Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2861 February 26, 1951
ENRIQUE P. MONTINOLA, plaintiff-appellant,
vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants-appellees.
MONTEMAYOR, J.:

In August, 1947, Enrique P. Montinola filed a complaint in the Court of First Instance of Manila against the Philippine National Bank and the Provincial
Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of Check No. 1382 issued on May 2, 1942 by the Provi ncial Treasurer of
Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola. After hearing, the court rendered a decision dismissing the complaint with
costs against plaintiff-appellant. Montinola has appealed from that decision directly to this Court inasmuch as the amount in controversy exceeds P50,000.

There is no dispute as to the following facts. In April and May, 1942, Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental. As such Provincial
Treasurer he was ex officio agent of the Philippine National Bank branch in the province. Mariano V. Ramos worked under him as assistant agent in the
bank branch aforementioned. In April of that year 1942, the currency being used in Mindanao, particularly Misamis Oriental an d Lanao which had not
yet been occupied by the Japanese invading forces, was the emergency currency which had been issued since January, 1942 by the Mindanao Emergency
Currency Board by authority of the late President Quezon.

About April 26, 1942, thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was inducted into the United States Armed
Forces in the Far East (USAFFE) as disbursing officer of an army division. As such disbursing officer, M. V. Ramos on April 30, 1942, went to the
neighboring Province Lanao to procure a cash advance in the amount of P800,000 for the use of the USAFFE in Cagayan de Misamis. Pedro Encarnacion,
Provincial Treasurer of Lanao did not have that amount in cash. So, he gave Ramos P300,000 in emergency notes and a check for P500,000. On May
2, 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500,000 which he h ad received from the
Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check so he gave Ramos P400,000 in emergency notes and a check No. 1382
for P100,000 drawn on the Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the Philippine National
Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit.
Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him, the Japanese f orces entered the
capital of Misamis Oriental, and on June 10, 1942, the USAFFE forces to which he was attached surrendered. Ramos was made a prisoner of war until
February 12, 1943, after which, he was released and he resumed his status as a civilian.

About the last days of December, 1944 or the first days of January, 1945, M. V. Ramos allegedly indorsed this check No. 1382 to Enrique P. Montinola.
The circumstances and conditions under which the negotiation or transfer was made are in controversy.
According to Montinola's version, sometime in June, 1944, Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the
check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos himself, went to see President Carmona of
the Philippine National Bank in Manila about said check; that after examining it President Carmona told him that it was negotiable but that he should
not let the Japanese catch him with it because possession of the same would indicate that he was still waiting for the return of the Americans to the
Philippines; that he and Ramos finally agreed to the sale of the check for P850,000 Japanese military notes, payable in installments; that of this amount,
P450,000 was paid to Ramos in Japanese military notes in five installments, and the balance of P400,000 was paid in kind, namely, four bottles of
sulphatia sole, each bottle containing 1,000 tablets, and each tablet valued at P100; that upon payment of the full price, M. V. Ramos duly indorsed the
check to him. This indorsement which now appears on the back of the document is described in detail by trial court as follows:

The endorsement now appearing at the back of the check ( see Exhibit A-1) may be described as follows: The woods, "pay to the order of" —
in rubber stamp and in violet color are placed about one inch from the top. This is followed by the words "Enrique P. Montinola" in typewriting
which is approximately 5/8 an inch below the stamped words "pay to the order of". Below "Enrique P. Montinola", in typewriting are words
and figures also in typewriting, "517 Isabel Street" and about ¹/8 of an inch therefrom, the edges of the check appear to have been burned,
but there are words stamped apparently in rubber stamp which, according to Montinola, are a facsimile of the signature of Ramos. There is a
signature which apparently reads "M. V. Ramos" also in green ink but made in handwriting."

To the above description we may add that the name of M. V. Ramos is hand printed in green ink, under the signature. According to Montinola, he asked
Ramos to hand print it because Ramos' signature was not clear.
Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was selling only
P30,000 of the check and for this reason, at the back of the document he wrote in longhand the following:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the cre dit of M. V.
Ramos.

Ramos further said that in exchange for this assignment of P30,000 Montinola would pay him P90,000 in Japanese military notes but that Montinola
gave him only two checks of P20,000 and P25,000, leaving a balance unpaid of P45,000. In this he was corroborated by Atty. Simeon Ramos Jr. who
told the court that the agreement between Ramos and Montinola was that the latter, for the sale to him of P30,000 of the check, was to pay Ramos
P90,000 in Japanese military notes; that when the first check for P20,000 was issued by Montinola, he (Simeon) prepared a document evidencing said
payment of P20,000; that when the second check for P25,000 was issued by Montinola, he (Simeon) prepared another document with two copies, one
for Montinola and the other for Ramos, both signed by Montinola and M. V. Ramos, evidencing said payment, with the understanding that the balance
of P45,000 would be paid in a few days.

The indorsement or writing described by M. V. Ramos which had been written by him at the back of the check, Exhibit A, does not now appear at the
back of said check. What appears thereon is the indosement testified to by Montinola and described by the trial court as reproduced above. Before going
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into a discussion of the merits of the version given by Ramos and Montinola as to the indorsement or writing at the back of the check, it is well to give
a further description of it as we shall later.
When Montinola filed his complaint in 1947 he stated therein that the check had been lost, and so in lieu thereof he filed a supposed photostic copy.
However, at the trial, he presented the check itself and had its face marked Exhibit A and the back thereof Exhibit A-1. But the check is badly mutilated,
bottled, torn and partly burned, and its condition can best be appreciated by seeing it. Roughly, it may be stated that looking at the face of the check
(Exhibit A) we see that the left third portion of the paper has been cut off perpendicularly and severed from the remaining 2/3 portion; a triangular
portion of the upper right hand corner of said remaining 2/3 portion has been similarly cut off and severed, and to keep and attach this triangular portion
and the rectangular ¹/3 portion to the rest of the document, the entire check is pasted on both sides with cellophane; the edges of the severed portions
as well as of the remaining major portion, where cut bear traces of burning and searing; there is a big blot with indelible ink about the right middle
portion, which seems to have penetrated to the back of the check (Exhibit A-1), which back bears a larger smear right under the blot, but not black and
sharp as the blot itself; finally, all this tearing, burning, blotting and smearing and pasting of the check renders it difficult if not impossible to read some
of the words and figures on the check.

In explanation of the mutilation of the check Montinola told the court that several months after indorsing and delivering the check to him, Ramos
demanded the return of the check to him, threatening Montinola with bodily harm, even death by himself or his guerrilla forces if he did not return said
check, and that in order to justify the non-delivery of the document and to discourage Ramos from getting it back, he (Montinola) had to resort to the
mutilation of the document.

As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check, we agree with trial court that the
original writing of Ramos on the back of the check was to the effect that he was assigning only P30,000 of the value of the document and that he was
instructing the bank to deposit to his credit the balance. This writing was in some mysterious way obliterated, and in its place was placed the present
indorsement appearing thereon. Said present indorsement occupies a good portion of the back of the check. It has already been described in detail. As
to how said present indorsement came to be written, the circumstances surrounding its preparation, the supposed participation of M. V. Ramos in it and
the writing originally appearing on the reverse side of the check, Exhibit A-1, we quote with approval what the trial court presided over by Judge Conrado
V. Sanchez, in its well-prepared decision, says on these points:

The allegedly indorsement: "Pay to the order of Enrique P. Montinola the amount of P30,000 only. The balance to be deposited to the credit
of M. V. Ramos", signed by M. V. Ramos-according to the latter-does not now appear at the back of the check. A different indorsement, as
aforesaid, now appears.
Had Montinola really paid in full the sum of P850,000 in Japanese Military Notes as consideration for the check? The following observations
are in point:
(a) According to plaintiff's witness Gregorio A. Cortado, the oval line in violet, enclosing "P." of the words "Enrique P. Montinola" and the line
in the form of cane handle crossing the word "street" in the words and figures "517 Isabel Street" in the endorsement Exhibit A-1 "unusual"
to him, and that as far as he could remember this writing did not appear on the instrument and he had no knowledge as to how it happened
to be there. Obviously Cortado had no recollection as to how such marks ever were stamped at the back of the check.
(b) Again Cortado, speaking of the endorsement as it now appears at the back of the check (Exh. A-1) stated that Ramos typewrote these
words outside of the premises of Montinola, that is, a nearby house. Montinola, on the other hand, testified that Ramos typewrote the words
"Enrique P. Montinola 517 Isabel Street", in his own house. Speaking of the rubber stamp used at the back of the check and which produced
the words "pay to the order of", Cortado stated that when he (Cortado), Atadero, Montinola and Ramos returned in group to the house of
Montinola, the rubber stamp was already in the house of Montinola, and it was on the table of the upper floor of the house, together with the
stamp pad used to stamp the same. Montinola, on the other hand, testified that Ramos carried in his pocket the said rubber stamp as well as
the ink pad, and stamped it in his house.
The unusually big space occupied by the indorsement on the back of the check and the discrepancies in the versions of Montinola and his
witness Cortado just noted, create doubts as to whether or not really Ramos made the indorsement as it now appears at the back of Exhibit
A. One thing difficult to understand is why Ramos should go into the laborious task of placing the rubber stamp "Pay to the order of" and
afterwards move to the typewriter and write the words "Enrique P. Montinola" "and "517 Isabel Street", and finally sign his name too far below
the main indorsement.
(c) Another circumstances which bears heavily upon the claim of plaintiff Montinola that he acquired the full value of the check and paid the
full consideration therefor is the present condition of said check. It is now so unclean and discolored; it is pasted in cellophane, bottled with
ink on both sides torn three parts, and with portions thereof burned-all done by plaintiff, the alleged owner thereof.
The acts done by the very plaintiff on a document so important and valuable to him, and which according to him involves his life savings,
approximate intentional cancellation. The only reason advanced by plaintiff as to why tore check, burned the torn edges and bottled out the
registration at the back, is found in the following: That Ramos came to his house, armed with a revolver, threatened his life and demanded
from him the return of the check; that when he informed Ramos that he did not have it in the house, but in some deposit outside thereof and
that Ramos promised to return the next day; that the same night he tore the check into three parts, burned the sides with a parrafin candle
to show traces of burning; and that upon the return of Ramos the next day he showed the two parts of the check, the triangle on the right
upper part and the torn piece on the left part, and upon seeing the condition thereof Ramos did not bother to get the check back. He also said
that he placed the blots in indelible ink to prevent Ramos — if he would be forced to surrender the middle part of the check — from seeing
that it was registered in the General Auditing Office.
Conceding at the moment these facts to be true, the question is: Why should Montinola be afraid of Ramos? Montinola claims th at Ramos
went there about April, 1945, that is, during liberation. If he believed he was standing by his rights, he could have very well sought police
protection or transferred to some place where Ramos could not bother him. And then, really Ramos did not have anything more t o do with
this check for the reason that Montinola had obtained in full the amount thereof, there could not be any reason why Ramos should have
threatened Montinola as stated by the latter. Under the circumstances, the most logical conclusion is that Ramos wanted the check at all costs
because Montinola did not acquire the check to such an extent that it borders on intentional cancellation thereof ( see Sections 119-123
Negotiable Instruments Law) there is room to believe that Montinola did not have so much investments in that check as to adopted an "what
do I care?" attitude.

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 And there is the circumstance of the alleged loss of the check. At the time of the filing of the complaint the check was allegedly lost, so much
so that a photostatic copy thereof was merely attached to the complaint (see paragraph 7 of the complaint). Yet, during the trial the original
check Exhibit A was produced in court.
But a comparison between the photostatic copy and the original check reveals discrepancies between the two. The condition of the check as
it was produced is such that it was partially burned, partially blotted, badly mutilated, discolored and pasted with cellophane. What is worse is
that Montinola's excuse as to how it was lost, that it was mixed up with household effects is not plausible, considering the fact that it involves
his life savings, and that before the alleged loss, he took extreme pains and precautions to save the check from the possible ravages of the
war, had it photographed, registered said check with the General Auditing Office and he knew that Ramos, since liberation, was hot after the
possession of that check.
(d) It seems that Montinola was not so sure as to what he had testified to in reference to the consideration he paid for the check. In court he
testified that he paid P450,000 in cash from June to December 1944, and P400,000 worth of sulphatiazole in January 1945 to co mplete the
alleged consideration of P850,000. When Montinola testified this way in court, obviously he overlooked a letter he wrote to the provincial
treasurer of Cagayan, Oriental Misamis, dated May 1, 1947, Exhibit 3 the record. In that letter Exhibit 3, Montinola told Provincial Treasurer
Elizalde of Misamis Oriental that "Ramos endorsed it (referring to check) to me for goods in kind, medicine, etc., received by him for the use
of the guerrillas." In said letter Exhibit 3, Montinola did not mention the cash that he paid for the check.
From the foregoing the court concludes that plaintiff Montinola came into the possession of the check in question about the end of December
1944 by reason of the fact that M. V. Ramos sold to him P30,000 of the face value thereof in consideration of the sum of P90,000 Japanese
money, of which only one-half or P45,000 (in Japanese money) was actually paid by said plaintiff to Ramos. (R. on A., pp. 31-33; Brief of
Appellee, pp. 14-20.)

At the beginning of this decision, we stated that as Provincial Treasurer of Misamis Oriental, Ubaldo D. Laya was ex officio agent of the Philippine
National Bank branch in that province. On the face of the check (Exh. A) we now find the words in parenthesis "Agent, Phil. National Bank" under the
signature of Laya, purportedly showing that he issued the check as agent of the Philippine National Bank. It this is true, then the bank is not only drawee
but also a drawer of the check, and Montinola evidently is trying to hold the Philippine National Bank liable in that capacity of drawer, because as drawee
alone, inasmuch as the bank has not yet accepted or certified the check, it may yet avoid payment.

