Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15380             September 30, 1960

CHAN WAN, plaintiff-appellant, 
vs.
TAN KIM and CHEN SO, defendants-appellees.

Manuel Domingo for appellant.

C.M. de los Reyes for appellees.

BENGZON, J.:

This suit to collect eleven checks totalling P4,290.00 is here for decision because it involves no issue of
fact.

Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is her
husband) upon the Equitable Banking Corporation, were all presented for payment by Chan Wan to the
drawee bank, but they "were all dishonored and returned to him unpaid due to insufficient funds and/or
causes attributable to the drawer."

At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness
stand. His attorney, however, testified only to identify the checks — which are Exhibits A to K — plus
the letters of demand upon defendants.

On the other hand, Tan Kim declared without contradiction that the checks had been issued to two
persons named Pinong and Muy for some shoes the former had promised to make and "were intended as
mere receipts".

In view of such circumstances, the court declined to order payment for two principal reasons: (a)
plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks should
not have been deposited instead with the bank mentioned in the crossing.

It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it for
failure of proof, and from such dismissal they did not appeal.

The only issue is, therefore, the plaintiff's right to collect on the eleven commercial documents.

The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the
liabilities arising therefrom, does not mention "crossed checks". Art. 541 of the Code of Commerce
refers to such instruments. 1 The bills of Exchange Act of England of 1882, contains several provisions
about them, some of which are quoted in the margin.  2 In the Philippine National Bank vs. Zulueta, 101
Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of said Bills of Exchange Act because the
Negotiable Law, originating from England and codified in the United States, permits resort thereto in
matters not covered by it and local legislation. 3

Eight of the checks here in question bear across their face two parallel transverse lines between which
these words are written: non-negotiable — China Banking Corporation. These checks have, therefore,
been crossed specially to the China Banking Corporation, and should have been presented for payment by
China Banking, and not by Chan Wan. 4 Inasmuch as Chan Wan did present them for payment himself —
the Manila court said — there was no proper presentment, and the liability did not attach to the drawer.

We agree to the legal premises and conclusion. It must be remembered, at this point, that the drawer in
drawing the check engaged that " on due presentment, the check would be paid, and that if it be

Page 1 of 50
dishonored . . . he will pay the amount thereof to the holder". 5 Wherefore, in the absence of due
presentment, the drawer did not become liable.

Nevertheless we find, on the backs of the checks, endorsements which apparently show they had been
deposited with the China Banking Corporation and were, by the latter, presented to the drawee bank for
collection. For instance, on the back of the check Exhibit A (same as in Exh. B), this endorsement
appears:

For deposit to the account of White House Shoe Supply with the China Banking Corporation.

and then this:

Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements
and/or lack of endorsements guaranteed. China Banking Corporation.

And on the back of Exh. G:

For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe
Company.

followed by the endorsement of China Banking Corporation as in Exhibits A and B. All the crossed checks
have the "clearance" endorsement of China Banking Corporation.

These circumstances would seem to show deposit of the checks with China Banking Corporation and
subsequent presentation by the latter through the clearing office; but as drawee had no funds, they
were unpaid and returned, some of them stamped "account closed". How they reached his hands, plaintiff
did not indicate. Most probably, as the trial court surmised, — this is not a finding of fact — he got
them after they had been thus  returned, because he presented them in court with such "account closed"
stamps, without bothering to explain. Naturally and rightly, the lower court held him not to be a holder in
due course under the circumstances, since he knew, upon taking them up, that the checks had already
been dishonored.6

Yet it does not follow as a legal proposition, that simply because he was not a holder in due course Chan
Wan could not recover on the checks. The Negotiable Instruments Law does not provide that a
holder7 who is not a holder in due course, may not in any case, recover on the instrument. If B purchases
an overdue negotiable promissory note signed by A, he is not a holder in due course; but he may recover
from A,8 if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is
not a holder in due course is that the negotiable instrument is subject to defense as if it were non-
negotiable.9

Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention any;
evidently His Honor had in mind the defense pleaded in defendant's answer, but though it unnecessary
to specify, because the "crossing" and presentation incidents sufficed to bar recovery, in his
opinion.1awphîl.nèt

Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to
Pinong and Muy, and/or that they had been issued in payment of shoes which Pinong had promised to
make for her.

Seeming to imply that Pinong had to make the shoes, she asserted Pinong had "promised to pay the
checks for me". Yet she did not complete the idea, perhaps because she was just answering cross-
questions, her main testimony having referred merely to their counter-claim.

