioner stands only as a
surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does
not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his
theory is to give unwarranted legal recognition to the patent absurdity of a situation where
a co-maker, when sued on an instrument by a holder in due course and for value, can escape
liability by the convenient expedient of interposing the defense that he is a merely an
accommodation party.[90]
In sum, as regards the other issues and errors alleged in this petition, the Court notes that
these were the very same questions of fact raised on appeal before the Court of Appeals,
although at times couched in different terms and explained more lengthily in the petition.
Suffice it to say that the same, being factual, have been satisfactorily passed upon and
considered both by the trial and appellate courts. It is doctrinal that only errors of law and
not of fact are reviewable by this Court in petitions for review on certiorari under Rule 45 of
the Rules of Court. Save for the most cogent and compelling reason, it is not our function
under the rule to examine, evaluate or weigh the probative value of the evidence presented
by the parties all over again.[91]
WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court
of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
Eulalio Prudencio vs. CA Tarog
G.R. NO. L-34539 July 14, 1986
Sec. 29
227 Phil. 7
GUTIERREZ, JR., J.:
This is a petition for review seeking to annul and set aside the decision of the Court of
Appeals, now the Intermediate Appellate Court, affirming the order of the trial court which
dismissed the petitioners' complaint for cancellation of their real estate mortgage and held
them jointly and severally liable with the principal debtors on a promissory note which they
signed as accommodation makers.
The factual background of this case is stated in the decision of the appellate court:
"Appellants are the registered owners of a parcel of land located in Sampaloc, Manila, and
covered by T.C.T. 35161 of the Register of Deeds of Manila. On October 7, 1954, this
property was mortgaged by the appellants to the Philippine National Bank, hereinafter called
PNB, to guarantee a loan of P1,000.00 extended to one Domingo Prudencio.
"Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter called
Company, had a pending contract with the Bureau of Public Works, hereinafter called the
Bureau, for the construction of the municipal building in Puerto Princesa, Palawan, in the
amount of P36,800.00 and, as said Company needed funds for said construction, Jose
Toribio, appellants' relative, and attorney-in-fact of the Company, approached the appellants
asking them to mortgage their property to secure the loan of P10,000.00 which the Company
was negotiating with the PNB.
"After some persuasion appellants signed on December 23, 1955 the 'Amendment of Real
Estate Mortgage', mortgaging their said property to the PNB to guaranty the loan of
P10,000.00 extended to the Company. The terms and conditions of the original mortgage
for P1,000.00 were made integral part of the new mortgage for P10,000.00 and both
documents were registered with the Register of Deeds of Manila. The promissory note
covering the loan of P10,000.00 dated December 29, 1955, maturing on April 27, 1956, was
signed by Jose Toribio, as attorney-in-fact of the Company, and by the appellants. Appellants
also signed the portion of the promissory note indicating that they are requesting the PNB
to issue the Check covering the loan to the Company. On the same date (December 23, 1955)
that the 'Amendment of Real Estate' was executed, Jose Toribio, in the same capacity as
attorney-in-fact of the Company, executed also the 'Deed of Assignment' assigning all
payments to be made by the Bureau to the Company-on account of the contract for the
construction of the Puerto Princesa building in favor of the PNB.
"This assignment of credit to the contrary notwithstanding, the Bureau, with approval, of the
PNB, conditioned, however that they should be for Labor and materials, made three
payments to the Company on account of the contract price totalling P11,234.40. The
Bureau's last request for P5,000.00 on June 20, 1956, however, was denied by the PNB for
the reason that since the loan was already overdue as of April 28, 1956, the remaining
balance of the contract price should be applied to the loan.
"The Company abandoned the work, as a consequence of which on June 30, 1956, the
Bureau rescinded the construction contract and assumed the work of completing the
building. On November 14, 1958, appellants wrote the PNB contending that since the PNB
authorized payments to the Company instead of on account of the loan guaranteed by the
mortgage there was a change in the conditions of the contract without the knowledge of
appellants, which entitled the latter to a cancellation of their mortgage contract.
"Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27,
1959 this action against the PNB, the Company, the latter's attorney-in--fact Jose Toribio,
and the District Engineer of Puerto Princesa, Palawan, seeking the cancellation of their real
estate mortgage. The complaint was amended to exclude the Company as defendant, it
having been shown that its life as a part-nership had already expired and, in lieu thereof,
Ramon Concepcion and Manuel M. Tamayo, partners of the defunct Company, were
impleaded in their private capacity as defendants."
After hearing, the, trial court rendered judgment, denying the prayer in the complaint that
the petitioners be absolved from their obligation under the mortgage contract and that the
said mortgage be released or cancelled. The petitioners were ordered to pay jointly and
severally with their co-makers Ramon C. Concepcion and Manuel M. Tamayo the sum of
P11,900.19 with interest at the rate of 6% per annum from the date of the filing of the
complaint on June 27, 1959 until fully paid and P1,000.00 attorney's fees.
The decision also provided that if the judgment was not satisfied within 90 days from its
receipt, the mortgaged properties together with all the improvements thereon belonging to
the petitioners would be sold at public auction and applied to the judgment debt.