Laya, testifying in court, stated that he issued the check only as Provincial Treasurer, and that the words in parenthesis "A gent, Phil. National Bank"
now appearing under his signature did not appear on the check when he issued the same. In this he was corroborated by the payee M. V. Ramos who
equally assured the court that when he received the check and then delivered it to Montinola, those words did not appear under the signature of Ubaldo
D. Laya. We again quote with approval the pertinent portion of the trial court's decision:

The question is reduced to whether or not the words, "Agent, Phil. National Bank" were added after Laya had issued the check. In a
straightforward manner and without vacillation Laya positively testified that the check Exhibit A was issued by him in his capacity as Provincial
Treasurer of Misamis Oriental and that the words "Agent, Phil. National Bank" which now appear on the check Exhibit A were not typewritten
below his signature when he signed the said check and delivered the same to Ramos. Laya assured the court that there could not be an y
mistake as to this. For, according to Laya, when he issued check in his capacity as agent of the Misamis Oriental agency of t he Philippine
National Bank the said check must be countersigned by the cashier of the said agency — not by the provincial auditor. He also testified that
the said check was issued by him in his capacity as provincial treasurer of Misamis Oriental and that is why the same was countersigned by
Provincial Auditor Flores. The Provincial Auditor at that time had no connection in any capacity with the Misamis Oriental agency of the
Philippine National Bank. Plaintiff Montinola on the other hand testified that when he received the check Exhibit A it already bore the words
"Agent, Phil. National Bank" below the signature of Laya and the printed words "Provincial Treasurer".
After considering the testimony of the one and the other, the court finds that the preponderance of the evidence supports Laya's testimony.
In the first place, his testimony was corroborated by the payee M. V. Ramos. But what renders more probable the testimony of Laya and
Ramos is the fact that the money for which the check was issued was expressly for the use of the USAFFE of which Ramos was then disbursing
officer, so much so that upon the delivery of the P400,000 in emergency notes and the P100,000 check to Ramos, Laya credited his depository
accounts as provincial treasurer with the corresponding credit entry. In the normal course of events the check could not have been issued by
the bank, and this is borne by the fact that the signature of Laya was countersigned by the provincial auditor, not the bank cashier. And then,
too there is the circumstance that this check was issued by the provincial treasurer of Lanao to Ramos who requisitioned the said funds in his
capacity as disbursing officer of the USAFFE. The check, Exhibit A is not what we may term in business parlance, "certified check" or "cashier's
check."
Besides, at the time the check was issued, Laya already knew that Cebu and Manila were already occupied. He could not have therefore issued
the check-as a bank employee-payable at the central office of the Philippine National Bank.
Upon the foregoing circumstances the court concludes that the words "Agent, Phil. National Bank' below the signature of Ubaldo D. Laya and
the printed words "Provincial Treasurer" were added in the check after the same was issued by the Provincial Treasurer of Misamis Oriental.

From all the foregoing, we may safely conclude as we do that the words "Agent, Phil. National Bank" now appearing on the face of the check (Exh. A)
were added or placed in the instrument after it was issued by Provincial Treasurer Laya to M. V. Ramos. There is no reason known to us why Provincial
Treasurer Laya should issue the check (Exh. A) as agent of the Philippine National Bank. Said check for P100,000 was issued to complete the payment
of the other check for P500,000 issued by the Provincial Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE in Cagayan de
Misamis. The balance of P400,000 in cash was paid to Ramos by Laya from the funds, not of the bank but of the Provincial Treasury. Said USAFFE were
being financed not by the Bank but by the Government and, presumably, one of the reasons for the issuance of the emergency notes in Mindanao was
for this purpose. As already stated, according to Provincial Treasurer Laya, upon receiving a relatively considerable amount of these emergency notes
for his office, he deposited P500,000 of said currency in the Philippine National Bank branch in Cebu, and that in issuing the check (Exh. A), he expected
to have it cashed at said Cebu bank branch against his deposit of P500,000.

The logical conclusion, therefore, is that the check was issued by Laya only as Provincial Treasurer and as an official of the Government which was
under obligation to provide the USAFFE with advance funds, and not by the Philippine National Bank which has no such obligation. The very Annex C,

3
made part of plaintiff's complaint, and later introduced in evidence for him as Exhibit E states that Laya issued the check "in his capacity as Provincial
Treasurer of Misamis Oriental", obviously, not as agent of the Bank.

Now, did M. V. Ramos add or place those words below the signature of Laya before transferring the check to Montinola? Let us bear in mind that Ramos
before his induction into the USAFFE had been working as assistant of Treasurer Laya as ex-officio agent of the Misamis Oriental branch of the Philippine
National Bank. Naturally, Ramos must have known the procedure followed there as to the issuance of checks, namely, that when a check is issued by
the Provincial Treasurer as such, it is countersigned by the Provincial Auditor as was done on the check (Exhibit A), but that if the Provincial Treasurer
issues a check as agent of the Philippine National Bank, the check is countersigned not by the Provincial Auditor who has nothing to do with the bank,
but by the bank cashier, which was not done in this case. It is not likely, therefore, that Ramos had made the insertion of the words "Agent, Phil.
National Bank" after he received the check, because he should have realized that following the practice already described, the check having been issued
by Laya as Provincial Treasurer, and not as agent of the bank, and since the check bears the countersignature not of the Bank cashier of the Provincial
Auditor, the addition of the words "Agent, Phil. National Bank" could not change the status and responsibility of the bank. It is therefore more logical to
believe and to find that the addition of those words was made after the check had been transferred by Ramos to Montinola. Moreover, there are other
facts and circumstances involved in the case which support this view. Referring to the mimeographed record on appeal filed by the plaintiff-appellant,
we find that in transcribing and copying the check, particularly the face of it (Exhibit A) in the complaint, the words "Agent, Phil. National Bank" now
appearing on the face of the check under the signature of the Provincial Treasurer, is missing. Unless the plaintiff in makin g this copy or transcription
in the complaint committed a serious omission which is decisive as far as the bank is concerned, the inference is, that at the time the complaint was
filed, said phrase did not appear on the face of the check. That probably was the reason why the bank in its motion to dismiss dated September 2,
1947, contended that if the check in question had been issued by the provincial treasurer in his capacity as agent of the Philippine National Bank, said
treasurer would have placed below his signature the words "Agent of the Philippine National Bank". The plaintiff because of the alleged loss of the check,
allegedly attached to the complaint a photostatic copy of said check and marked it as Annex A. But in transcribing and copying said Annex A in his
complaint, the phrase "Agent, Phil. National Bank" does not appear under the signature of the provincial treasurer. We tried to verify this discrepancy
by going over the original records of the Court of First Instance so as to compare the copy of Annex A in the complaint, with the original Annex A, the
photostatic copy, but said original Annex A appears to be missing from the record. How it disappeared is not explained. Of course, now we have in the
list of exhibit a photostatic copy marked Annex A and Exhibit B, but according to the manifestation of counsel for the plaintiff dated October 15, 1948,
said photostatic copy now marked Annex A and Exhibit B was submitted on October 15, 1948, in compliance with the verbal order of the trial court. It
is therefore evident that the Annex A now available is not the same original Annex A attached to the complaint in 1947.

There is one other circumstance, important and worth nothing. If Annex A also marked Exhibit B is the photostatic copy of the original check No. 1382
particularly the face thereof (Exhibit A), then said photostatic copy should be a faithful and accurate reproduction of the check, particularly of the phrase
"Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check (Exhibit A). But a minute
examination of and comparison between Annex A, the photostatic copy also marked Exhibit B and the face of the check, Exhibit A, especially with the
aid of a handlens, show notable differences and discrepancies. For instance, on Exhibit A, the letter A of the word "Agent" is toward the right of the tail
of the beginning letter of the signature of Ubaldo D. Laya; this same letter "A" however in Exhibit B is directly under said tail.
The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and "Treasurer"; but the same letter "N" is directly
under the letter "I" of the word "Provincial" in Exhibit B.
The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A; but the same letter "a" in Exhibit "B" is just below the space
between the words "Provincial" and "Treasurer".

The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the lower right hand corner of the edge of the check
(Exh. A); this same letter "k" however, on Exhibit B is on the very border line itself or even before said border line.
The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and appears to be double instead of one single line; this
same ")" on Exhibit B appears in a single line and is relatively nearer to the border line.
There are other notable discrepancies between the check Annex A and the photostatic copy, Exhibit B, as regards the relative position of the phrase
"Agent, Phil. National Bank", with the title Provincial Treasurer, giving ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit A).
We then have the following facts. Exhibit A was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer on the Philippine
National Bank as drawee. Ramos sold P30,000 of the check to Enrique P. Montinola for P90,000 Japanese military notes, of whic h only P45,000 was
paid by Montinola. The writing made by Ramos at the back of the check was an instruction to the bank to pay P30,000 to Montinola and to deposit the
balance to his (Ramos) credit. This writing was obliterated and in its place we now have the supposed indorsement appearing on the back of the check
(Exh. A-1).

At the time of the transfer of this check (Exh. A) to Montinola about the last days of December, 1944, or the first days of January, 1945, the check
which, being a negotiable instrument, was payable on demand, was long overdue by about 2 ½ years. It may therefore be considered, even then, a
stable check. Of course, Montinola claims that about June, 1944 when Ramos supposedly approached him for the purpose of negotiating the check, he
(Montinola) consulted President Carmona of the Philippine National Bank who assured him that the check was good and negotiable. However, President
Carmona on the witness stand flatly denied Montinola's claim and assured the court that the first time that he saw Montinola was after the Philippine
National Bank, of which he was President, reopened, after liberation, around August or September, 1945, and that when shown the check he told
Montinola that it was stale. M. V. Ramos also told the court that it is not true that he ever went with Montinola to see Pres ident Carmona about the
check in 1944.

On the basis of the facts above related there are several reasons why the complaint of Montinola cannot prosper. The insertion of the words "Agent,
Phil. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law). The
check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that "the indorsement
must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, . . . (as
in this case) does not operate as a negotiation of the instrument." Montinola may therefore not be regarded as an indorsee. At most he may be regarded
as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial
Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because section 52 of said law defines
4
a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was
overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a holder because section 191 of t he same law defines
holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be
considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid the f ull amount of P90,000 for
which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the trial court in its decision, Montinola speculated on
the check and took a chance on its being paid after the war. Montinola must have known that at the time the check was issued in May, 1942, the money
circulating in Mindanao and the Visayas was only the emergency notes and that the check was intended to be payable in that currency. Also, he should
have known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his capacity as
disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer connected with the USAFFE but
already a civilian who needed the money only for himself and his family.

As already stated, as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. And, Ramos had he retained the check
may not now collect its value because it had been issued to him as disbursing officer. As observed by the trial court, the check was issued to M. V.
Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it perso nally to plaintiff. It was
negotiated in breach of trust, hence he transferred nothing to the plaintiff.

In view of all the foregoing, finding no reversible error in the decision appealed from, the same is hereby affirmed with costs.
In the prayer for relief contained at the end of the brief for the Philippine National Bank dated September 27, 1949, we find this prayer:
It is also respectfully prayed that this Honorable Court refer the check, Exhibit A, to the City Fiscal's Office for appropriate criminal action
against the plaintiff-appellant if the facts so warrant.

Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola dated February 27, 1950, he asked this Court to allow him to withdraw the
original check (Exh. A) for him to keep, expressing his willingness to submit it to the court whenever needed for examination and verification. The bank
on March 2, 1950 opposed the said petition on the ground that inasmuch as the appellant's cause of action in this case is based on the said check, it is
absolutely necessary for the court to examine the original in order to see the actual alterations supposedly made thereon, and that should this Court
grant the prayer contained in the bank's brief that the check be later referred to the city fiscal for appropriate action, said check may no longer be
available if the appellant is allowed to withdraw said document. In view of said opposition this Court resolution of March 6, 1950 , denied said petition
for withdrawal.
Acting upon the petition contained in the bank's brief already mentioned, once the decision becomes final, let the Clerk of Court transmit to the city
fiscal the check (Exh. A) together with all pertinent papers and documents in this case, for any action he may deem proper in the premises.
Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Tuazon, Reyes and Bautista Angelo, JJ., concur.

5
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,
vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.
Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.
Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the issue issued therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve
(12) equal monthly installments, beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that in case on non-payment
of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent
of the total amount due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng Sambok Sons Motors Co., Ltd., and under the same
management as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and
Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30, 1969 plaintiff formally presented the promissory
note for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of said note of the fact
that the same has been dishonored and demanded payment.

Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo, Branch I.
Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent.

During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 the lower court, on motion, dismissed the case against
Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of interest from October 30, 1969;
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest thereon until fully paid; and
(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone assignment of error as follows:
The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified
indorsee of the subject promissory note and in not holding it as only secondarily liable thereof.

Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser that being a qualified indorser,
it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the following pursuant
to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it;
(c) that all prior parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

The appeal is without merit.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but
not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. However,
appellant Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. 3 Appellant, by indorsing the note "with
recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel
fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification.

A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent
by the fact that the notice of demand, dishonor, protest and presentment were an waived. The words added by said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.

Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a principal debtor. 5 His liabiliy becomes the same as that of the original obligor. 6 Consequently, the
holder need not even proceed against the maker before suing the indorser.

WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.