Needless to say, if it were true that the checks had been issued in payment for shoes that were never
made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due
course. 10

Considering the deficiency of important details on which a fair adjudication of the parties' right
depends, we think the record should be and is hereby returned, in the interest of justice, to the court
below for additional evidence, and such further proceedings as are not inconsistent with this opinion.
Page 2 of 50
With the understanding that, as defendants did not appeal, their counterclaim must be and is hereby
definitely dismissed. So ordered.

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes and Dizon, JJ., concur.

Footnotes

1
SEC. 541. — The maker or any legal holder of a check shall be entitled to indicate therein that it
be paid to certain banker or institution, which he shall do by writing across the face the name of
said banker or institution, or only the words "and company."

The payment made to a person other than the banker or institution shall not exempt the person
on whom it is drawn, if the payment was not correctly made.

2
76. [General and Special Crossing Defined.] — (1) Where a check bears across its face an
addition of —

(a) The words "and company" or any abbreviation thereof between two parallel
transverse lines, either with or without the words "not negotiable;" or

(b) Two parallel transverse lines simply, either with or without the words "not
negotiable;" that addition constitutes a crossing, and the cheque is crossed
generally.

(2) Where a cheque bears across its face an addition of the name of a banker, either with
or without the words "not negotiable," that addition constitutes a crossing, and the cheque
is crossed specially and to that banker.

79. . . . (2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays
the same, or pays the same, or pays a cheque crossed generally otherwise than to a banker, or if
crossed specially otherwise than to the banker to whom it is crossed, or his agent for collection
being a banker, he is liable to the true owner of the cheque for any loss he may sustain owing to
the cheque having been so paid. (Taken from Brannan's Negotiable Instruments Law, 60th Ed.
1250-1251.)

3
Sec. 196, Negotiable Instruments Law.

4
If it is not presented by said Bank for payment, the drawee runs the risk, in case of payment to
persons not entitled thereto. So the practice is for the drawee to refuse when presented by
individuals. The check is generally deposited with the bank mentioned in the crossing, so that the
latter may take charge of the collection.

5
Sec. 61. Negotiable Instruments Law.

6
Sec. 52 (b), Negotiable Instruments Law.

7
He was a holder all right, because he had possession of the checks that were payable to bearer.

8
Sec. 51. Negotiable Instruments Law.

9
SEC. 58 Negotiable Instruments Law.

10
Lack of consideration is a defense. (Sec. 28, Negotiable Instruments Law.)

Page 3 of 50
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866             February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner, 

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of
all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and
even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in
Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by
the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to
have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and
also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants. 3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968.000.00.4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

Page 4 of 50
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings
and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum
of P1,754,089.00 and to reinstate and credit to such account such amount existing before the
debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and
Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association,
Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition
for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual
terms and conditions on the deposit slips allowing Metrobank to charge back any amount
erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting
agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made
to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo
Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden
Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case
are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred

Page 5 of 50
liability for its refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to
its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank
to determine the validity of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked
by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of
the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear
that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it
allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling —
more than one and a half million pesos (and this was 1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting.
Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo
from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings
to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the total
amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and
it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared
simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is
unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents,  and until
such time as actual payment shall have come into possession of this bank, the right is reserved to
charge back to the depositor's account any amount previously credited, whether or not such item
is returned. This also applies to checks  drawn on local banks and bankers and their branches as
well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden Savings when
Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could
be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to
agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to
rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light
of the circumstances of this case.

Page 6 of 50
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not
for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing Golden Savings to withdraw from its account not
only once or even twice but three times. The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added to its belief that the treasury warrants
had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid   for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no
need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have
been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to
Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden Savings before it made its own
payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that
is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of
the general manager and the auditor of the drawer corporation, has not been established. 9 This was the
finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of
Appeals:10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established
by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is
of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the

following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money ;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

x x x           x x x          x x x

Page 7 of 50
 Sec. 3. When promise is unconditional . — An unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular

account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional .

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be
no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case
at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument
and is entitled to the rights and privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation for food administration,
is actually an Order for payment out of "a particular fund," and is not unconditional and does not
fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and
section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel
this case is inapplicable to the present controversy. 1âwphi1 That case involved checks whereas this case
involves treasury warrants. Golden Savings never represented that the warrants were negotiable but
signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved
in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the
Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to
its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he
has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon,
if any, after the debit.