The Court of Appeals affirmed the trial court's decision in toto stating that, as
accommodation makers, the petitioners' liability is that of solidary co-makers and that since
"the amounts released to the construction company were used therein and, therefore, were
spent for the successful accomplishment of the work cons-tructed for, the authorization
made by the Philippine National Bank of partial payments to the construction company
which was also one of the solidary debtors cannot constitute a valid defense on the part of
the other solidary debtors. Moreover, those who rendered services and furnished materials
in the construction are preferred creditors and have a lien on the price of the contract." The
appellate court further held that PNB had no obliga-tion whatsoever to notify the petitioners
of its authorizing the three payments in the total amount of P11,234.00 in favor of the
Company because aside from the fact that the petitioners were not parties to the deed of
assign-ment, there was no stipulation in said deed making it obligatory on the part of the
PNB to notify the peti-tioners everytime it authorizes payment to the Company. It ruled that
the petitioners cannot ask to be released from the real estate mortgage.
In this petition, the petitioners raise the follow-ing issues which they present in the form of
errors:
I. First Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS WERE
SOLIDARY CO-DEBTORS INSTEAD OF SURETIES.
II. Second Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE NOT
RELEASED FROM THEIR OBLIGATION TO THE RESPONDENT PNB, WHEN THE PNB, WITHOUT
THE KNOWLEDGE AND CONSENT OF PETITIONERS, CHANGED THE TENOR AND CONDITION
OF THE ASSIGNMENT OF PAYMENTS MADE BY THE PRINCIPAL DEBTOR, CONCEPCION &
TAMAYO CONSTRUCTION COMPANY, AND RELEASED TO SUCH PRINCIPAL DEBTOR
PAYMENTS FROM THE BUREAU OF PUBLIC WORKS WHICH WERE MORE THAN ENOUGH TO
WIPE OUT THE INDEBTEDNESS TO THE PNB.
The petitioners contend that as accommodation makers, the nature of their liability is only
that of mere sureties instead of solidary co-destors such that "a material alteration in the
principal contract, effected by the creditor without the knowledge and consent of the
sure-ties, completely discharges the sureties from all liability on the contract of suretyship."
They state that when respondent PNB did not apply the initial and subsequent payments to
the petitioner's debt as provided for in the deed of assignment, they were released from
their obligation as sureties and, therefore, the real estate mortgage executed by them should
have been cancelled.
Section 29 of the Negotiable Instrument Law provides:
"Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party."
In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539), we held that "x
x x in lending his name to the accommodated party, the accommodation party is in effect a
surety. x x x." However, unlike in a contract of suretyship, the liability of the accommodation
party remains not only primary but also unconditional to a holder for value such that even if
the accommodated party receives an extension of the period for payment without the
consent of the accommodation party, the latter is still liable for the whole obligation and
such extension does not release him because as far as a holder for value is concerned, he is
a solidary co-debtor.
Expounding on the nature of the liability of an accommodation party under the aforequoted
section, we ruled in Ang Tiong v. Ting (22 SCRA 713, 716):
"3. That the appellant, again assuming him to be an accommodation indorser, may obtain
security from the maker to protect himself against the danger of insolvency of the latter,
cannot in any manner affect his lia-bility to the appellee, as the said remedy is a matter of
concern exclusively between accommodation indorser and accommodated party. So that
the appellant stands only as a surety in relation to the maker, granting this to be true for the
sake of argument, is immaterial to the claim of the appellee, and does not a whit diminish
nor defeat the rights of the latter who is a holder for value. The liability of the appel-lant
remains primary and unconditional. To sanction the appellant's theory is to give
unwarranted legal recognition to the patent absurdity of a situation where an indorser, when
sued on an instrument by a holder in due course and for value, can escape liability on his
indorsement by the convenient expedient of interposing the defense that he is a mere
accommodation indorser."
There is, therefore, no question that as accommo-dation makers, petitioners would be
primarily and unconditionally liable on the promissory note to a holder for value, regardless
of whether they stand as sureties or solidary co-debtors since such distinction would be
entirely immaterial and inconsequential as far as a holder for value is concerned.
Consequently, the petitioners cannot claim to have been released from their obligation
simply because the time of payment of such obligation was temporarily deferred by PNB
without their knowledge and consent. There has to be another basis for their claim of having
been freed from their obligation. The question which should be resolved in this instant
petition, therefore, is whether or not PNB can be considered a holder for value under Section
29 of the Negotiable Instruments Law such that the petitioners must be necessarily barred
from setting up the defense of want of consi-deration or some other personal defenses
which may be set up against a party who is not a holder in due course.
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet
all the requirements of a holder in due course under Section 52 of the same law except notice
of want of consideration. (Agbayani, Commercial Laws of the Philippines, 1964, p. 208). If
he does not qualify as a holder in due course then he holds the instrument subject to the
same defenses as if it were non-negotiable (Section 58, Negotiable Instruments Law).
In the case at bar, can PNB, the payee of the promissory note be considered a holder in due
course?
Petitioners contend that the payee PNB is an immediate party and, therefore, is not a holder
in due course and stands on no better footing than a mere assignee.