6
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168274 August 20, 2008
FAR EAST BANK & TRUST COMPANY, petitioner,
vs.
GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and Kho Soon Huat, respondent.
DECISION
NACHURA, J.:
For the review of the Court through a Rule 45 petition are the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 71858: (1) the March
15, 2005 Decision1 which reversed the trial court's ruling, and (2) the May 26, 2005 Resolution 2 which denied the motion for reconsideration of the said
CA decision.
The instant controversy traces its roots to a transaction consummated sometime in June 1998, when a foreigner, identified as Samuel Tagoe, purchased
from the respondent Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000.00.3 In payment
of the same, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB),
addressed to the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.4
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace, inquired from petitioner Far East Bank & Trust
Company's (Far East's) SM North EDSA Branch, its neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar to a
manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared. 5 Following the bank's advice, Yang issued Cash
Invoice No. 16096 to the foreigner, asked him to come back, and informed him that the pieces of jewelry would be released when the draft had already
been cleared.7 Respondent Julie Yang-Go, the manager of Gold Palace, consequently deposited the draft in the company's account with the
aforementioned Far East branch on June 2, 1998.8

When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared the same9-UOB's account with LBP was
debited,10 and Gold Palace's account with Far East was credited with the amount stated in the draft. 11
The foreigner eventually returned to respondent's store on June 6, 1998 to claim the purchased goods. After ascertaining that the draft had been
cleared, respondent Yang released the pieces of jewelry to Samuel Tagoe; and because the amount in the draft was more than the value of the goods
purchased, she issued, as his change, Far East Check No. 173088112 for P122,000.00.13 This check was later presented for encashment and was, in fact,
paid by the said bank.14

On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign Draft No. M-069670 had been materially altered
from P300.00 to P380,000.00 and that it was returning the same. Attached to its official correspondence were Special Clearing Receipt No. 002593 and
the duly notarized and consul-authenticated affidavit of a corporate officer of the drawer, UOB.15 It is noted at this point that the material alteration was
discovered by UOB after LBP had informed it that its funds were being depleted following the encashment of the subject draft. 16 Intending to debit the
amount from respondent's account, Far East subsequently refunded the P380,000.00 earlier paid by LBP.
Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998, as the outstanding balance of its account was already
inadequate, Far East was able to debit only P168,053.36,17 but this was done without a prior written notice to the account holder. 18 Far East only notified
by phone the representatives of the respondent company.19

On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the difference between the amount in the materially altered
draft and the amount debited from the respondent company's account. 20 Because Gold Palace did not heed the demand, Far East consequently instituted
Civil Case No. 99-296 for sum of money and damages before the Regional Trial Court (RTC), Branch 64 of Makati City. 21

In their Answer, respondents specifically denied the material allegations in the complaint and interposed as a defense that the complaint states no cause
of action-the subject foreign draft having been cleared and the respondent not being the party who made the material alteration. Respondents further
counterclaimed for actual damages, moral and exemplary damages, and attorney's fees considering, among others, that the petitioner had confiscated
without basis Gold Palace's balance in its account resulting in operational loss, and had maliciously imputed to the latter the act of alteration.22
After trial on the merits, the RTC rendered its July 30, 2001 Decision 23 in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual
damages and P50,000.00 as attorney's fees.24 The trial court ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to
Far East.25

On appeal, the CA, in the assailed March 15, 2005 Decision, 26 reversed the ruling of the trial court and awarded respondents' counterclaim. It ruled in
the main that Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far
East could not charge Gold Palace on its secondary liability as an indorser. 27 The appellate court further ruled that the drawee bank had cleared the
check, and its remedy should be against the party responsible for the alteration. Considering that, in this case, Gold Palace neither altered the draft nor
knew of the alteration, it could not be held liable.28 The dispositive portion of the CA decision reads:

WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision dated 30 July 2001 of the Regional Trial Court of Makati
City, Branch 64 is hereby REVERSED and SET ASIDE; the Complaint dated January 1999 is DISMISSED; and appellee Far East Bank and Trust
Company is hereby ordered to pay appellant Gold Palace Jewellery Company the amount of Php168,053.36 for actual damages plus legal
interest of 12% per annum from 20 July 1998, Php50,000.00 for exemplary damages, and Php50,000.00 for attorney's fees. Costs against
appellee Far East Bank and Trust Company.29

The appellate court, in the further challenged May 26, 2005 Resolution, 30 denied petitioner's Motion for Reconsideration,31 which prompted the petitioner
to institute before the Court the instant Petition for Review on Certiorari. 32
We deny the petition.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the instrument, en gages that he will pay
it according to the tenor of his acceptance.33 This provision applies with equal force in case the drawee pays a bill without having previously accepted
it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation

7
to pay the aforementioned sum, but also, his clear compliance with that obligation. 34 Actual payment by the drawee is greater than his acceptance,
which is merely a promise in writing to pay. The payment of a check includes its acceptance. 35
Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded the amount ther eof to the collecting
bank. The latter then credited to Gold Palace's account the payment it received. Following the plain language of the law, the drawee, by the said
payment, recognized and complied with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is determined
by the terms of the bill as it is when the drawee accepts.36 Stated simply, LBP was liable on its payment of the check according to the tenor of the check
at the time of payment, which was the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due course holder. We note at this point that Gold
Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course-it received the draft complete and regular
on its face, before it became overdue and without notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the
instrument or defect in the title of the person negotiating it. 37 Having relied on the drawee bank's clearance and payment of the draft and not being
negligent (it delivered the purchased jewelry only when the draft was cleared and paid), respondent is amply protected by the said Section 62.
Commercial policy favors the protection of any one who, in due course, changes his position on the faith of the drawee bank's clearance and payment
of a check or draft.38

This construction and application of the law gives effect to the plain language of the NIL 39 and is in line with the sound principle that where one of two
innocent parties must suffer a loss, the law will leave the loss where it finds it. 40 It further reasserts the usefulness, stability and currency of negotiable
paper without seriously endangering accepted banking practices. Indeed, banking institutions can readily protect themselves against liability on altered
instruments either by qualifying their acceptance or certification, or by relying on forgery insurance and special paper which will make alterations
obvious.41 This is not to mention, but we state nevertheless for emphasis, that the drawee bank, in most cases, is in a better position, compared to the
holder, to verify with the drawer the matters stated in the instrument. As we have observed in this case, were it not for LBP's communication with the
drawer that its account in the Philippines was being depleted after the subject foreign draft had been encashed, then, the alteration would not have
been discovered. What we cannot understand is why LBP, having the most convenient means to correspond with UOB, did not first verify the amount
of the draft before it cleared and paid the same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good.

In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in common law jurisdictions that a drawee bank, having paid
to an innocent holder the amount of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover from
the person to whom payment was made as for money paid by mistake .42 However, given the foregoing discussion, we find no compelling reason to
apply the principle to the instant case.

The Court is also aware that under the Uniform Commercial Code in the United States of America, if an unaccepted draft is presented to a drawee for
payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of pr esentment, and a
previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that the draft has
not been altered.43 Nonetheless, absent any similar provision in our law, we cannot extend the same preferential treatment to the paying bank.

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the money
paid by the drawee bank from respondent company's account. When Gold Palace deposited the check with Far East, the latter, under the terms of the
deposit and the provisions of the NIL, became an agent of the former for the collection of the amount in the draft.44 The subsequent payment by the
drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the drawee and the holder of the check or his
agent are concerned, converted the check into a mere voucher,45 and, as already discussed, foreclosed the recovery by the drawee of the amount paid.
This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some
future time will call on the payee for the return of the money paid to him on the check.46

As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the
latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner
be considered to have acted as the representative of the drawee bank when it debited respondent's account, because, as already explained, the drawee
bank had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for
collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section
36 of the NIL, is a restrictive indorsement.47 It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the
draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a
transfer of title and are available only to holders in due course,48 these warranties did not attach to the indorsement for deposit and collection made by
Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded
to the drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit the account of Gold Palace, and for
doing so, it must return what it had erroneously taken. Far East's remedy under the law is not against Gold Palace but against the drawee-bank or the
person responsible for the alteration. That, however, is another issue which we do not find necessary to discuss in this case.

However, we delete the exemplary damages awarded by the appellate court. Respondents have not shown that they are entitled to moral, temperate
or compensatory damages.49 Neither was petitioner impelled by malice or bad faith in debiting the account of the respondent company and in pursuing
its cause.50 On the contrary, petitioner was honestly convinced of the propriety of the debit. We also delete the award of attorney's fees for, in a plethora
of cases, we have ruled that it is not a sound public policy to place a premium on the right to litigate. No damages can be charged to those who exercise
such precious right in good faith, even if done erroneously.51
WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 71858
are AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and attorney's fees is DELETED.
SO ORDERED.

8
 SECOND DIVISION
G.R. No. 149275 September 27, 2004
VICKY C. TY, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
TINGA, J.:
Petitioner Vicky C. Ty ("Ty") filed the instant Petition for Review under Rule 45, seeking to set aside the Decision1 of the Court of Appeals Eighth Division
in CA-G.R. CR No. 20995, promulgated on 31 July 2001. The Decision affirmed with modification the judgment of the Regional Trial Court (RTC) of
Manila, Branch 19, dated 21 April 1997, finding her guilty of seven (7) counts of violation of Batas Pambansa Blg. 222 (B.P. 22), otherwise known as the
Bouncing Checks Law.
This case stemmed from the filing of seven (7) Informations for violation of B.P. 22 against Ty before the RTC of Manila. The Informations were docketed
as Criminal Cases No. 93-130459 to No. 93-130465. The accusatory portion of the Information in Criminal Case No. 93-130465 reads as follows:
That on or about May 30, 1993, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously make
or draw and issue to Manila Doctors’ Hospital to apply on account or for value to Editha L. Vecino Check No. Metrobank 487712 dated May 30,
1993 payable to Manila Doctors Hospital in the amount of ₱30,000.00, said accused well knowing that at the time of issue she 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 for
payment within ninety (90) days from the date hereof, was subsequently dishonored by the drawee bank for "Account Closed" and despite
receipt of notice of such dishonor, said accused failed to pay said Manila Doctors Hospital the amount of the check or to make arrangement
for full payment of the same within five (5) banking days after receiving said notice.
Contrary to law.3
The other Informations are similarly worded except for the number of the checks and dates of issue. The data are hereunder itemized as follows:
Criminal Case No. Check No. Postdated Amount

93-130459 487710 30 March 1993 ₱30,000.00

93-130460 487711 30 April 1993 ₱30,000.00

93-130461 487709 01 March 1993 ₱30,000.00

93-130462 487707 30 December 1992 ₱30,000.00

93-130463 487706 30 November 1992 ₱30,000.00

93-130464 487708 30 January 1993 ₱30,000.00

93-130465 487712 30 May 1993 ₱30,000.004

The cases were consolidated and jointly tried. At her arraignment, Ty pleaded not guilty.5
The evidence for the prosecution shows that Ty’s mother Chua Lao So Un was confined at the Manila Doctors’ Hospital (hospital) from 30 October 1990
until 4 June 1992. Being the patient’s daughter, Ty signed the "Acknowledgment of Responsibility for Payment" in the Contract of Admission dated 30
October 1990.6 As of 4 June 1992, the Statement of Account 7 shows the total liability of the mother in the amount of ₱657,182.40. Ty’s sister, Judy
Chua, was also confined at the hospital from 13 May 1991 until 2 May 1992, incurring hospital bills in the amount of ₱418,410.55. 8 The total hospital
bills of the two patients amounted to ₱1,075,592.95. On 5 June 1992, Ty executed a promissory note wherein she assumed paymen t of the obligation
in installments.9 To assure payment of the obligation, she drew several postdated checks against Metrobank payable to the hospital. The seven (7)
checks, each covering the amount of ₱30,000.00, were all deposited on their due dates. But they were all dishonored by the drawee bank and returned
unpaid to the hospital due to insufficiency of funds, with the "Account Closed" advice. Soon thereafter, the complainant hospital sent demand letters to
Ty by registered mail. As the demand letters were not heeded, complainant filed the seven (7) Informations subject of the instant case.10

For her defense, Ty claimed that she issued the checks because of "an uncontrollable fear of a greater injury." She averred that she was forced to issue
the checks to obtain release for her mother whom the hospital inhumanely and harshly treated and would not discharge unless the hospital bills are
paid. She alleged that her mother was deprived of room facilities, such as the air-condition unit, refrigerator and television set, and subject to
inconveniences such as the cutting off of the telephone line, late delivery of her mother’s food and refusal to change the latter’s gown and bedsheets.
She also bewailed the hospital’s suspending medical treatment of her mother. The "debasing treatment," she pointed out, so affected her mother’s
mental, psychological and physical health that the latter contemplated suicide if she would not be discharged from the hospital. Fearing the worst for
her mother, and to comply with the demands of the hospital, Ty was compelled to sign a promissory note, open an account with Metrobank and issue
the checks to effect her mother’s immediate discharge.11

Giving full faith and credence to the evidence offered by the prosecution, the trial court found that Ty issued the checks subject of the case in payment
of the hospital bills of her mother and rejected the theory of the defense. 12 Thus, on 21 April 1997, the trial court rendered a Decision finding Ty guilty
of seven (7) counts of violation of B.P. 22 and sentencing her to a prison term. The dispositive part of the Decision reads:
CONSEQUENTLY, the accused Vicky C. Ty, for her acts of issuing seven (7) checks in payment of a valid obligation, which turned unfounded
on their respective dates of maturity, is found guilty of seven (7) counts of violations of Batas Pambansa Blg. 22, and is hereby sentenced to
suffer the penalty of imprisonment of SIX MONTHS per count or a total of forty-two (42) months.
SO ORDERED.13

Ty interposed an appeal from the Decision of the trial court. Before the Court of Appeals, Ty reiterated her defense that she issued the checks "under
the impulse of an uncontrollable fear of a greater injury or in avoidance of a greater evil or injury." She also argued that the trial court erred in finding
her guilty when evidence showed there was absence of valuable consideration for the issuance of the checks and the payee had knowledge of the
insufficiency of funds in the account. She protested that the trial court should not have applied the law mechanically, without due regard to the principles
of justice and equity.14