Page 8 of 50
SO ORDERED.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, 

vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

REGALADO ,  J.:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano
Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner Government
Service Insurance System (hereinafter referred to as GSIS) and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P
11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate of Title No.
38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as
security under the aforesaid two deeds. 2 They also executed a 'promissory note" which states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY,
promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P
11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum
compounded monthly payable in . . . (120)equal monthly installments of . . . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage"
under which they obligated themselves to assume the aforesaid obligation to the GSIS and to secure
the release of the mortgage covering that portion of the land belonging to herein private respondents
and which was mortgaged to the GSIS. 4 This undertaking was not fulfilled. 5

Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment
of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged
property to be sold at public auction on December 3, 1962. 6

More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court of

First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and
all other documents executed in relation thereto in favor of the Government Service Insurance System"
be declared null and void. It was further prayed that they be allowed to recover said property, and/or
the GSIS be ordered to pay them the value thereof, and/or they be allowed to repurchase the land.
Additionally, they asked for actual and moral damages and attorney's fees.

Page 9 of 50
In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not
as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the
said co-owners who were solely benefited by the loans from the GSIS.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to
establish a cause of action. 8

Said decision was reversed by the respondent Court of Appeals 9 which held that:

... although formally they are co-mortgagors, they are so only for accomodation (sic) in
that the GSIS required their consent to the mortgage of the entire parcel of land which
was covered with only one certificate of title, with full knowledge that the loans secured
thereby were solely for the benefit of the appellant (sic) spouses who alone applied for
the loan.

xxxx

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for having
foreclosed the mortgage without having given sufficient notice to them as required either
as to their delinquency in the payment of amortization or as to the subsequent foreclosure
of the mortgage by reason of any default in such payment. The notice published in the
newspaper, 'Daily Record (Exh. 12) and posted pursuant to Sec 3 of Act 3135 is not the
notice to which the mortgagor is entitled upon the application being made for an
extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and another
one entered (1) declaring the foreclosure of the mortgage void insofar as it affects the
share of the appellants; (2) directing the GSIS to reconvey to appellants their share of
the mortgaged property, or the value thereof if already sold to third party, in the sum of
P 35,000.00, and (3) ordering the appellees Flaviano Lagasca and Esther Lagasca to pay the
appellants the sum of P 10,00.00 as moral damages, P 5,000.00 as attorney's fees, and
costs. 11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No.
2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party
is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for value although the latter knew him to be
only an accommodation party.

This approach of both parties appears to be misdirected and their reliance misplaced. The promissory
note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth requisite to be considered as such under
Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable
to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on
mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with the latter having full
knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. 12 This
appears to be duly supported by sufficient evidence on record. Indeed, it would be unusual for the GSIS
to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of
Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an
army sergeant. Then there is also the undisputed fact, as already stated, that the Lagasca spouses
executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their
share of the mortgaged property from liability to the mortgagee. There is no intimation that the former
Page 10 of 50
executed such instrument for a consideration, thus confirming that they did so pursuant to their original
agreement.

The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there
was no objection in the court below regarding the admissibility of the testimony and documents that
were presented to prove that the private respondents signed the mortgage papers just to accommodate
their co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the
exception to said rule, there being allegations in the complaint of private respondents in the court below
regarding the failure of the mortgage contracts to express the true agreement of the parties. 14

However, contrary to the holding of the respondent court, it cannot be said that private respondents are
without liability under the aforesaid mortgage contracts. The factual context of this case is precisely
what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private respondents' share in the property. In
consenting thereto, even assuming that private respondents may not be assuming personal liability for
the debt, their share in the property shall nevertheless secure and respond for the performance of the
principal obligation. The parties to the mortgage could not have intended that the same would apply only
to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the private
respondents would not have been required.

The supposed requirement of prior demand on the private respondents would not be in point here since
the mortgage contracts created obligations with specific terms for the compliance thereof. The facts
further show that the private respondents expressly bound themselves as solidary debtors in the
promissory note hereinbefore quoted.

Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of
respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale
impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al.,  15 the Court ruled that Act
No. 3135, as amended, does not require personal notice on the mortgagor, quoting the requirement on
notice in such cases as follows:

Section 3. Notice shall be given by posting notices of sale for not less than twenty days in
at least three public places of the municipality where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.