In those cases where a payee was considered a holder in due course, such payee either
acquired the note from another holder or has not directly dealt with the maker thereof. As
was held in the case of Bank of Commerce and Savings v. Randell (186 North-Western
Reporter 71):
"We conclude, therefore, that a payee who receives a negotiable promissory note, in good
faith, for value, before maturity, and without any notice of any infirmity, from a holder, not
the maker, to whom it was negotiated as a completed instrument, is a holder in due course
within the purview of a Negotiable Instruments law, so as to preclude the defense of fraud
and failure of consideration between the maker and the holder to whom the instrument was
delivered."
Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern Reporter 748) on rehearing
and quoting Daniel on Negotiable Instruments, it was held:
"It is a general principle of the law merchant that, as between the immediate parties to a
negotiable instrument - the parties between whom there is a privity - the consi-deration may
be inquired into; and as to them the only superiority of a bill or note over other unsealed
evidence of debt is that it prima facie imports a consideration."
Although as a general rule, a payee may be considered a holder in due course we think that
such a rule cannot apply with respect to the respondent PNB. Not only was PNB an
immediate party or in privy to the promissory note, that is, it had dealt directly with the
petitioners knowing fully well that the latter only signed as accommodation makers but more
important, it was the Deed of Assignment executed by the Construction Company in favor of
PNB which principally moved the petitioners to sign the promissory note also in favor of PNB.
Petitioners were made to believe and on that belief entered into the agreement that no
other conditions would alter the terms thereof and yet; PNB altered the same. The Deed of
Assignment specifically provided that Jose F. Toribio, on behalf of the Company, "have
assigned, transferred and conveyed and by these presents, do assign, transfer and convey
unto the said Philippine National Bank, its successors and assigns all payments to be received
from the Bureau of Public Works on account of contract for the construction of the Puerto
Princesa Municipal Building in Palawan, involving the total amount of P36,000.00" and that
"This assignment shall be irrevocable and subject to the terms and conditions of the
promissory note and or any other kind of documents which the Philippine National Bank
have required or may require the assignor to execute to evidence the above-mentioned
obligation."
Under the terms of the above Deed, it is clear that there are no further conditions which
could possibly alter the agreement without the consent of the petitioners such as the grant
of greater priority to obligations other than the payment of the loan due to the PNB and part
of which loan was guaranteed by the petitioners in the amount of P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three payments directly to the
Company instead of paying the same to the Bank. This approval was in violation of the Deed
of Assignment and without any notice to the petitioners who stood to lose their property
once the promissory note falls due without the same having been paid because the PNB, in
effect, waived payments of the first three releases. From the foregoing circumstances, PNB
can not be regarded as having acted in good faith which is also one of the requisites of a
holder in due course under Section 52 of the Negotiable Instruments Law. The PNB knew
that the promissory note which it took from the accommodation makers was signed by the
latter because of full reliance on the Deed of Assignment, which, PNB had no intention to
comply with strictly. Worse, the third payment to the Company in the amount of P4,293.60
was approved by PNB although the promissory note was almost a month overdue, an act
which is clearly detri-mental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners
can validly set up their personal defense of release from the real estate mortgage against
PNB. The latter, in authorizing the third payment to the Company after the promissory note
became due, in effect, extended the term of the payment of the note without the consent
of the accommodation makers who stand as sureties to the accommodated party and to all
other parties who are not holders in due course or who do not derive their right from the
same, including PNB.
It may be argued that the Prudencios could have mortgaged their property even without the
promissory note. The records show, however, that they would not have mortgaged the lot
were it not for the sake of the Company whose attorney-in-fact was their relative. The
spouses did not need the money for themselves.
The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in
order to secure a loan in favor of the Company but the Prudencios refused. It was only when
the deed of assignment was shown to the spouses that they consented to the mortgage and
signed the promissory note in the Bank's favor.
Article 2085 of the Civil Code enumerates the requisites of a valid mortgage contract.
Petitioners do not dispute the validity of the mortgage. They only want to have it cancelled
because the Bank violated the deed of assignment and extended the period of time of
payment of the promissory note without the petitioners' consent and to the latter's
detriment.
The mortgage cannot be separated from the promissory note for it is the latter which is the
basis of determin-ing whether the mortgage should be foreclosed or cancelled. Without the
promissory note which determines the amount of indebtedness there would have been no
basis for the mort-gage.
True, if the Bank had not been the assignee, then the petitioners would be obliged to pay
the Bank as their cre-ditor on the promissory note, irrespective of whether or not the deed
of assignment had been violated. However, the assignee and the creditor in this case are
one and the same - the Bank itself. When the Bank violated the deed of assignment, it
prejudiced itself because its very violation was the reason why it was not paid on time in its
capacity as creditor in the promissory note. It would be unfair to make the petitioners now
answer for the debt or to foreclose on their property.