9
In its Decision dated 31 July 2001, the appellate court affirmed the judgment of the trial court with modification. It set aside the penalty of imprisonment
and instead sentenced Ty "to pay a fine of sixty thousand pesos (₱60,000.00) equivalent to double the amount of the check, in each case."15
In its assailed Decision, the Court of Appeals rejected Ty’s defenses of involuntariness in the issuance of the checks and the hospital’s knowledge of her
checking account’s lack of funds. It held that B.P. 22 makes the mere act of issuing a worthless check punishable as a special offense, it being a malum
prohibitum. What the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating
to its issuance.16
Neither was the Court of Appeals convinced that there was no valuable consideration for the issuance of the checks as they were issued in payment of
the hospital bills of Ty’s mother.17
In sentencing Ty to pay a fine instead of a prison term, the appellate court applied the case of Vaca v. Court of Appeals18 wherein this Court declared
that in determining the penalty imposed for violation of B.P. 22, the philosophy underlying the Indeterminate Sentence Law should be observed, i.e.,
redeeming valuable human material and preventing unnecessary deprivation of personal liberty and economic usefulness, with due regard to the
protection of the social order.19

Petitioner now comes to this Court basically alleging the same issues raised before the Court of Appeals. More specifically, she ascribed errors to the
appellate court based on the following grounds:
A. THERE IS CLEAR AND CONVINCING EVIDENCE THAT PETITIONER WAS FORCED TO OR COMPELLED IN THE OPENING OF THE ACCOUNT
AND THE ISSUANCE OF THE SUBJECT CHECKS.
B. THE CHECKS WERE ISSUED UNDER THE IMPULSE OF AN UNCONTROLLABLE FEAR OF A GREATER INJURY OR IN AVOIDANCE OF A
GREATER EVIL OR INJURY.
C. THE EVIDENCE ON RECORD PATENTLY SHOW[S] ABSENCE OF VALUABLE CONSIDERATION IN THE ISSUANCE OF THE SUBJECT CHECKS.
D. IT IS AN UNDISPUTED FACT THAT THE PAYEE OF THE CHECKS WAS FULLY AWARE OF THE LACK OF FUNDS IN THE ACCOUNT.
E. THE HONORABLE COURT OF APPEALS, AS WELL AS THE HONORABLE TRIAL COURT [,] SHOULD NOT HAVE APPLIED CRIMINAL LAW
MECHANICALLY, WITHOUT DUE REGARD TO THE PRINCIPLES OF JUSTICE AND EQUITY.
In its Memorandum,20 the Office of the Solicitor General (OSG), citing jurisprudence, contends that a check issued as an evidence of debt, though not
intended to be presented for payment, has the same effect as an ordinary check; hence, it falls within the ambit of B.P. 22. And when a check is
presented for payment, the drawee bank will generally accept the same, regardless of whether it was issued in payment of an obligation or merely to
guarantee said obligation. What the law punishes is the issuance of a bouncing check, not the purpose for which it was issued nor the terms and
conditions relating to its issuance. The mere act of issuing a worthless check is malum prohibitum.21
We find the petition to be without merit and accordingly sustain Ty’s conviction.

Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and
will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially
affect the disposition of the case.22 Jurisdiction of this Court over cases elevated from the Court of Appeals is limited to reviewing or revising errors of
law ascribed to the Court of Appeals whose factual findings are conclusive, and carry even more weight when said court affirms the findings of the trial
court, absent any showing that the findings are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious
abuse of discretion.23

In the instant case, the Court discerns no compelling reason to reverse the factual findings arrived at by the trial court an d affirmed by the Court of
Appeals.
Ty does not deny having issued the seven (7) checks subject of this case. She, however, claims that the issuance of the checks was under the impulse
of an uncontrollable fear of a greater injury or in avoidance of a greater evil or injury. She would also have the Court believe that there was no valuable
consideration in the issuance of the checks.

However, except for the defense’s claim of uncontrollable fear of a greater injury or avoidance of a greater evil or injury, all the grounds raised involve
factual issues which are best determined by the trial court. And, as previously intimated, the trial court had in fact discarded the theory of the defense
and rendered judgment accordingly.

Moreover, these arguments are a mere rehash of arguments unsuccessfully raised before the trial court and the Court of Appeals. They likewise put to
issue factual questions already passed upon twice below, rather than questions of law appropriate for review under a Rule 45 petition.
The only question of law raised--whether the defense of uncontrollable fear is tenable to warrant her exemption from criminal liability--has to be resolved
in the negative. For this exempting circumstance to be invoked successfully, the following requisites must concur: (1) existence of an uncontrollable
fear; (2) the fear must be real and imminent; and (3) the fear of an injury is greater than or at least equal to that committed. 24
It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence that the ordinary man wou ld have succumbed to
it.25 It should be based on a real, imminent or reasonable fear for one’s life or limb. 26 A mere threat of a future injury is not enough. It should not be
speculative, fanciful, or remote.27 A person invoking uncontrollable fear must show therefore that the compulsion was such that it reduced him to a
mere instrument acting not only without will but against his will as well. 28 It must be of such character as to leave no opportunity to the accused for
escape.29

In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that she was compelled to issue the checks--a condition
the hospital allegedly demanded of her before her mother could be discharged--for fear that her mother’s health might deteriorate further due to the
inhumane treatment of the hospital or worse, her mother might commit suicide. This is speculative fear; it is not the uncontr ollable fear contemplated
by law.

To begin with, there was no showing that the mother’s illness was so life-threatening such that her continued stay in the hospital suffering all its alleged
unethical treatment would induce a well-grounded apprehension of her death. Secondly, it is not the law’s intent to say that any fear exempts one from
criminal liability much less petitioner’s flimsy fear that her mother might commit suicide. In other words, the fear she invokes was not impending or
insuperable as to deprive her of all volition and to make her a mere instrument without will, moved exclusively by the hospital’s threats or demands.
Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She did not take advantage of the many opportunities
available to her to avoid committing one. By her very own words, she admitted that the collateral or security the hospital required prior to the discharge
of her mother may be in the form of postdated checks or jewelry. 30 And if indeed she was coerced to open an account with the bank and issue the
checks, she had all the opportunity to leave the scene to avoid involvement.

10
Moreover, petitioner had sufficient knowledge that the issuance of checks without funds may result in a violation of B.P. 22. She even testified that her
counsel advised her not to open a current account nor issue postdated checks "because the moment I will not have funds it will be a big
problem."31 Besides, apart from petitioner’s bare assertion, the record is bereft of any evidence to corroborate and bolster her claim that she was
compelled or coerced to cooperate with and give in to the hospital’s demands.

Ty likewise suggests in the prefatory statement of her Petition and Memorandum that the justifying circumstance of state of necessity under par. 4, Art.
11 of the Revised Penal Code may find application in this case.

We do not agree. The law prescribes the presence of three requisites to exempt the actor from liability under this paragraph: (1) that the evil sought to
be avoided actually exists; (2) that the injury feared be greater than the one done to avoid it; (3) that there be no other practical and less harmful
means of preventing it.32

In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil sought to be avoided is merely expected or anticipated
or may happen in the future, this defense is not applicable.33 Ty could have taken advantage of an available option to avoid committing a crime. By her
own admission, she had the choice to give jewelry or other forms of security instead of postdated checks to secure her obligation.
Moreover, for the defense of state of necessity to be availing, the greater injury feared should not have been brought about by the negligence or
imprudence, more so, the willful inaction of the actor. 34 In this case, the issuance of the bounced checks was brought about by Ty’s own failure to pay
her mother’s hospital bills.

The Court also thinks it rather odd that Ty has chosen the exempting circumstance of uncontrollable fear and the justifying c ircumstance of state of
necessity to absolve her of liability. It would not have been half as bizarre had Ty been able to prove that the issuance of the bounced checks was done
without her full volition. Under the circumstances, however, it is quite clear that neither uncontrollable fear nor avoidance of a greater evil or injury
prompted the issuance of the bounced checks.

Parenthetically, the findings of fact in the Decision of the trial court in the Civil Case35 for damages filed by Ty’s mother against the hospital is wholly
irrelevant for purposes of disposing the case at bench. While the findings therein may establish a claim for damages which, we may add, need only be
supported by a preponderance of evidence, it does not necessarily engender reasonable doubt as to free Ty from liability.

As to the issue of consideration, it is presumed, upon issuance of the checks, in the absence of evidence to the contrary, that the same was issued for
valuable consideration.36 Section 2437 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same
for a consideration38 or for value.39 In alleging otherwise, Ty has the onus to prove that the checks were issued without consideration. She must present
convincing evidence to overthrow the presumption.

A scrutiny of the records reveals that petitioner failed to discharge her burden of proof. "Valuable consideration may in general terms, be said to 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 aide. Simply defined, valuable consideration means an obligation to give, to do,
or not to do in favor of the party who makes the contract, such as the maker or indorser."40

In this case, Ty’s mother and sister availed of the services and the facilities of the hospital. For the care given to her kin, Ty had a legitimate obligation
to pay the hospital by virtue of her relationship with them and by force of her signature on her mother’s Contract of Admission acknowledging
responsibility for payment, and on the promissory note she executed in favor of the hospital.

Anent Ty’s claim that the obligation to pay the hospital bills was not her personal obligation because she was not the patient, and therefore there was
no consideration for the checks, the case of Bridges v. Vann, et al.41 tells us that "it is no defense to an action on a promissory note for the maker to
say that there was no consideration which was beneficial to him personally; it is sufficient if the consideration was a benefit conferred upon a third
person, or a detriment suffered by the promisee, at the instance of the promissor. It is enough if the obligee foregoes some right or privilege or suffers
some detriment and the release and extinguishment of the original obligation of George Vann, Sr., for that of appellants meets the requirement. Appellee
accepted one debtor in place of another and gave up a valid, subsisting obligation for the note executed by the appell ants. This, of itself, is sufficient
consideration for the new notes."

At any rate, the law punishes the mere act of issuing a bouncing check, not the purpose for which it was issued nor the terms and conditions relating
to its issuance.42 B.P. 22 does not make any distinction as to whether the checks within its contemplation are issued in payment of an obligation or to
merely guarantee the obligation.43 The thrust of the law is to prohibit the making of worthless checks and putting them into circulation. 44 As this Court
held in Lim v. People of the Philippines,45 "what is primordial is that such issued checks were worthless and the fact of its worthlessness is known to the
appellant at the time of their issuance, a required element under B.P. Blg. 22."

The law itself creates a prima facie presumption of knowledge of insufficiency of funds. Section 2 of B.P. 22 provides:
Section 2. Evidence of knowledge of insufficient funds . - The making, drawing and issuance of a check payment of which is refused by the
drawee bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving
notice that such check has not been paid by the drawee.

Such knowledge is legally presumed from the dishonor of the checks for insufficiency of funds.46 If not rebutted, it suffices to sustain a conviction.47
Petitioner likewise opines that the payee was aware of the fact that she did not have sufficient funds with the drawee bank and such knowledge
necessarily exonerates her liability.
The knowledge of the payee of the insufficiency or lack of funds of the drawer with the drawee bank is immaterial as deceit is not an essential element
of an offense penalized by B.P. 22. The gravamen of the offense is the issuance of a bad check, hence, malice and intent in the issuance thereof is
inconsequential.48

11
In addition, Ty invokes our ruling in Magno v. Court of Appeals49 wherein this Court inquired into the true nature of transaction between the drawer and
the payee and finally acquitted the accused, to persuade the Court that the circumstances surrounding her case deserve special attention and do not
warrant a strict and mechanical application of the law.
Petitioner’s reliance on the case is misplaced. The material operative facts therein obtaining are different from those established in the instant petition.
In the 1992 case, the bounced checks were issued to cover a "warranty deposit" in a lease contract, where the lessor-supplier was also the financier of
the deposit. It was a modus operandi whereby the supplier was able to sell or lease the goods while privately financing those in desperate need so they
may be accommodated. The maker of the check thus became an unwilling victim of a lease agreement under the guise of a lease-purchase agreement.
The maker did not benefit at all from the deposit, since the checks were used as collateral for an accommodation and not to cover the receipt of an
actual account or credit for value.

In the case at bar, the checks were issued to cover the receipt of an actual "account or for value." Substantial evidence, as found by the trial court and
Court of Appeals, has established that the checks were issued in payment of the hospital bills of Ty’s mother.

Finally, we agree with the Court of Appeals in deleting the penalty of imprisonment, absent any proof that petitioner was not a first-time offender nor
that she acted in bad faith. Administrative Circular 12-2000,50 adopting the rulings in Vaca v. Court of Appeals51 and Lim v. People,52 authorizes the non-
imposition of the penalty of imprisonment in B.P. 22 cases subject to certain conditions. However, the Court resolves to modify the penalty in view of
Administrative Circular 13-200153 which clarified Administrative 12-2000. It is stated therein:

The clear tenor and intention of Administrative Circular No. 12-2000 is not to remove imprisonment as an alternative penalty, but to lay down
a rule of preference in the application of the penalties provided for in B.P. Blg. 22.
Thus, Administrative Circular 12-2000 establishes a rule of preference in the application of the penal provisions of B.P. Blg. 22 such that where
the circumstances of both the offense and the offender clearly indicate good faith or a clear mistake of fact without taint of negligence, the
imposition of a fine alone should be considered as the more appropriate penalty. Needless to say, the determination of whether 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 be deemed a hindrance.
It is therefore understood that: (1) Administrative Circular 12-2000 does not remove imprisonment as an alternative penalty for violations of
B.P. 22; (2) the judges concerned may, in the exercise of sound discretion, and taking into consideration the peculiar circumstances of each
case, determine whether the imposition of a fine alone would best serve the interests of justice, or whether forbearing to impose imprisonment
would depreciate the seriousness of the offense, work violence on the social order, or otherwise be contrary to the imperatives of justice; (3)
should only a fine be imposed and the accused unable to pay the fine, there is no legal obstacle to the application of the Revised Penal Code
provisions on subsidiary imprisonment.54

WHEREFORE, the instant Petition is DENIED and the assailed Decision of the Court of Appeals, dated 31 July 2001, finding petitioner Vicky C.
Ty GUILTY of violating Batas Pambansa Bilang 22 is AFFIRMED with MODIFICATIONS. Petitioner Vicky C. Ty is ORDERED to pay
a FINE equivalent to double the amount of each dishonored check subject of the seven cases at bar with subsidiary imprisonment in case of insolvency
in accordance with Article 39 of the Revised Penal Code. She is also ordered to pay private complainant, Manila Doctors’ Hospital, the amount of Two
Hundred Ten Thousand Pesos (₱210,000.00) representing the total amount of the dishonored checks. Costs against the petitioner.
SO ORDERED.