There is no showing that the foregoing requirement on notice was not complied with in the foreclosure
sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the value thereof
Indubitably, whether or not private respondents herein benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings were valid.

WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of
Appeals and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Page 11 of 50
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 16454           September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee, 
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant. 

Ross and Lawrence for appellee.

STREET, J.:

At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the
president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and
known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right
nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a
dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of
P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in
October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof,
to the plaintiff in New York City.

In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and
Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and
requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account
of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including
exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and
Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the
same was accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this
transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier
as its official receipt. This memorandum receipt is in the following language:

October 9th, 1918.

CABLE TRANSFER BOUGHT FROM

            PHILIPPINE NATIONAL BANK,
           Manila, P.I.                       Stamp P18

Foreign             Amount                 Rate

$45,000.            3/8 %             P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50.
Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company,
Manila.

        (Sgd.) Y LERMA, 

Page 12 of 50
 Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following
effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE
NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply
suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain
bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11
dispatched to its New York agency another message to withhold the Kauffman payment as suggested.

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York,
advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank;
and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New
York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine
National Bank of October 11, directing the withholding of payment had been received in New York, and payment
was therefore refused.

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the
city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to
the plaintiff, the defendant appealed.

Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-
mentioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money
adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the
company did have credit to that extent, or more, for overdraft in current account, and the check in question was
charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the
bank as an interest-bearing item in the account of said company.

It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with
respect to the amount paid for said telegraphic order. It is true that in the defendant's answer it is suggested
that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant
to its agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce
Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that
after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the
remittance. In view, however, of the failure of the bank to substantiate these allegations, or to offer any other
proof showing failure of consideration, it must be assumed that the obligation of the bank was supported by
adequate consideration.

In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff
Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can
be vested in him for the breach thereof. "In this situation," — we here quote the words of the appellant's brief, —
"if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no
part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine
Fiber and Produce Company, the party which contracted in its own name with the defendant."

The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be
stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in
existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to
said instrument until it is delivered. In the case before us there was an order, it is true, transmitted by the
defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But
this order was not made payable "to order or "to bearer," as required in subsection ( d) of that Act; and inasmuch
as it never left the possession of the bank, or its representative in New York City, there was no delivery in the
sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official
receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself
be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually
assumed by the bank.

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the
Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the
plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the

Page 13 of 50
nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the
plaintiff fatal to the maintenance of an action by him?

The only express provision of law that has been cited as bearing directly on this question is the second paragraph
of article 1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff
admittedly has no case. This provision states an exception to the more general rule expressed in the first
paragraph of the same article to the effect that contracts are productive of effects only between the parties who
execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson  vs. Estate of
Martinez, 20 Phil., 340; Ibañez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584;
Manila Railroad Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)

The paragraph introducing the exception which we are now to consider is in these words:

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment,
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked. (Art. 1257, par. 2, Civ. Code.)

In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history
and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it
would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court
in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a
contract is made to maintain an action for the breach thereof in the following words:

So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of
a third person in a contract is a stipulation   pour autrui, or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.

If a third person claims an enforcible interest in the contract, the question must be settled by determining
whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms
in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this
question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy
Tam and Uy Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "In applying this test to a stipulation   pour autrui, it matters not whether
the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third
person. That no such obligation exists may in some degree assist in determining whether the parties intended to
benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough;
for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New
York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances
under which that promise was given disclose an evident intention on the part of the contracting parties that the
plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the
plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed
if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a
case arising under it.

It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in
his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his
acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its
New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered
to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at
least by direction of the party purchasing he exchange.

In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E.
Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by
selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual
obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a
specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable
wherein the seller engages that he has the balance at the point on which the payment is ordered and that on
receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary
described in the cable. All these transaction are matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely
that of the right of the beneficiary to maintain an action against the bank selling the transfer.
Page 14 of 50
Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment
must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in
section 510 of the Code of Civil Procedure.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75908 October 22, 1999

FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O. BORROMEO,

INC., petitioners,
vs.
AMANCIO SUN and the COURT OF APPEALS, respondents.

PURISIMA, J.:

At bar is a Petition for review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside
the Resolution of the then Intermediate Appellate Court 1, dated March 13, 1986, in AC-G.R. CV NO. 67988,
which reversed its earlier Decision dated February 12, 1985, setting aside the Decision of the former Court
of the First Instance of Rizal, Branch X, in Civil Case No. 19466.