Neither can PNB justify its acts on the ground that the Bureau of Public Works approved the
deed of assignment with the condition that the wages of laborers and materials needed in
the construction work must take precedence over the payment of the promissory note. In
the first place, PNB did not need the approval of the Bureau. But even if it did, it should have
informed the petitioners about the amendment of the deed of assignment. Secondly, the
wages and materials have already been paid. That issue is academic. What is in dispute is
who should bear the loss in this case. As between the petitioners and the Bank, the law and
the equities of the case favor the petitioners. And thirdly, the wages and materials constitute
a lien only on the constructed building but do not enjoy pre-ference over the loan unless
there is a liquidation pro-ceeding such as in insolvency or settlement of estate. (See
Philippine Savings Bank v. Lantin, 124 SCRA 476). There were remedies available at the time
if the laborers and the creditors had not been paid. The fact is, they have been paid. Hence,
when the PNB accepted the condition imposed by the Bureau without the knowledge or
consent of the petitioners, it amended the deed of assign-ment which, as stated earlier, was
the principal reason why the petitioners consented to become accommodation makers.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals affirming the
decision of the trial court is hereby REVERSED and SET ASIDE and a new one entered
absolving the petitioners from liability on the promissory note and under the mortgage
contract. The Philippine National Bank is ordered to release the real estate mortgage
constituted on the property of the petitioners and to pay the amount of THREE THOUSAND
PESOS (P3,000.00) as attorney's fees.
SO ORDERED.
Bautista vs. Auto Plus Traders Torculas
G.R. NO. 166405 Aug. 6, 2008
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision[1] dated August 10, 2004 of the
Court of Appeals in CA-G.R. CR No. 28464 and the Resolution[2] dated October 29, 2004,
which denied petitioners motion for reconsideration. The Court of Appeals affirmed the
February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao
City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus
Lines and Transport Corporation, purchased various spare parts from private respondent
Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks
were subsequently dishonored. Private respondent then executed an affidavit-complaint for
violation of Batas Pambansa Blg. 22[3] against petitioner. Consequently, two Informations
for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao
City against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and
102,005-B-2001. The Informations[4] read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang
22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that
he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated December
15, 2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., but when said
check was presented to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of dishonor and demands
upon said accused to make good the check, accused failed and refused to make payment to
the damage and prejudice of herein complainant.
CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang
22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that
he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated October
30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said
check was presented to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of dishonor and demands
upon said accused to make good the check, accused failed and refused to make payment, to
the damage and prejudice of herein complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the
prosecutions evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC
granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the
guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is
directed to pay the complainant the sum of P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum to be computed from the time of the
filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus
Line[s] and Transport Corporation, through the accused, to reimburse complainant the
expense representing filing fees amounting to P1,780.00 and costs of litigation which this
Court hereby fixed at P5,000.00.
SO ORDERED.[5]
Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both
parties appealed to the RTC. On February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows:
Accused is directed to pay and/or reimburse the complainant the following sums: (1)
P248,700.00 representing the value of the two checks, with interest at the rate of 12% per
annum to be computed from the time of the filing of these cases in Court, until the account
is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation.
SO ORDERED.[6]
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner
elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision
and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of
the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated
May 11, 2004 are AFFIRMED.
SO ORDERED.[7]
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred
in upholding the RTCs ruling that petitioner, as an officer of the corporation, is personally
and civilly liable to the private respondent for the value of the two checks.[8]
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and
that the corporation, which has a separate personality from its officers, is solely liable for the
value of the two checks.
Private respondent counters that petitioner should be held personally liable for both checks.
Private respondent alleged that petitioner issued two postdated checks: a personal check in
his name for the amount of P151,200 and a corporation check under the account of Cruiser
Bus Lines and Transport Corporation for the amount of P97,500. According to private
respondent, petitioner, by issuing his check to cover the obligation of the corporation,
became an accommodation party. Under Section 29[9] of the Negotiable Instruments Law,
an accommodation party is liable on the instrument to a holder for value. Private respondent
adds that petitioner should also be liable for the value of the corporation check because
instituting another civil action against the corporation would result in multiplicity of suits and
delay.
At the outset, we note that private respondents allegation that petitioner issued a personal
check disputes the factual findings of the MTCC. The MTCC found that the two checks belong
to Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks
was a personal check of the petitioner. Generally this Court, in a petition for review on
certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But,
considering that the findings of the MTCC and the RTC are at variance,[10] we are compelled
to settle this issue.
A perusal of the two check return slips[11] in conjunction with the Current Account
Statements[12] would show that the check for P151,200 was drawn against the current
account of Claude Bautista while the check for P97,500 was drawn against the current
account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding
of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding
petitioner liable for the value of the checks considering that petitioner was acquitted of the
crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines
and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the persons
composing it.[13] Generally, the stockholders and officers are not personally liable for the
obligations of the corporation except only when the veil of corporate fiction is being used as
a cloak or cover for fraud or illegality, or to work injustice.[14] These situations, however, do
not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport
Corporation that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement
that petitioner shall be held liable for the corporations obligations in his personal capacity.
Hence, he cannot be held liable for the value of the two checks issued in payment for the
corporations obligation in the total amount of P248,700.