12
 SECOND DIVISION
G.R. No. 102967 February 10, 2000
BIBIANO V. BAÑAS, JR., petitioner,
vs.
COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND PROCOPIO TALON, respondents.
QUISUMBING, J.:
For review is the Decision of the Court of Appeals in CA-C.R. CV No. 17251 promulgated on November 29, 1991. It affirmed in toto the judgment of the
Regional Trial Court (RTC), Branch 39, Manila, in Civil Case No. 82-12107. Said judgment disposed as follows:
FOR ALL THE FOREGOING CONSIDERATIONS, this Court hereby renders judgment DISMISSING the complaint against all the defendants and
ordering plaintiff [herein petitioner] to pay defendant Larin the amount of P200,000.00 (Two Hundred Thousand Pesos) as actual and
compensatory damages; P200,000.00 as moral damages; and P50,000.00 as exemplary damages and attorneys fees of P100,000.00. 1

The facts, which we find supported by the records, have been summarized by the Court of Appeals as follows:
On February 20, 1976, petitioner, Bibiano V. Bañas Jr. sold to Ayala Investment Corporation (AYALA), 128,265 square meters of land located at Bayanan,
Muntinlupa, for two million, three hundred eight thousand, seven hundred seventy (P2,308,770.00) pesos. The Deed of Sale provided that upon the
signing of the contract AYALA shall pay four hundred sixty-one thousand, seven hundred fifty-four (P461,754.00) pesos. The balance of one million,
eight hundred forty-seven thousand and sixteen (P1,847,016.00) pesos was to be paid in four equal consecutive annual installments, with twelve (12%)
percent interest per annum on the outstanding balance. AYALA issued one promissory note covering four equal annual installments. Each periodic
payment of P461,754.00 pesos shall be payable starting on February 20, 1977, and every year thereafter, or until February 20, 1980.
The same day, petitioner discounted the promissory note with AYALA, for its face value of P1,847,016.00, evidenced by a Deed of Assignment signed
by the petitioner and AYALA. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn against Bank of the Philippine Islands with
the uniform amount of two hundred five thousand, two hundred twenty-four (P205,224.00) pesos.
In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset. 2
Selling Price of Land P2,308,770.00

Less Initial Payment 461,754.00 3

Unrealized Gain P1,847,016.00

1976 Declaration of Income on Disposition of Capital Asset subject to Tax:

Initial Payment P461,754.00

Less: Cost of land and other incidental Expenses ( 76,547.90)

Income P385,206.10

Income subject to tax (P385,206. 10 x 50%) P192,603.65

In the succeeding years, until 1979, petitioner reported a uniform income of two hundred thirty thousand, eight hundred seventy-seven (P230,877.00)
pesos4 as gain from sale of capital asset. In his 1980 income tax amnesty return, petitioner also reported the same amount of P230,877.00 as the
realized gain on disposition of capital asset for the year.

On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners, Rodolfo Tuazon and Procopio Talon to examine the books and
records of petitioner for the year 1976. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded
that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976.
Tuazon and Talon filed their audit report and declared a discrepancy of two million, ninety-five thousand, nine hundred fifteen (P2,095,915.00) pesos
in petitioner's 1976 net income. They recommended deficiency tax assessment for two million, four hundred seventy-three thousand, six hundred
seventy-three (P2,473,673.00) pesos.

Meantime, Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. After reviewing the examiners' report, Larin directed the
revision of the audit report, with instruction to consider the land as capital asset. The tax due was only fifty (50%) percent of the total gain from sale
of the property held by the taxpayer beyond twelve months pursuant to Section 34 5 of the 1977 National Internal Revenue Code (NIRC). The deficiency
tax assessment was reduced to nine hundred thirty six thousand, five hundred ninety-eight pesos and fifty centavos (P936,598.50), inclusive of
surcharges and penalties for the year 1976.

On June 27, 1980, respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be settled him immediately.
On September 26, 1980, petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment.
On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR. The Chief of the Tax Fraud Unit
recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section 51 of the Tax Code against
petitioner and his accountants, Andres P. Alejandre and Conrado Bañas.

On June 17, 1981, Larin filed a criminal complaint for tax evasion against the petitioner.
On July 1, 1981, news items appeared in the now defunct Evening Express with the headline: "BIR Charges Realtor" and another in the defunct Evening
Post with a news item: "BIR raps Realtor, 2 accountants." Another news item also appeared in the July 2, 1981, issue of the Bulletin Today entitled: "3-
face P1-M tax evasion raps." All news items mentioned petitioner's false income tax return concerning the sale of land to AYALA.
On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740 and paid the amount of forty-one thousand, seven hundred twenty-nine pesos
and eighty-one centavos (P41,729.81). On November 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840 and paid an additional

13
amount of one thousand, five hundred twenty-five pesos and sixty-two centavos (P1,525.62). In both, petitioner did not recognize that his sale of land
to AYALA was on cash basis.

Reacting to the complaint for tax evasion and the news reports, petitioner filed with the RTC of Manila an action 6 for damages against respondents
Larin, Tuazon and Talon for extortion and malicious publication of the BIR's tax audit report. He claimed that the filing of criminal complaints against
him for violation of tax laws were improper because he had already availed of two tax amnesty decrees, Presidential Decree Nos. 1740 and 1840.
The trial court decided in favor of the respondents and awarded Larin damages, as already stated. Petitioner seasonably appealed to the Court of
Appeals. In its decision of November 29, 1991, the respondent court affirmed the trial court's decision, thus:

The finding of the court a quo that plaintiff-appellant's actions against defendant-appellee Larin were unwarranted and baseless and as a result
thereof, defendant-appellee Larin was subjected to unnecessary anxiety and humiliation is therefore supported by the evidence on
record.1âwphi1.nêt
Defendant-appellee Larin acted only in pursuance of the authority granted to him. In fact, the criminal charges filed against him in the
Tanodbayan and in the City Fiscal's Office were all dismissed.
WHEREFORE, the appealed judgment is hereby AFFIRMED in toto.7
Hence this petition, wherein petitioner raises before us the following queries:
I. WHETHER THE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF PERTINENT TAX LAWS, THUS IT FAILED TO APPRECIATE THE
CORRECTNESS AND ACCURACY OF PETITIONER'S RETURN OF THE INCOME DERIVED FROM THE SALE OF THE LAND TO AYALA.
II. WHETHER THE RESPONDENT COURT ERRED IN NOT FINDING THAT THERE WAS AN ALLEGED ATTEMPT TO EXTORT [MONEY FROM]
PETITIONER BY PRIVATE RESPONDENTS.
III. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF PRESIDENTIAL DECREE NOS. 1740 AND 1840, AMONG
OTHERS, PETITIONER'S IMMUNITY FROM CRIMINAL PROSECUTION.
IV. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF WELL-ESTABLISHED DOCTRINES OF THIS HONORABLE COURT
AS REGARDS THE AWARD OF ACTUAL, MORAL AND EXEMPLARY DAMAGES IN FAVOR OF RESPONDENT LARIN.
In essence, petitioner asks the Court to resolve seriatim the following issues:
1. Whether respondent court erred in ruling that there was no extortion attempt by BIR officials;
2. Whether respondent court erred in holding that P.D. 1740 and 1840 granting tax amnesties did not grant immunity from tax suits;
3. Whether respondent court erred in finding that petitioner's income from the sale of land in 1976 should be declared as a cash transaction
in his tax return for the same year (because the buyer discounted the promissory note issued to the seller on future installm ent payments of
the sale, on the same day of the sale);
4. Whether respondent court erred and committed grave abuse of discretion in awarding damages to respondent Larin.

The first issue, on whether the Court of Appeals erred in finding that there was no extortion, involves a determination of fact. The Court of Appeals
observed,
The only evidence to establish the alleged extortion attempt by defendants-appellees is the plaintiff-appellant's self serving declarations.
As found by the court a quo, "said attempt was known to plaintiff-appellant's son-in-law and counsel on record, yet, said counsel did not take
the witness stand to corroborate the testimony of plaintiff." 8
As repeatedly held, findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court,
unless these findings are not supported by evidence.9 Similarly, neither should we disturb a finding of the trial court and appellate court that an allegation
is not supported by evidence on record. Thus, we agree with the conclusion of respondent court that herein private respondents, on the basis of
evidence, could not be held liable for extortion.
On the second issue of whether P.D. Nos. 1740 and 1840 which granted tax amnesties also granted immunity from criminal prosecution against tax
offenses, the pertinent sections of these laws state:
P.D. No. 1740. CONDONING PENALTIES FOR CERTAIN VIOLATIONS OF THE INCOME TAX LAW UPON VOLUNTARY DISCLOSURE OF
UNDECLARED INCOME FOR INCOME TAX PURPOSES AND REQUIRING PERIODIC SUBMISSION OF NET WORTH STATEMENT.
xxx xxx xxx
Sec. 1. Voluntary Disclosure of Correct Taxable Income. — Any individual who, for any or all of the taxable years 1974 to 1979, had failed to
file a return is hereby, allowed to file a return for each of the aforesaid taxable years and accurately declare therein the true and correct
income, deductions and exemptions and pay the income tax due per return. Likewise, any individual who filed a false or fraudulent return for
any taxable year in the period mentioned above may amend his return and pay the correct amount of tax due after deducting the taxes already
paid, if any, in the original declaration. (emphasis ours)
xxx xxx xxx
Sec. 5. Immunity from Penalties. — Any individual who voluntarily files a return under this Decree and pays the income tax due thereon shall
be immune from the penalties, civil or criminal, under the National Internal Revenue Code arising from failure to pay the co rrect income tax
with respect to the taxable years from which an amended return was filed or for which an original return was filed in cases w here no return
has been filed for any of the taxable years 1974 to 1979: Provided, however, That these immunities shall not apply in cases where the amount
of net taxable income declared under this Decree is understated to the extent of 25% or more of the correct net taxable incom e. (emphasis
ours)
P.D. NO. 1840 — GRANTING A TAX AMNESTY ON UNTAXED INCOME AND/OR WEALTH EARNED OR ACQUIRED DURING THE
TAXABLE YEARS 1974 TO 1980 AND REQUIRING THE FILING OF THE STATEMENT OF ASSETS, LIABILITIES, AND NET WORTH.
Sec. 1. Coverage. — In case of voluntary disclosure of previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or
any other acquisition from any source whatsoever, realized here or abroad, by any individual taxpayer, which are taxable under the National
Internal Revenue Code, as amended, the assessment and collection of all internal revenue taxes, including the increments or penalties on
account of non-payment, as well as all civil, criminal or administrative liabilities arising from or incident thereto under the National Internal
Revenue Code, are hereby condoned provided that the individual taxpayer shall pay. (emphasis ours) . . .
Sec. 2. Conditions for Immunity. — The immunity granted under Section one of this Decree shall apply only under the following conditions:
a) Such previously untaxed income and/or wealth must have been earned or realized in any of the years 1974 to 1980;
b) The taxpayer must file an amnesty return on or before November 30, 1981, and fully pay the tax due thereon;
c) The amnesty tax paid by the taxpayer under this Decree shall not be less than P1,000.00 per taxable year; and
d) The taxpayer must file a statement of assets, liabilities and net worth as of December 31, 1980, as required under Section 6
hereof. (emphasis ours)

14
It will be recalled that petitioner entered into a deed of sale purportedly on installment. On the same day, he discounted the promissory note covering
the future installments. The discounting seems questionable because ordinarily, when a bill is discounted, the lender ( e.g. banks, financial institution)
charges or deducts a certain percentage from the principal value as its compensation. Here, the discounting was done by the buyer. On July 2, 1981,
two weeks after the filing of the tax evasion complaint against him by respondent Larin on June 17, 1981, petitioner availed of the tax amnesty under
P.D. No. 1740. His amended tax return for the years 1974 - 1979 was filed with the BIR office of Valenzuela, Bulacan, instead of Manila where the
petitioner's principal office was located. He again availed of the tax amnesty under P.D. No. 1840. His disclosure, however, did not include the income
from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his income tax return. He did not
pay the tax which was considerably increased by the income derived from the discounting. He did not meet the twin requirements of P.D. 1740 and
1840, declaration of his untaxed income and full payment of tax due thereon. Clearly, the petitioner is not entitled to the benefits of P.D. Nos. 1740 and
1840.