The antecedent facts are as follows:

Private respondent Amancio Sun brought before the then Court of the First Instance of Rizal, Branch X, an
action against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O. Borromeo and
Federico O. Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of F.O.B., Inc., 23,223
shares of stock registered in the name of Federico O. Borromeo, as evidenced by a Deed of Assignment
dated January 16, 1974.

Private respondent averred 2 that all the shares of stock of F.O.B. Inc. registered in the name of Federico O.
Borromeo belong to him, as the said shares were placed in the name of Federico O. Borromeo "only to give the
latter personality and importance in the business world." 3 According to the private respondent, on January
16, 1974 Federico O. Borromeo executed in his favor a Deed of Assignment with respect to the said 23,223
shares of stock.

On the other hand, petitioner Federico O. Borromeo disclaimed any participation in the execution of the Deed
of Assignment, theorizing that his supposed signature thereon was forged. 1âwphi1.nêt

After trial, the lower court of origin came out with a decision declaring the questioned signature on subject
Deed of Assignment, dated January 16, 1974, as the genuine signature of Federico O. Borromeo; ratiocinating
thus:

After considering the testimonies of the two expert witnesses for the parties and after a
careful and judicious study and analysis of the questioned signature as compared to the
standard signatures, the Court is not in a position to declare that the questioned signature in
Page 15 of 50
 Exh. A is a forgery. On the other hand, the Court is of the opinion that the questioned
signature is the real signature of Federico O. Borromeo between the years 1954 to 1957 but
definitely is not his signature in 1974 for by then he has changed his signature. Consequently,
to the mind of the Court Exhibit A was signed by defendant Federico O. Borromeo between
the years 1954 to 1957 although the words in the blank were filled at a much later date. 4

On appeal by petitioners, the Court of Appeals adjudged as forgery the controverted signature of Federico
O. Borromeo; disposing as follows:

WHEREFORE, the judgment of the Court a quo as to the second cause of action dated March
12, 1980 is hereby reversed and set aside and a new judgment is hereby rendered:

1. Ordering the dismissal of the complaint as to defendant-appellants;

2. Ordering plaintiff-appellee on appellants' counterclaim to pay the latter:

a) P20,000.00 as moral damages;

b) P10,000.00 as exemplary damages;

c) P 10,000.00 as attorney's fees.

3. Ordering plaintiff-appellee to pay the costs. 5

On March 29, 1985, Amancio Sun interposed a motion for reconsideration of the said decision, contending
that Segundo Tabayoyong, petitioners' expert witness, is not a credible witness as found and concluded in the
following disposition by this Court in Cesar vs.  Sandigan Bayan 6:

The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is cited on pages
19-23 of the petition, shows admissions which are summarized by the petitioner as follows:

He never finished any degree in Criminology. Neither did he obtain any degree in
physics or chemistry. He was a mere trainee in the NBI laboratory. He said he
had gone abroad only once-to Argentina which, according to him is the only one
country in the world that gives this degree (?) . . . "People go there where they
obtain this sort of degree (?) where they are authorized to practice
(sic) examination of questioned documents."

His civil service eligibility was second grade (general clerical). His present
position had to be "re-classified" "confidential" in order to qualify him to it. He
never passed any Board Examination.

He has never authored any book on the subject on which he claimed to be an

"expert." Well, he did "write" a so-called pamphlet pretentiously called
"Fundamentals of Questioned Documents Examination and Forgery Detection."
In that pamphlet, he mentioned some references' — (some) are Americans and
one I think is a British, sir, like in the case of Dr. Wilson Harrison, a British' (he
repeated with emphasis). Many of the "theories" contained in his pamphlet were
lifted body and soul from those references, one of them being Albert Osborn.
His pamphlet has neither quotations nor footnotes, although he was too aware of
the crime committed by many an author called "plagiarism." But that did not
deter him, nor bother him in the least.

He has never been a member of any professional organization of experts in his

supposed field of expertise, because he said there is none locally. Neither is he
on an international level. 7

Acting an the aforesaid motion for reconsideration, the Court of Appeals reconsidered its decision of
February 12, 1985 aforementioned. Thereafter, the parties agreed to have subject Deed of Assignment
examined by the Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on January 9, 1986,
the pertinent portion of which, stated:

Page 16 of 50
 1. Comparative examination and analysis of the questioned and the standard
signature reveal significant similarities in the freedom of movement, good
quality of lines, skills and individual handwriting characteristics.