Likewise, contrary to private respondents contentions, petitioner cannot be considered
liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable
Instruments Law defines an accommodation party as a person who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person. As gleaned from the text, an
accommodation party is one who meets all the three requisites, viz: (1) he must be a party
to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive
value therefor; and (3) he must sign for the purpose of lending his name or credit to some
other person.[15] An accommodation party lends his name to enable the accommodated
party to obtain credit or to raise money; he receives no part of the consideration for the
instrument but assumes liability to the other party/ies thereto.[16] The first two elements
are present here, however there is insufficient evidence presented in the instant case to
show the presence of the third requisite. All that the evidence shows is that petitioner signed
Check No. 58832, which is drawn against his personal account. The said check, dated
December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines
and Transport Corporation on August 29, 2000.[17] There is no showing of when petitioner
issued the check and in what capacity. In the absence of concrete evidence it cannot just be
assumed that petitioner intended to lend his name to the corporation. Hence, petitioner
cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks
especially since there is no evidence that the debts covered by the subject checks have been
paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the
Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are
REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED,
without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper
civil action against Cruiser Bus Lines and Transport Corporation for the value of the two
checks.
No pronouncement as to costs.
SO ORDERED.
Eusebio Gonzales vs. PCIB Urian
G.R. NO. 180257 Feb. 23, 2011
Sec. 29
DECISION
VELASCO, JR., J.:
The Case
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision[1]
dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied
petitioners appeal from the December 10, 2001 Decision[2] in Civil Case No. 99-1324 of the
Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for
respondents dishonor of petitioners check and found petitioner solidarily liable with the
spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they
executed in favor of respondent Philippine Commercial and International Bank (PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he
filed the instant case. His account with PCIB was handled by respondent Edna Ocampo
(Ocampo) until she was replaced by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-
On-Hand Loan Agreement[3] (COHLA), in which the aggregate amount of the accounts of
Gonzales with PCIB served as collateral for and his availment limit under the credit line.
Gonzales drew from said credit line through the issuance of check. At the institution of the
instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently,
on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two
additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.
These three loans amounting to PhP 1,800,000 were covered by three promissory notes.[4]
To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer
Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio.
Notably, the promissory notes specified, among others, the solidary liability of Gonzales and
the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who
received the loan proceeds of PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio through the
automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of
July 1998, defaulted in the payment of the periodic interest dues from their PCIB account
which apparently was not maintained with enough deposits. PCIB allegedly called the
attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating
periodic interest dues which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson
(Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13,
1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due
to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid
periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise
froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They
had a heated argument in the premises of the Philippine Columbian Association (PCA) where
they are both members, which caused great embarrassment and humiliation to Gonzales.
Thereafter, on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP
250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter[6] to
Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was
forced to source out and pay the PhP 250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he
issued had been fully funded, and demanded the return of the proceeds of his FCD as well
as damages for the unjust dishonor of the check.[7] PCIB replied on March 22, 1999 and
stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans.[8]
On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the
actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the
loans, which were serviced by the PCIB account of the spouses Panlilio.[9]
PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages
with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The
decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the
promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on part of the defendant
Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to damages from each other.
No pronouncement as to costs.
SO ORDERED.[10]
The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory
notes relative to the outstanding REM loan. The trial court found no fault in the termination
by PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the
past due PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by
Gonzales in favor of Unson was proper considering that the credit line under the COHLA had
already been terminated or revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales
appeal and affirming in toto the RTC Decision. The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil Case
No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.[11]
In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales was
indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for
the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in
dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was
merely exercising its rights under the contractual stipulations in the COHLA brought about
by the outstanding past dues of the REM loan and interests for which Gonzales was solidarily
liable with the spouses Panlilio to pay under the promissory notes.
Thus, we have this petition.
The Issues

Gonzales, as before the CA, raises again the following assignment of errors:
I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES (EXHIBITS
A, B AND C, PETITIONER; EXHIBITS 1, 2 AND 3, RESPONDENT) PERTAINED TO BORROWER
JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY
RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF GROSS
NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE
AMOUNT OF P250,000.00 FOR THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY REFER
TO DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT SIGNED A
CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT
WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]
48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION OF
CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.[12]
The Courts Ruling
The core issues can be summarized, as follows: first, whether Gonzales is liable for the three
promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where
a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and
second, whether PCIB properly dishonored the check of Gonzales drawn against the COHLA
he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily
liable with the spouses Panlilio for the three promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the following:
(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995, for PhP 500,000 was
signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995, for PhP 1,000,000 was
signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for PhP 300,000 was signed
by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above promissory notes. First,
Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his
testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the
suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast
release of the loan. Gonzales testified:
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was a loan also applied for
by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how this came
about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if he
secures another P1.8 Million loan the release will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the
property I agreed initially to use my name so that the loan can be utilized immediately by
Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this
P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.[16]
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your
name initially?
A: Well it was actually suggested by the account officer at that time Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he
has been familiar with my account ever since its inception.
Q: So these two officers Ocampo and Noceda knew that this was actually the account of Mr.
Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are always informing me
that the account will be debited to Mr. Panlilios account.[17]
Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers,
while the two subsequent notes showed the spouses Panlilio sign as borrowers with
Gonzales. It is, thus, evident that Gonzales signed, as borrower, the promissory notes
covering the PhP 1,800,000 loan despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP
1,800,000 loan proceeds went to the spouses Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8
million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.[18]
The fact that the loans were undertaken by Gonzales when he signed as borrower or co-
borrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds went
to the spouses Panlilio who were servicing or paying the monthly duesis beside the point.
For signing as borrower and co-borrower on the promissory notes with the proceeds of the
loans going to the spouses Panlilio, Gonzales has extended an accommodation to said
spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for
the loans. In Ang v. Associated Bank,[19] quoting the definition of an accommodation party
under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation
party is a person who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other
person.[20] The Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or credit to
some other person. An accommodation party lends his name to enable the accommodated
party to obtain credit or to raise money; he receives no part of the consideration for the
instrument but assumes liability to the other party/ies thereto. The accommodation party is
liable on the instrument to a holder for value even though the holder, at the time of taking
the instrument, knew him or her to be merely an accommodation party, as if the contract
was not for accommodation.
As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and suretythe accommodation party being the
surety. As such, he is deemed an original promisor and debtor from the beginning; he is
considered in law as the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are interwoven as to be inseparable.
Although a contract of suretyship is in essence accessory or collateral to a valid principal
obligation, the suretys liability to the creditor is immediate, primary and absolute; he is
directly and equally bound with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligations nor does he receive any
benefit therefrom.[21]
Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by
Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does
not exonerate Gonzales from liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which
uniformly begin, For value received, the undersigned (the BORROWER) jointly and severally
promise to pay x x x. Solidary liability cannot be presumed but must be established by law or
contract.[22] Article 1207 of the Civil Code pertinently states that there is solidary liability
only when the obligation expressly so states, or when the obligation requires solidarity. This
is true in the instant case where Gonzales, as accommodation party, is immediately, equally,
and absolutely bound with the spouses Panlilio on the promissory notes which indubitably
stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve
as the contract between the parties. Contracts have the force of law between the parties
and must be complied with in good faith.[23]
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now
touch upon the question of whether it was proper for PCIB to dishonor the check issued by
Gonzales against the credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of
errors of law.[24] The factual findings of the trial court, especially when affirmed by the
appellate court, are generally binding on us unless there was a misapprehension of facts or
when the inference drawn from the facts was manifestly mistaken.[25] The instant case falls
within the exception.
The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check
issued by Gonzales against the credit line, because the credit line was already closed prior to
the presentment of the check by Unson; and the closing of the credit line was likewise proper
pursuant to the stipulations in the promissory notes on the banks right to set off or apply all
moneys of the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right to
terminate the credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed about the default of the
spouses Panlilio and that the September 21, 1998 account statement of the credit line shows
a balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs
certification that he has USD 8,715.72 in his FCD account which is more than sufficient
collateral to guarantee the PhP 250,000 check, dated September 30, 1998, he issued against
the credit line.
A careful scrutiny of the records shows that the courts a quo committed reversible error in
not finding negligence by PCIB in the dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and delinquency of the PhP
1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio
on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an
accommodation party and as such only lent his name and credit to the spouses Panlilio.
While not exonerating his solidary liability, Gonzales has a right to be properly apprised of
the default or delinquency of the loan precisely because he is a co-signatory of the
promissory notes and of his solidary liability.

We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay
the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party
and was not personally interested in the loan. Thus, a meeting was set by Gonzales with the
spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry
shop in SM Megamall on October 5, 1998. Unfortunately, the meeting did not push through
due to the heavy traffic Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough to properly apprise
Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely
informed to pay over a hundred thousand without being formally apprised of the exact
aggregate amount and the corresponding dues pertaining to specific loans and the dates
they became due.
Gonzales testified that he was not duly notified about the outstanding interest dues of the
loan:
ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the bank did the defendant bank
[advise] you of any problem with the same account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.[26]
On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to
him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to cancel the COH Line and
he could withdraw the money that was in the deposit because technically, if an account is
past due we are not allowed to let the client withdraw funds because they are allowed to
offset funds so, just to help him get his money, just to update the interest so that we could
allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would not be able to withdraw
his money?
A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why we
suggested just to update the interest because at the end of everything, he would be able to
withdraw more funds than the interest that the money he would be needed to update the
interest.[27]
From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB
that Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the
former PCIB employees to be self-serving and tenuous at best, for there was no proper
written notice given by the bank. The record is bereft of any document showing that, indeed,
Gonzales was formally informed by PCIB about the past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It
also acted in accordance with such fact by releasing the proceeds of the loan to the spouses
Panlilio and likewise only informed the spouses Panlilio of the interest dues. The spouses
Panlilio, through their account[28] with PCIB, were paying the periodic interest dues and
were the ones periodically informed by the bank of the debiting of the amounts for the
periodic interest payments. Gonzales never paid any of the periodic interest dues. PCIBs
Noceda admitted as much in his cross-examination:

ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not,
its always Mr. Panlilio who was paying the interest for this loan?
NOCEDA:
Yes sir.[29]
Indeed, no evidence was presented tending to show that Gonzales was periodically sent
notices or notified of the various periodic interest dues covering the three promissory notes.