The mere filing of tax amnesty return under P.D. 1740 and 1840 does not ipso facto shield him from immunity against prosecution. Tax amnesty is a
general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on
its delinquencies, the tax payer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such
previously untaxed income.10
It also bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the
amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. 11 Hence, on this
matter, it is our view that petitioner's claim of immunity from prosecution under the shield of availing tax amnesty is untenable.
On the third issue, petitioner asserts that his sale of the land to AYALA was not on cash basis but on installment as clearly specified in the Deed of Sale
which states:
That for and in consideration of the sum of TWO MILLION THREE HUNDRED EIGHT THOUSAND SEVEN HUNDRED SEVENTY (P2,308,770.00)
PESOS Philippine Currency, to be paid as follows:
1. P461,754.00, upon the signing of the Deed of Sale; and,
2. The balance of P1,847,016.00, to be paid in four (4) equal, consecutive, annual installments with interest thereon at the rate of
twelve percent (12%) per annum, beginning on February 20, 1976, said installments to be evidenced by four (4) negotiable
promissory notes.12
Petitioner resorts to Section 43 of the NIRC and Sec. 175 of Revenue Regulation No. 2 to support his claim.
Sec. 43 of the 1977 NIRC states,
Installment basis. — (a) Dealers in personal property. — . . .
(b) Sales of realty and casual sales of personalty — In the case (1) of a casual sale or other casual disposition of personal property (other than
property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable y ear), for a price
exceeding one thousand pesos, or (2) of a sale or other disposition of real property if in either case the initial payments do not exceed twenty-
five percentum of the selling price, the income may, under regulations prescribed by the Minister of Finance, be returned on the basis and in
the manner above prescribed in this section. As used in this section the term "initial payment" means the payments received in cash or property
other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. . . . (emphasis
ours)

Revenue Regulation No. 2, Section 175 provides,

Sale of real property involving deferred payments . — Under section 43 deferred-payment sales of real property include (1) agreements of
purchase and sale which contemplate that a conveyance is not to be made at the outset, but only after all or a substantial portion of the selling
price has been paid, and (b) sales in which there is an immediate transfer of title, the vendor being protected by a mortgage or other lien as
to deferred payments. Such sales either under (a) or (b), fall into two classes when considered with respect to the terms of sale, as follows:
(1) Sales of property on the installment plan, that is, sales in which the payments received in cash or property other than evidences
of indebtedness of the purchaser during the taxable year in which the sale is made do not exceed 25 per cent of the selling price;
(2) Deferred-payment sales not on the installment plan, that is sales in which the payments received in cash or property other than
evidences of indebtedness of the purchaser during the taxable year in which the sale is made exceed 25 per cent of the selling price;
In the sale of mortgaged property the amount of the mortgage, whether the property is merely taken subject to the mortgage or whether the
mortgage is assumed by the purchaser, shall be included as a part of the "selling price" but the amount of the mortgage, to the extent it does
not exceed the basis to the vendor of the property sold, shall not be considered as a part of the "initial payments" or of th e "total contract
price," as those terms are used in section 43 of the Code, in sections 174 and 176 of these regulations, and in this section. Th e term "initial
payments" does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the
vendee as part of the purchase price which are due and payable in subsequent years. Commissions and other selling expenses paid or incurred
by the vendor are not to be deducted or taken into account in determining the amount of the "initial payments," the "total contract price," or
the "selling price." The term "initial payments" contemplates at least one other payment in addition to the initial payment. If the entire purchase
price is to be paid in a lump sum in a later year, there being no payment during the year, the income may not be returned on the installment
basis. Income may not be returned on the installment basis where no payment in cash or property, other than evidences of indebtedness of
the purchaser, is received during the first year, the purchaser having promised to make two or more payments, in later years.
Petitioner asserts that Sec. 43 allows him to return as income in the taxable years involved, the respective installments as provided by the deed of sale
between him and AYALA. Consequently, he religiously reported his yearly income from sale of capital asset, subject to tax, as follows:
Year 1977 (50% of P461,754) P230,877.00

1978 230,877.00

1979 230,877.00

1980 230,877.00

Petitioner says that his tax declarations are acceptable modes of payment under Section 175 of the Revenue Regulations (RR) No. 2. The term "initial
payment", he argues, does not include amounts received by the vendor which are part of the complete purchase price, still due and payable in subsequent

15
years. Thus, the proceeds of the promissory notes, not yet due which he discounted to AYALA should not be included as income realized in 1976.
Petitioner states that the original agreement in the Deed of Sale should not be affected by the subsequent discounting of the bill.

On the other hand, respondents assert that taxation is a matter of substance and not of form. Returns are scrutinized to determine if transactions are
what they are and not declared to evade taxes. Considering the progressive nature of our income taxation, when income is spread over several
installment payments through the years, the taxable income goes down and the tax due correspondingly decreases. When payment is in lump sum the
tax for the year proportionately increases. Ultimately, a declaration that a sale is on installment diminishes government taxes for the year of initial
installment as against a declaration of cash sale where taxes to the government is larger.

As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale price is
received during such year, and a statute provides that income shall be taxable in the year in which it is "received," the profit from an installment sale is
to be apportioned between or among the years in which such installments are paid and received. 13

Sec. 43 and Sec. 175 says that among the entities who may use the above-mentioned installment method is a seller of real property who disposes his
property on installment, provided that the initial payment does not exceed 25% of the selling price. They also state what may be regarded as installment
payment and what constitutes initial payment. Initial payment means the payment received in cash or property excluding evidences of indebtedness
due and payable in subsequent years, like promissory notes or mortgages, given of the purchaser during the taxable year of sale. Initial payment does
not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the
purchase price which are due and payable in subsequent years.14 Such disposition or discounting of receivable is material only as to the computation of
the initial payment. If the initial payment is within 25% of total contract price, exclusive of the proceeds of discounted no tes, the sale qualifies as an
installment sale, otherwise it is a deferred sale.15

Although the proceed of a discounted promissory note is not considered part of the initial payment, it is still taxable income for the year it was converted
into cash. The subsequent payments or liquidation of certificates of indebtedness is reported using the installment method in computing the proportionate
income16 to be returned, during the respective year it was realized. Non-dealer sales of real or personal property may be reported as income under the
installment method provided that the obligation is still outstanding at the close of that year. If the seller disposes the entire installment obligation by
discounting the bill or the promissory note, he necessarily must report the balance of the income from the discounting not on ly income from the initial
installment payment.

Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the seller guarantees its payment,
continues to collect on the installment obligation, or handles repossession of merchandise in case of default.17 This rule prevails in the United
States.18 Since our income tax laws are of American origin, 19 interpretations by American courts an our parallel tax laws have persuasive effect on the
interpretation of these laws.20 Thus, by analogy, all the more would a taxable disposition result when the discounting of the promissory note is done by
the seller himself. Clearly, the indebtedness of the buyer is discharged, while the seller acquires money for the settlement of his receivables. Logically
then, the income should be reported at the time of the actual gain. For income tax purposes, income is an actual gain or an actual increase of
wealth.21 Although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as taxable income on the
year it was converted to cash. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA,
discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition
resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an
attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976.
Lastly, petitioner questions the damages awarded to respondent Larin.

Any person who seeks to be awarded actual or compensatory damages due to acts of another has the burden of proving said damages as well as the
amount thereof.22 Larin says the extortion cases filed against him hampered his immediate promotion, caused him strong anxiety and social humiliation.
The trial court awarded him two hundred thousand (P200,000,00) pesos as actual damages. However, the appellate court stated that, despite pendency
of this case, Larin was given a promotion at the BIR. Said respondent court:
We find nothing on record, aside from defendant-appellee Larin's statements (TSN, pp. 6-7, 11 December 1985), to show that he suffered loss
of seniority that allegedly barred his promotion. In fact, he was promoted to his present position despite the pendency of th e instant case
(TSN, pp. 35-39, 04 November 1985).23

Moreover, the records of the case contain no statement whatsoever of the amount of the actual damages sustained by the respondents. Actual damages
cannot be allowed unless supported by evidence on the record.24 The court cannot rely on speculation, conjectures or guesswork as to the fact and
amount of damages.25 To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, the actual
amount of loss.26 Since we have no basis with which to assess, with certainty, the actual or compensatory damages counter-claimed by respondent
Larin, the award of such damages should be deleted.
Moral damages may be recovered in cases involving acts referred to in Article 21 27 of the Civil Code.28 As a rule, a public official may not recover damages
for charges of falsehood related to his official conduct unless he proves that the statement was made with actual malice. In Babst, et. al. vs. National
Intelligence Board, et. al., 132 SCRA 316, 330 (1984), we reiterated the test for actual malice as set forth in the landmark American case of New York
Times vs. Sullivan,29 which we have long adopted, in defamation and libel cases, viz.:
. . . with knowledge that it was false or with reckless disregard of whether it was false or not.

We appreciate petitioner's claim that he filed his 1976 return in good faith and that he had honestly believed that the law allowed him to declare the
sale of the land, in installment. We can further grant that the pertinent tax laws needed construction, as we have earlier do ne. That petitioner was
offended by the headlines alluding to him as tax evader is also fully understandable. All these, however, do not justify what amounted to a baseless
prosecution of respondent Larin. Petitioner presented no evidence to prove Larin extorted money from him. He even admitted that he never met nor
talked to respondent Larin. When the tax investigation against the petitioner started, Larin was not yet the Regional Director of BIR Region IV-A, Manila.
On respondent Larin's instruction, petitioner's tax assessment was considered one involving a sale of capital asset, the income from which was subjected
to only fifty percent (50%) assessment, thus reducing the original tax assessment by half. These circumstances may be taken to show that Larin's
involvement in extortion was not indubitable. Yet, petitioner went on to file the extortion cases against Larin in different fora. This is where actual malice
could attach on petitioner's part. Significantly, the trial court did not err in dismissing petitioner's complaints, a ruling affirmed by the Court of Appeals.

16
Keeping all these in mind, we are constrained to agree that there is sufficient basis for the award of moral and exemplary damages in favor of respondent
Larin. The appellate court believed respondent Larin when he said he suffered anxiety and humiliation because of the unfounded charges against him.
Petitioner's actions against Larin were found "unwarranted and baseless," and the criminal charges filed against him in the Tanodbayan and City Fiscal's
Office were all dismissed.30 Hence, there is adequate support for respondent court's conclusion that moral damages have been proved.
Now, however, what would be a fair amount to be paid as compensation for moral damages also requires determination. Each case must be governed
by its own peculiar circumstances.31 On this score, Del Rosario vs. Court of Appeals,32 cites several cases where no actual damages were adjudicated,
and where moral and exemplary damages were reduced for being "too excessive," thus:
In the case of PNB v. C.A., [256 SCRA 309 (1996)], this Court quoted with approval the following observation from RCPI v. Rodriguez, viz:
** **. Nevertheless, we find the award of P100,000.00 as moral damages in favor of respondent Rodriguez excessive and
unconscionable. In the case of Prudenciado v. Alliance Transport System, Inc. (148 SCRA 440 [1987]) we said: . . . [I]t is undisputed
that the trial courts are given discretion to determine the amount of moral damages (Alcantara v. Surro, 93 Phil. 472) and that the
Court of Appeals can only modify or change the amount awarded when they are palpably and scandalously excessive "so as to
indicate that it was the result of passion, prejudice or corruption on the part of the trial court" (Gellada v. Warner Barnes & Co., Inc.,
57 O.G. [4] 7347, 7358; Sadie v. Bacharach Motors Co., Inc., 57 O.G. [4] 636 and Adone v. Bacharach Motor Co., Inc., 57 O.G. 656).
But in more recent cases where the awards of moral and exemplary damages are far too excessive compared to the actual loses
sustained by the aggrieved party, this Court ruled that they should be reduced to more reasonable amounts. . . . . (Emphasis ours.)
In other words, the moral damages awarded must be commensurate with the loss or injury suffered.
In the same case (PNB v. CA), this Court found the amount of exemplary damages required to be paid (P1,000,000,00) "too excessive" and
reduced it to an "equitable level" (P25,000.00).

It will be noted that in above cases, the parties who were awarded moral damages were not public officials. Considering that here, the award is in favor
of a government official in connection with his official function, it is with caution that we affirm granting moral damages, for it might open the floodgates
for government officials counter-claiming damages in suits filed against them in connection with their functions. Moreover, we must be careful lest the
amounts awarded make citizens hesitate to expose corruption in the government, for fear of lawsuits from vindictive government officials. Thus,
conformably with our declaration that moral damages are not intended to enrich anyone, 33 we hereby reduce the moral damages award in this case
from two hundred thousand (P200,000.00) pesos to seventy five thousand (P75,000.00) pesos, while the exemplary damage is set at P25,000.00 only.
The law allows the award of attorney's fees when exemplary damages are awarded, and when the party to a suit was compelled to incur expenses to
protect his interest.34 Though government officers are usually represented by the Solicitor General in cases connected with the performance of official
functions, considering the nature of the charges, herein respondent Larin was compelled to hire a private lawyer for the conduct of his defense as well
as the successful pursuit of his counterclaims. In our view, given the circumstances of this case, there is ample ground to award in his favor P50,000,00
as reasonable attorney's fees.

WHEREFORE, the assailed decision of the Court of Appeals dated November 29, 1991, is hereby AFFIRMED with MODIFICATION so that the award of
actual damages are deleted; and that petitioner is hereby ORDERED to pay to respondent Larin moral damages in the amount of P75,000.00, exemplary
damages in the amount of P25,000.00, and attorney's fees in the amount of P50,000.00 only. 1âwphi1.nêt
No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

17
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15126 November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Vicente Formoso, Jr. for plaintiff-appellee.
Reyes and Pangalañgan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez, presiding, sentencing the defendants to pay the plaintiff
the sum of P600, with legal interest from September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C. Gatchalian. The complaint sets
forth the check and alleges that plaintiff received it in payment of the indebtedness of one Matilde Gonzales; that upon receipt of said check, plaintiff
gave Matilde Gonzales P158.25, the difference between the face value of the check and Matilde Gonzales' indebtedness. The defendants admit the
execution of the check but they allege in their answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that
plaintiff was guilty of gross negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:

Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following Agreed Stipulation of Facts;
First. — That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then interested in looking for a car for
the use of her husband and the family, was shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, th e latter
being personally known to defendant Anita C. Gatchalian;
Second. — That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by the owner of the car, Ocampo
Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but which facts were not known to plaintiff;
Third. — That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her satisfaction, requested Manuel
Gonzales to bring the car the day following together with the certificate of registration of the car, so that her husband wou ld be able to see
same; that on this request of defendant Anita C. Gatchalian, Manuel Gonzales advised her that the owner of the car will not be willing to give
the certificate of registration unless there is a showing that the party interested in the purchase of said car is ready and willing to make such
purchase and that for this purpose Manuel Gonzales requested defendant Anita C. Gatchalian to give him (Manuel Gonzales) a ch eck which
will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car, the said check to be for safekeeping
only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian the following day when Manuel Gonzales brings the car and the
certificate of registration, but which facts were not known to plaintiff;
Fourth. — That relying on these representations of Manuel Gonzales and with his assurance that said check will be only for safekeeping and
which will be returned to said defendant the following day when the car and its certificate of registration will be brought by Manuel Gonzales
to defendants, but which facts were not known to plaintiff, defendant Anita C. Gatchalian drew and issued a check, Exh. "B"; that Manuel
Gonzales executed and issued a receipt for said check, Exh. "1";
Fifth. — That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its certificate of registration
and to return the check, Exh. "B", on the following day as previously agreed upon, defendant Anita C. Gatchalian issued a "Stop Payment
Order" on the check, Exh. "3", with the drawee bank. Said "Stop Payment Order" was issued without previous notice on plaintif f not being
know to defendant, Anita C. Gatchalian and who furthermore had no reason to know check was given to plaintiff;
Sixth. — That defendants, both or either of them, did not know personally Manuel Gonzales or any member of his family at any time prior to
September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo;
Seventh. — That defendants, both or either of them, had no arrangements or agreement with the Ocampo Clinic at any time prior to, on or
after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or both of said defendants had assumed, expressly
or impliedly, with the Ocampo Clinic, the obligation of Manuel Gonzales or his wife for the hospitalization of the latter;
Eight. — That defendants, both or either of them, had no obligation or liability, directly or indirectly with the Ocampo Clinic before, or on 9
September 1953;
Ninth. — That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian under the representations and conditions
herein above specified, delivered the same to the Ocampo Clinic, in payment of the fees and expenses arising from the hospitalization of his
wife;
Tenth. — That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of Manuel Gonzales from
its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to payment of said fees and expenses and delivering to Manuel
Gonzales the amount of P158.25 (as per receipt, Exhibit "D") representing the balance on the amount of the said check, Exh. "B";
Eleventh. — That the acts of acceptance of the check and application of its proceeds in the manner specified above were made without
previous inquiry by plaintiff from defendants:
Twelfth. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa against Manuel Gonzales
based on and arising from the acts of said Manuel Gonzales in paying his obligations with plaintiff and receiving the cash balance of the check,
Exh. "B" and that said complaint was subsequently dropped;
Thirteenth. — That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be considered as parts of this
stipulation, without necessity of formally offering them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties hereto be given fifteen days
from today within which to submit simultaneously their memorandum to discuss the issues of law arising from the facts, reserving to either
party the right to submit reply memorandum, if necessary, within ten days from receipt of their main memoranda. (pp. 21-25, Defendant's
Record on Appeal).
No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.
In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and circumstances stated in the stipulation
of facts, and that plaintiff is not a holder in due course. In support of the first contention, it is argued that defendant Gatchalian had no intention to
transfer her property in the instrument as it was for safekeeping merely and, therefore, there was no delivery required by law (Section 16, Negotiable

18
Instruments Law); that assuming for the sake of argument that delivery was not for safekeeping merely, delivery was conditional and the condition was
not fulfilled.
In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-appellee cannot be a holder in due
course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of the check; that a holder in due course presupposes a
prior party from whose hands negotiation proceeded, and in the case at bar, plaintiff-appellee is the payee, the maker and the payee being original
parties. It is also claimed that the plaintiff-appellee is not a holder in due course because it acquired the check with notice of defect in the title of the
holder, Manuel Gonzales, and because under the circumstances stated in the stipulation of facts there were circumstances that brought suspicion about
Gonzales' possession and negotiation, which circumstances should have placed the plaintiff-appellee under the duty, to inquire into the title of the
holder. The circumstances are as follows:

The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could have inquired why a person
would use the check of another to pay his own debt. Furthermore, plaintiff had the "means of knowledge" inasmuch as defendant Hipolito
Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)
The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check is in the amount of P600.00,
which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of Facts). Since Manuel Gonzales is the
party obliged to pay, plaintiff should have been more cautious and wary in accepting a piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN IN A BANK, CHECKS ARE NOT
CASHED WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have been made by plaintiff. (Defendants-appellants' brief, pp.
52-53)

Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best authority on the Negotiable Instruments
Law, plaintiff-appellee may be considered as a holder in due course, citing Brannan's Negotiable Instruments Law, 6th edition, page 252. On this issue
Brannan holds that a payee may be a holder in due course and says that to this effect is the greater weight of authority, thus:
Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question upon which the courts are in
serious conflict. There can be no doubt that a proper interpretation of the act read as a whole leads to the conclusion that a payee may be a
holder in due course under any circumstance in which he meets the requirements of Sec. 52.
The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is here repeated.
Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. S ec. 52 defendants
defines a holder in due course as "a holder who has taken the instrument under the following conditions: 1. That it is complete and regular on
its face. 2. 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. 3. That he took it in good faith and for value. 4. 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."
Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause of sec. 52 and in the second
subsection may be replaced by the definition in sec. 191 so as to read "a holder in due course is a payee or indorsee who is in possession,"
etc. (Brannan's on Negotiable Instruments Law, 6th ed., p. 543).

The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in due course. If it is such a
holder in due course, it is immaterial that it was the payee and an immediate party to the instrument.
The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not deliver the instrument to Manuel
Gonzales with the intention of negotiating the same, or for the purpose of giving effect thereto, for as the stipulation of facts declares the check was to
remain in the possession Manuel Gonzales, and was not to be negotiated, but was to serve merely as evidence of good faith of defendants in their desire
to purchase the car being sold to them. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales, it
was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. As the check was payable to the plaintiff-appellee,
and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by the drawer to his own agent; in other words,
Manuel Gonzales was the agent of the drawer Anita Gatchalian insofar as the possession of the check is concerned. So, when th e agent of drawer
Manuel Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee, negotiation took place through no fault of the
plaintiff-appellee, unless it can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder
Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question presented by the appellants, i.e., whether the plaintiff-
appellee may be considered as a holder in due course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
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.

The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered to Manuel
Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in their briefs, such as the fact that appellants had no
obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R.
de Ocampo; and that the check had two parallel lines in the upper left hand corner, which practice means that the check cou ld only be deposited but
may not be converted into cash — all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession
of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to ascertain from the holder Manuel Gonzales what
the nature of the latter's title to the check was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was
guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may
not be considered as a holder of the check in good faith. To such effect is the consensus of authority.
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith," it is not
necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient

19
 to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did not have notice
of the particular wrong that was committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not necessary that he
should know the particulars or even the nature of the fraud, since all that is required is knowledge of such facts that his action in taking the
note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall, immature in appearance and
bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The boy stated that they belonged to his mother. The defendants
paid the boy for the bonds without any further inquiry. Held, the plaintiff could recover the value of the bonds. The term 'bad faith' does not
necessarily involve furtive motives, but means bad faith in a commercial sense. The manner in which the defendants conducted their Liberty
Loan department provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked." Although gross negligence
does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739,
181 N.Y. Supp. 913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments Law, 6th ed.).

The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover the value of the check. Let
us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter to find if our ruling conforms thereto. Section 52 (c)
provides that a holder in due course is one who takes the instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie
to be a holder in due course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the time the instrument
was negotiated to him "he had no notice of any . . . defect in the title of the person negotiating it;" and lastly Section 59 , that every holder is
deemed prima facieto be a holder in due course.

In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because there was a defect in the title
of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he had the
check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or suspicious, to
say the least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in
holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And
having presented no evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under
the circumstances of the case, instead of the presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed
upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the
Supreme Court of Vermont made the following disquisition:

Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had its origin in Gill v. Cubitt, 3 B.
& C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of King's Bench that the purchaser of negotiable paper must
exercise reasonable prudence and caution, and that, if the circumstances were such as ought to have excited the suspicion of a prudent and
careful man, and he made no inquiry, he did not stand in the legal position of a bona fide holder. The rule was adopted by th e courts of this
country generally and seem to have become a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C.
L. 381, the English court abandoned its former position and adopted the rule that nothing short of actual bad faith or fraud in the purchaser
would deprive him of the character of a bona fide purchaser and let in defenses existing between prior parties, that no circumstances of
suspicion merely, or want of proper caution in the purchaser, would have this effect, and that even gross negligence would have no effect,
except as evidence tending to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed the
change inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on full consideration of the
question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has been adhered to in subsequent cases, including those
cited above. Stated briefly, one line of cases including our own had adopted the test of the reasonably prudent man and the other that of
actual good faith. It would seem that it was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter
test. That such is the view generally accepted by the courts appears from a recent review of the cases concerning what constitutes n otice of
defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the act to make uniform the Negotiable Instruments Law of
those states which should enact it, we are constrained to hold (contrary to the rule adopted in our former decisions) that negligence on the
part of the plaintiff, or suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery, but are
to be considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where such a course is required in construing
other uniform acts.
It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be
entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument.
It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be
inferred.

In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it
to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation
of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check
in good faith and may not be deemed a holder in due course thereof.
For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are absolved from the complaint.
With costs against plaintiff-appellee.

20
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 132403 September 28, 2007
HI-CEMENT CORPORATION, Petitioner,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI
BANK) Respondent.
x-----------------------x
G.R. No. 132419
E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA TAN, Petitioners,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI
BANK), Respondent.
DECISION
CORONA, J.:
At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600 entitled Insular
Bank of Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al .1
The antecedent facts follow.
Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the
business of processing and distributing bunker fuel.2 Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement),3 Riverside Mills
Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.
Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T. Henry a credit facility known as
"Purchase of Short Term Receivables." Through this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of
its clients. In other words, E.T. Henry and respondent were into "re-discounting" of checks.
For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the confo rmity of the client to
the re-discounting.4
From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent. However, in February 1981, 20
checks5 of Hi-Cement (which were crossed and which bore the restriction "deposit to payee’s account only") were dishonored. So were the checks of
Riverside and Kanebo.6
Respondent filed a complaint for sum of money7 in the then Court of First Instance of Rizal8 against E.T. Henry, the spouses Tan, Hi-Cement (including
its general manager9 and its treasurer 10 as signatories of the postdated crossed checks), Riverside and Kanebo.11
In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to their value, exclusive of accrued
and accruing interests, charges and penalties such as attorney’s fees and expenses of litigation, as follows:

1. Riverside Mills Corporation ₱ 115,312.50

2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00
3. Hi-Cement Corporation 10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to ₱1,661,266.51 and ₱4,900,805,
respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Parañaque.12
Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to issue the postdated crossed
checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the conformity of
its treasurer and (3) respondent was not a holder in due course as it should not have discounted them for being "crossed checks."13
In their answer (with counterclaim against respondent and cross-claims against Hi-Cement, Riverside and Kanebo),14 E.T. Henry and the spouses Tan
claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse economic conditions prevailing at the time respondent
presented them for payment; (2) the extra-judicial sale of the mortgaged Sucat property was void due to gross inadequacy of the bid price 15 and (3)
their loans were subjected to a usurious interest rate of 21% p.a.
For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the re-discounting arrangement
between respondent and E.T. Henry.
On June 30, 1989, the trial court rendered a decision which read:
WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this Court hereby renders judgment in favor of
[respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], to wit:
1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay [respondent] damages represented by
the face value of the postdated checks as follows:
(a) Riverside Mills Corporation ₱ 115,312.50
(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00
(c) Hi-Cement Corporation 10,000,000.00
plus interests, services, charges and penalties until fully paid;
2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of ₱4,900,805.00 plus accrued interests, charges, penalties
until fully paid;
3. Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of ₱1,661,266.51 plus interests, charges, and penalties until fully paid;
4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorney’s fees and expenses of litigation in
the amount of ₱200,000.00 and pay the cost of this suit. 16
SO ORDERED.17

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.
21
In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not authorize their issuance; (2)
respondent was not a holder in due course and (3) there was no basis for the lower court’s holding that it was solidarily liable for the face value of
Riverside’s and Kanebo’s checks.18
In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred in: (1) applying the doctrine of
piercing the veil of the corporate entity to make the spouses Tan solidarily liable with E.T. Henry; (2) not ruling on their cross-claims and counterclaims,
and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void.19

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.20 The factual findings of the trial court, specially
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.21 This case falls within the exception.

Authority of Hi-Cement’s General Manager and Treasurer to Issue the Postdated Crossed Checks
Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks.
They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous
checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent.
We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. However,
notwithstanding such fact, respondent could not be considered a holder in due course.