Neither do the records show that Gonzales was aware of amounts for the periodic interests
and the payment for them. Such were serviced by the spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of
the interest dues that were not paid starting July 1998. And such notification must be formal
or in written form considering that the outstanding periodic interests became due at various
dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have to be certain so that
Gonzales is not only properly apprised but is given the opportunity to pay them being
solidarily liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues must be put into writing
and formally served to Gonzales if he were asked to pay them, more so when the payments
by the spouses Panlilio were charged through the account of the spouses Panlilio where the
interest dues were simply debited. Such arrangement did not cover Gonzales bank account
with PCIB, since he is only an accommodation party who has no personal interest in the PhP
1,800,000 loan. Without a clear and determinate demand through a formal written notice
for the exact periodic interest dues for the loans, Gonzales cannot be expected to pay for
them.
In business, more so for banks, the amounts demanded from the debtor or borrower have
to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that
one must pay over a hundred thousand aggregate outstanding interest dues without clear
and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, who is
an accommodation party, about the default and the exact outstanding periodic interest
dues. Without being properly apprised, Gonzales was not given the opportunity to properly
act on them.
It was only through a letter[30] sent by PCIB dated October 2, 1998 but incongruously
showing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October
31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP
106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate
due of PhP 171,383.37. But it is not certain and the records do not show when the letter was
sent and when Gonzales received it. What is clear is that such letter was belatedly sent by
PCIB and received by Gonzales after the fact that the latters FCD was already frozen, his
credit line under the COHLA was terminated or suspended, and his PhP 250,000 check in
favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent
to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal written
notices sent to Gonzales were too late in the day for Gonzales to act properly on the
delinquency and he already suffered the humiliation and embarrassment from the dishonor
of his check drawn against the credit line.
To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered
by the three promissory notes was required to apprise Gonzales, an accommodation party.
PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding
obligations, more so when PCIB was invoking the solidary liability of Gonzales. This PCIB
failed to do.
Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of
action to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation
in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing from the
receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automatic
renewals for same periods unless terminated by the BANK upon prior notice served on
CLIENT.[31] (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA
without giving Gonzales prior notice as required by the above stipulation in the COHLA.
Noceda testified on cross-examination on the Offering Ticket[32] recommending the
termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it
not?
NOCEDA: No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to him, its only now when
you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it was relayed by Liza that he has
to pay his obligations or else it will adversely affect the status of the account.[33]
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand extended solely of course
to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on
hand facility. Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the
one who recommended the cancellation of this credit on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I dont recall and we have to look at the folder to determine if they were informed.
Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid interest and that if he
is able to update his interest he can extend the promissory note or restructure the
outstanding.
Q: Now, I call your attention madam witness, there is nothing in this letter to the clients
advising them or Mr. Gonzales that his credit on hand facility was already cancelled?
A: I dont know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on
hand facility was already cancelled?
A: No actually he can understand it from the last sentence. If you will be able to update your
outstanding interest, we can apply the extention of your promissory note so in other words
we are saying that if you dont, you cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8
million is it not, as you can see from the letter? Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to the credit on hand
facility which was being utilized by Mr. Gonzales is it not?
A: But I dont know if there are other letters that are not presented to me now.[34]
The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior
notice to Gonzales about the Offering Ticket for the process of termination, suspension, or
revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of
the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the COHLA. While PCIB
invokes its right on the so-called cross default provisions, it may not with impunity ignore
the rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and great reliance is made
on the banks sworn profession of diligence and meticulousness in giving irreproachable
service. Like a common carrier whose business is imbued with public interest, a bank should
exercise extraordinary diligence to negate its liability to the depositors.[35] In this instance,
PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not
wantonly exercise its rights without respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that [e]very person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith. This is the basis of the principle of abuse of right which, in
turn, is based upon the maxim suum jus summa injuria (the abuse of right is the greatest
possible wrong).[36]
In order for Art. 19 to be actionable, the following elements must be present: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent
of prejudicing or injuring another.[37] We find that such elements are present in the instant
case. The effectivity clause of the COHLA is crystal clear that termination of the COH should
be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform
Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to
give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[38] In the
instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the
loans[39] but failed to mention anything about the termination of the COHLA. More
significantly, no letter was ever sent to him about the termination of the COHLA. The failure
to give prior notice on the part of PCIB is already prima facie evidence of bad faith.[40]
Therefore, it is abundantly clear that this case falls squarely within the purview of the
principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA
under the cross default provisions of both the promissory notes and the COHLA. However,
these cross default provisions do not confer absolute unilateral right to PCIB, as they are
qualified by the other stipulations in the contracts or specific circumstances, like in the
instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to set off or apply to the
payment of this Note any and all moneys which may be in its hands on deposit or otherwise
belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon
the nonpayment of this Note on demand/at maturity or upon the happening of any of the
events of default, but without any obligation on the Lenders part should it choose not to
perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any
property of the Borrower, which may be in the Lenders possession by public or private sale,
and to apply the proceeds thereof to the payment of this Note; the Borrower, however, shall
remain liable for any deficiency.[41] (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of an accommodation
party who, as such, has not been servicing the payment of the dues of the loans, and must
first be properly apprised in writing of the outstanding dues in order to answer for his
solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT The CLIENT shall be considered in default under the COH if any of the following
events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with
the BANK or any bank, persons, corporations or entities for the payment of borrowed money,
or any other event of default in such contracts.[42]
The above pertinent default clause must be read in conjunction with the effectivity clause
(No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior
notice. The rationale is simple: in cases where the bank has the right to terminate, revoke,
or suspend the credit line, the client must be notified of such intent in order for the latter to
act accordinglywhether to correct any ground giving rise to the right of the bank to terminate
the credit line and to dishonor any check issued or to act in accord with such termination,
i.e., not to issue any check drawn from the credit line or to replace any checks that had been
issued. This, the bankwith gross negligencefailed to accord Gonzales, a valued client for more
than 15 years.