Respondent Bank Not a Holder In Due Course

The Negotiable Instruments Law (NIL), specifically Section 191,22 provides:
"Holder" means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the bearer thereof.
On the other hand, Section 5223 states:
A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and regular on its face; (b) he became
the holder of it before it was overdue, and without notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and
for value and (d) 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.
Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met.
In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,24 we held that the holder of crossed checks was not a holder in due course. There, the drawer
(BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed. George
King, however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon the latter’s presentment to the drawee bank, BCCF ordered
a "stop payment." Thereafter, SIHI filed a collection case against it. In ruling that SIHI was not a holder in due course, we explained:
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank [and];
(c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose, otherwise, he is not a holder in due course.
Likewise, in Atrium Management Corporation v. CA,25 where E.T. Henry, Hi-Cement and its treasurer26 again engaged in a legal scuffle over four
postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry
was the payee of four Hi-Cement postdated checks which it endorsed to Atrium. When the latter presented the crossed checks to the drawee bank, Hi-
Cement stopped payment.27 We held that Atrium was not a holder in due course:
In the instant case, the checks were crossed and specifically indorsed for deposit to payee’s account only. From the beginning, Atrium was aware of the
fact that the checks were all for deposit only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due
course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cement’s postdated crossed checks from E.T. Henry
(as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the
subject checks.
Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's acc ount only; hence, they
could not be further negotiated to it. The records likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting
of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. As a banking
institution, it behooved respondent to act with extraordinary diligence in every transaction.28 Its business is impressed with public interest, thus, it was
not expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory, Inc.,29 we
ruled:
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s
title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting
to legal absence of good faith…and as such[,] the consensus of authority is to the effect that the holder of the check is not a holder in due course.
(emphasis supplied)
The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative.
In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, 30 SIHI re-discounted crossed checks and was declared not a holder in due
course. As a result, when it presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability
did not attach to the drawer of the checks. We ruled that:

The three subject checks in the case at bar had been crossed…which could only mean that the drawer had intended the same for deposit only by the
rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no
proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. 31
Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA,32 where we affirmed the CA ruling that the drawer of the
postdated crossed checks was not liable to the holder who was deemed not a holder in due course .

22
We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder who is not a holder in due
course from recovering on the checks. In both, we ruled that it may recover from the party who indorsed/encashed the checks "if the latter has no valid
excuse for refusing payment." Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from
respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.

Solidary Liability of Hi-Cement for The Face Value of Riverside's and Kanebo's Checks
Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-Cement had nothing to do with the
checks of these two corporations. However, although the language of the trial court decision's dispositive portion seemed confusing, a reading of the
decision in its entirety reveals that the fallo was for each corporation to be liable solidarily with E.T. Henry and/or the spouses Tan for the respective
values of their checks.

Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here. Articles 1207 and 1208 of the
Civil Code provide:
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the presentation. There is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity. (emphasis supplied)
Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers to the contrary does not appear, the
credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules governing the multiplicity of suits.
At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks.

(B) G.R. No. 132419

Doctrine of Piercing the
Veil of Corporate Entity
In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the "piercing the veil of corporate entity" doctrine to
their case. They claim that both the trial and appellate courts failed to cite the reasons why the doctrine was relevant to them.
We agree with petitioners E.T. Henry and the spouses Tan in this respect.

If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reaso ns to the contrary appear. 33 It
is only when the fiction or notion of legal entity is used to defeat public convenience, justify wrong, perpetuate fraud or defend crime that the law will
shred the corporate legal veil and regard it as a mere association of persons. 34 This is referred to as the doctrine of piercing the veil of corporate entity.
After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.
First, the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it agreed with respondent’s arguments but did not
explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses Tan’s case. On the other hand, the CA held:
…It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its authorized signatories. The business of the corporation
was conducted solely for the benefit of the spouses Tan who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited…[I]t is a
settled law in this and other jurisdictions that when the corporation is a mere alter ego of a person, same being true when the corporation is controlled,
and its affairs are so conducted to make it merely an instrumentality, agency or conduit of another. 35

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan defrauded respondent. It did not
also state what act constituted the fraud. Fraud is an allegation of fact that demands clear and convincing evidence. 36 It is never presumed.37
Second, the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. 38 For this ground to stand in this case, there must be proof that the spouses Tan:
(1) had control or complete domination of E.T. Henry’s finances and that the latter had no separate existence with respect to the act complained of; (2)
used such control to commit fraud or wrong and (3) the control was the proximate cause of the loss or injury complained of by respondent. 39 The
records of this case do not show that these elements were present.

Inadequacy of the Bid Price to Annul Foreclosure Proceeding

With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that the "mere inadequacy of the
price obtained at the [s]heriff’s sale, unless shocking to the conscience, (was) not sufficient to set aside the sale if there (was) no showing that, in the
event of a regular sale, a better price (could) be obtained."401âwphi1
Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict observance of the procedure,
we will continue to assume its regularity and strike down any attempt to vitiate it. In this case, E.T. Henry and the spouses Tan made no mention of
any anomaly to support the nullification of the foreclosure sale but merely alleged a disparity in the bid price and the property’s fair market value.

Counterclaims and Cross-claims

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon their counterclaim against
respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They ask us now to hold these parties liable on the basis of said claims. We decline
to do so.
First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties in the case at bar. Under Rule 3 of the Rules of
Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or defended in the name of the real party in interest. 41 The term
"defendant" may refer to the original defending party, the defendant in a counterclaim, the cross-defendant or the third (fourth, etc.) party
defendant.42 Hence, for this technical lapse, we are constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.
Second, E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of an alleged void foreclosure proceeding on E.T. Henry's
Sucat property due to an inadequate bid price. It is no longer necessary to delve into this matter in view of our finding that the mere inadequacy of the
bid price on the property did not automatically render the foreclosure sale irregular or void.
23
Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts’ ruling on E.T. Henry’s and the spouses Tan’s solidary liability with
Riverside and Kanebo vis-a-vis their checks.43 To be consistent, however, with our dictum on the separate personality of E.T. Henry and the spouses
Tan, the solidarity liability arising from the checks of Riverside and Kanebo shall only be enforced against E.T. Henry.
WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly,
petitioner Hi-Cement Corporation is discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia
and America (later Philippine Commercial International Bank and now Equitable PCI-Bank) the following:
1. ₱10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests, charges and penalties until
fully paid, and
2. the loans for ₱1,661,266.51 and ₱4,900,805 plus accrued interests, charges and penalties until fully paid.
Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and Kanebo's liabilities for the checks,
attorney's fees and costs of litigation.

24
 SECOND DIVISION
G.R. No. 138074 August 15, 2003
CELY YANG, Petitioner,
vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING
CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, Respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the
joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 5479 2 and 5492.3 The trial court
dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine
Commercial International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds of the two cashier’s checks, including the
earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of ₱100,000.00 and attorney’s fees also in the amount of
₱100,000.00.

The facts of this case are not disputed, to wit:

On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby the latter was
to give Yang a PCIB manager’s check in the amount of ₱4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of ₱2.087
million, both payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the difference of ₱26,000.00 in the
exchange would be their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB
FCDU Account No. 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank
Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the following:
a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of ₱2,087,000.00, dated December 22, 1987, payable to the order of Fernando
David;
b) FEBTC Cashier’s Check No. 287078, in the amount of ₱2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando
David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated December 22, 1987, payable to
PCIB FCDU Account No. 4195-01165-2.

At about one o’clock in the afternoon of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate, Albert
Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue,
Makati City, Metro Manila where he would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, wou ld deliver to Ranigo a
PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by petitioner. Ranigo
reported the alleged loss of the checks and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering
the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft.
At three o’clock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to respondent
Fernando David at China Banking Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashier’s Check No. 287078, dated
December 22, 1987, in the sum of ₱2.087 million; and (b) Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987, also in the amount
of ₱2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife, Pushpa
Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in Greenhills, San Juan,
Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical Bank, New York for
US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks complied with her request,
but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of
PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00.

On December 28, 1987, herein petitioner Yang lodged a Complaint 4 for injunction and damages against Equitable, Chandiramani, and David, with prayer
for a temporary restraining order, with the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The Complaint was
subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.5
On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB,
Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that
defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18 % annually until fully
paid.6

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary
injunction was subsequently issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary
injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari docketed as CA-
G.R. SP No. 14843, which was dismissed by the appellate court.

25
As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial
of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.
After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be
awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to the following:
1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC) Cashier’s Check No. CCPS 14-
009467 in the sum of ₱2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashier’s Check No. 287078
in the sum of ₱2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom pendente lite?
2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar Draft No. 4771, in the sum
of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang?7

On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:
WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the
proceeds of the two (2) cashier’s checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando
David moral damages in the amount of ₱100,000.00; attorney’s fees in the amount of ₱100,000.00 and to pay the costs. The complaint against Far East
Bank and Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) is dismissed. The decision
is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts received by
him from defendant Fernando David.
SO ORDERED.8

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they
were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that said checks were previously
dishonored; he took the cashier’s checks in good faith and for value. He parted some $200,000.00 for the two (2) cashier’s checks which were given to
defendant Chandiramani; he had also no notice of any infirmity in the cashier’s checks or defect in the title of the drawer. As a matter of fact, he asked
the manager of the China Banking Corporation to inquire as to the genuineness of the cashier’s checks (tsn, February 5, 1988, p. 21, September 20,
1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC cashier’s check
was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because
of the fact that FEBTC realized that the checks were not actually lost but indeed reached the payee defendant David. 9
Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20, 1995.
In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu, Yang seasonably filed an
appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.

On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:
WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiff-appellant to pay defendant-
appellant PCIB the amount of Twenty-Five Thousand Pesos (₱25,000.00).
SO ORDERED.10
In affirming the trial court’s judgment with respect to herein respondent David, the appellate court found that:
In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation, the genuineness of whether
(sic) the cashier’s checks he received from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-appellee had
no notice of what had transpired earlier between the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to Chandiramani
with whom he was he had (sic) a transaction. Further on, David received the checks in question in due course because Chandiramani, who at the time
the checks were delivered to David, was acting as Yang’s agent.

David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and defect of title of the holder.
To mandate that each holder inquire about every aspect on how the instrument came about will unduly impede commercial transactions,
Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment.
The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived with each other to defraud
Yang. There was no concrete proof presented by Yang to support her theory. 11
The appellate court awarded ₱25,000.00 in attorney’s fees to PCIB as it found the action filed by Yang against said bank to be "clearly unfounded and
baseless." Since PCIB was compelled to litigate to protect itself, then it was entitled under Article 2208 12 of the Civil Code to attorney’s fees and litigation
expenses.
Hence, the instant recourse wherein petitioner submits the following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY
BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;
c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS
SHARE OF THE LOOT;
d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND ATTORNEY’S FEES.13

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions for review
under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of fact are not entertained absent a showing that the
factual findings complained of are totally devoid of support in the record or are glaringly erroneous. 14 Given the facts in the instant case, despite
petitioner’s formulation, we find that the following are the pertinent issues to be resolved:
a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course; and
b) Whether the appellate court committed a reversible error in awarding damages and attorney’s fees to David and PCIB.

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the chec ks in question. While it is
true that he was named the payee thereof, David failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given
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his failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of Chandiramani to the checks at the time of their
negotiation. Moreover, inasmuch as the checks were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette Factory, Inc.
v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite purpose and accordingly,
made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so negates the finding in the proceedings below that
he was a holder in due course.
Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value in exchange for the
aforementioned checks.

Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he verified their genuineness with
his bank, and only after said verification did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that would have
aroused his suspicions, the instruments being complete and regular upon their face. David stresses that the checks in question were cashier’s checks.
From the very nature of cashier’s checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable
instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the presumption with sufficient
evidence. The petitioner failed to discharge this burden, according to David. He points out that the checks were delivered to him as the payee, and he
took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their holder in due course.
We shall now resolve the first issue.

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who
is a holder as defined in Section 191 of the Negotiable Instruments Law, 15 meaning a "payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof."
In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may
be a holder in due course.16 Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may
be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the co nditions provided for in
Section 5217 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed
a holder in due course.

We find that the petitioner’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David
tendered any valuable consideration for the disputed checks; and (2) David’s failure to inquire from Chandiramani as to how the latter acquired possession
of the checks, thus resulting in David’s intentional ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52
are missing, thereby preventing David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this score are
less than meritorious and far from persuasive.

First, with respect to consideration, Section 24 18 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired
the same for a consideration19 or for value.20 Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration for the
checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other
words, the petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner
failed to discharge her burden of proof. The petitioner’s averment that David did not give valuable consideration when he took possession of the checks
is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the
appellate court.21

Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks
by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing
in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to
the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the
checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any "stop
payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the
checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent
any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to
the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in
taking the instruments amounted to bad faith.22

Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that David should have been
put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should
at least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, according to petitioner’s submission.
Petitioner’s reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours with Bataan Cigar. In the latter
case, the crossed checks were negotiated and sold at a discount by the payee, while in the instant case, the payee did not negotiate further the checks
in question but promptly deposited them in his bank account.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce 23 makes reference to such instruments.
Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could
only be deposited and not converted into cash. 24 The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee
knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of
the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan Cigar reiterates
that in De Ocampo & Co. v. Gatchalian.25

27
The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that the crossed checks were
delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks
was satisfied by the payee.

Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages, attorney’s fees, and costs
of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise to the instant case.
Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have nothing t o do with him at all,
but which arose from petitioner’s failure to receive her share of the profit promised her by Chandiramani.1âwphi1 Moreover, in filing this suit which has
lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two checks, to which he is entitled, under the law, compelled
him to hire the services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing
as a person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral damages, attorney’s fees, and
costs of suit be awarded him.

For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was needlessly dragged into this
case. Hence, no error was committed by the appellate court in declaring PCIB entitled to attorney’s fees as it was compelled to litigate to protect itself.
We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as af firmed by the appellate
court, that:

[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into this case which should
have been brought only between the plaintiff and defendant Chandiramani. 26

A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in including David as a party
in these proceedings, is barking up the wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner and was not
privy to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of
Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging David into this case all because
he and Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also caused him anxiety
and injured his business reputation while waiting for its outcome. Recall that under Article 2217 27 of the Civil Code, moral damages include mental
anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral damages
to be in order.

The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds. Both were thus compelled to
litigate to protect their interests, which makes an award of attorney’s fees justified under Article 2208 (2) 28 of the Civil Code. Hence, we rule that the
award of attorney’s fees to David and PCIB was proper.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is
AFFIRMED. Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Tinga, JJ., concur.
Callejo, Sr., J., on leave.

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