Fourth. We find the testimony[43] of Ocampo incredible on the point that the principal
borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for
which the bank officers had special instructions to grant and that it was through the
instructions of Gonzales that the payment of the periodic interest dues were debited from
the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as
the principal borrower, the other promissory notes dated December 26, 1995 and January
3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with
Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement
of the payments by the spouses Panlilio through the debiting of their bank account. It is
incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere
verbal directive to do so. The fact that the spouses Panlilio not only received the proceeds of
the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was
only an accommodation party.
Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper notice
relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory
notes, the unjust termination, revocation, or suspension of the credit line under the COHLA
from PCIBs gross negligence in not honoring its obligation to give prior notice to Gonzales
about such termination and in not informing Gonzales of the fact of such termination,
treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a
reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD
account was frozen and had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good father of the family
considering that the business of banking is imbued with public interest due to the nature of
their function. The law imposes on banks a high degree of obligation to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of
banking.[44] Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000
loan and the process of terminating his credit line under the COHLA, he could have acted
accordingly and the dishonor of the check would have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized societybanks have attained a ubiquitous
presence among the people, who have come to regard them with respect and even gratitude
and most of all, confidence, and it is for this reason, banks should guard against injury
attributable to negligence or bad faith on its part.[45]
In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the
testimonies of Gonzales witnesses, particularly those of Dominador Santos[46] and Freddy
Gomez,[47] the embarrassment and humiliation Gonzales has to endure not only before his
former close friend Unson but more from the members and families of his friends and
associates in the PCA, which he continues to experience considering the confrontation he
had with Unson and the consequent loss of standing and credibility among them from the
fact of the apparent bouncing check he issued. Credit is very important to businessmen and
its loss or impairment needs to be recognized and compensated.[48]
The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of
the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code
refers to such acts when it says, Any person who willfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy shall compensate the
latter for damage.
Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of
nominal damages. Nominal damages are recoverable where a legal right is technically
violated and must be vindicated against an invasion that has produced no actual present loss
of any kind x x x.[49] We further explained the nature of nominal damages in Almeda v. Cario:
x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition
and vindication of a right. Indeed, nominal damages are damages in name only and not in
fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted
but simply a recognition of the existence of a technical injury. A violation of the plaintiffs
right, even if only technical, is sufficient to support an award of nominal damages.
Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award
of nominal damages is proper.[50] (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the accrued interest and most
especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay
nominal damages. The amount of such damages is addressed to the sound discretion of the
court, taking into account the relevant circumstances.[51] In this case, the Court finds that
the grant of PhP 50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,[52] failure to give prior notice when required, such
as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of
the Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be
recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that
[w]illful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Similarly, every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.[53] Evidently, Gonzales is entitled to recover
moral damages.
Even in the absence of malice or bad faith, a depositor still has the right to recover
reasonable moral damages, if the depositor suffered mental anguish, serious anxiety,
embarrassment, and humiliation.[54] Although incapable of pecuniary estimation, moral
damages are certainly recoverable if they are the proximate result of the defendants
wrongful act or omission. The factual antecedents bolstered by undisputed testimonies
likewise show the mental anguish and anxiety Gonzales had to endure with the threat of
Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in PCIB
was frozen, prompting Gonzales to demand from PCIB and to file the instant suit.
The award of moral damages is aimed at a restoration within the limits of the possible, of
the spiritual status quo anteit must always reasonably approximate the extent of injury and
be proportional to the wrong committed.[55] Thus, an award of PhP 50,000 is reasonable
moral damages for the unjust dishonor of the PhP 250,000 which was the proximate cause
of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by
Gonzales from his loss of credibility among his friends, colleagues and peers.
Furthermore, the initial carelessness of the banks omission in not properly informing
Gonzales of the outstanding interest duesaggravated by its gross neglect in omitting to give
prior notice as stipulated under the COHLA and in not giving actual notice of the termination
of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is
imposed by way of example or correction for the public good.
Finally, an award for attorneys fees is likewise called for from PCIBs negligence which
compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the
Code, attorneys fees may be recovered when exemplary damages are awarded. We find that
the amount of PhP 50,000 as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October
22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine
Commercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales
PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary
damages, and PhP 50,000 as attorneys fees.
No pronouncement as to costs.

SO ORDERED.