2. By process of interpolation the questioned signature fits in and can be

bracketed in time with the standard signatures written in the years between
1956 to 1959. Microscopic examination of the ink used in the questioned
signature and the standard signature in document dated 30 July 1959 marked
Exh. "E" indicate gallotanic ink.

x x x           x x x          x x x

1. The questioned signature FEDERICO O. BORROMEO marked "Q" appearing in

the original Deed of Assignment dated 16 January 1974 and the submitted
standard signatures of Federico O. Borromeo marked "S-1" to "S-49" inclusive
were written BY ONE AND THE SAME PERSON.

2. The questioned signature FEDERICO O. BORROMEO marked "Q" COULD

HAVE BEEN SIGNED IN THE YEARS BETWEEN 1950-1957. 8

After hearing the arguments the lawyers of record advanced on the said "Report" of the PC Crime
Laboratory, the Court of Appeals resolved:

x x x           x x x          x x x

1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime Laboratory on the Deed of
Assignment in evidence, without prejudice to the parties' assailing the credibility of said
Report;

2) to GIVE both parties a non-extendible period of FIVE (5) DAYS from February 27, 1986,
within which to file simultaneous memoranda. 9

On March 13, 1986, the Court of Appeals reversed its decision of February 12, 1985, which affirmed in
toto the decision of the trial court of origin; resolving thus:

WHEREFORE, finding the Motion for Reconsideration meritorious. We hereby set aside our
Decision, dated February 12, 1985 and in its stead a new judgment is hereby rendered
affirming in toto the decision of the trial Court, dated March 12, 1980, without pronouncement
as to costs.

SO ORDERED. 10

Therefrom, petitioners found their way to this court via the present Petition; theorizing that:

THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER AGREED TO

THE SUGGESTION OF RESPONDENT COURT TO HAVE THE QUESTIONED DOCUMENT
EXAMINED BY THE PC CRIME LABORATORY THEY COULD NO LONGER QUESTION THE
COMPETENCY OF THE DOCUMENT.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED DOCUMENT WAS
SIGNED IN 1954 BUT WAS DATED IN 1974.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO O.

BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT "A") IS A GENUINE SIGNATURE
CIRCA 1954-1957.

Page 17 of 50
The Petition is barren of merit.

Well-settled is the rule that "factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court — and they carry even more weight when the Court of Appeals affirms the
factual findings of the trial court." 11

In the present case, the trial court found that the signature in question is the genuine signature of Federico
O. Borromeo between the years 1954 to 1957 although the words in the blank space of the document in
question were written on a much later date. The same conclusion was arrived at by the Court of Appeals on
the basis of the Report of the PC crime Laboratory corroborating the findings of Col. Jose Fernandez that
the signature under controversy is genuine.

It is significant to note that Mr. Tabayoyong, petitioners' expert witness, limited his comparison of the
questioned signature with the 1974 standard signature of Federico O. Borromeo. No comparison of the
subject signature with the 1950 — 1957 standard signature was ever made by Mr. Tabayoyong despite his
awareness that the expert witness of private respondent, Col. Jose Fernandez, made a comparison of said
signatures and notwithstanding his (Tabayoyong's) access to such signatures as they were all submitted to
the lower Court. As correctly ratiocinated 12by the Court of origin, the only conceivable reason why Mr.
Tabayoyong avoided making such a comparison must have been, that even to the naked eye the questioned
signature affixed to the Deed of Assignment, dated January 16, 1974, is strikingly similar to the 1950 to
1954 standard signature of Federico O. Borromeo, such that if a comparison thereof was made by Mr.
Tabayoyong, he would have found the questioned signature genuine.

That the Deed of Assignment is dated January 16, 1974 while the questioned signature was found to be circa
1954-1957, and not that of 1974, is of no moment. It does not necessarily mean, that the deed is a forgery.
Pertinent records reveal that the subject Deed of Assignment is embodied in a blank form for the assignment
of shares with authority to transfer such shares in the books of the corporation. It was clearly intended to
be signed in blank to facilitate the assignment of shares from one person to another at any future time. This
is similar to Section 14 of the Negotiable Instruments Law where the blanks may be filled up by the holder,
the signing in blank being with the assumed authority to do so. Indeed, as the shares were registered in the
name of Federico O. Borromeo just to give him personality and standing in the business community, private
respondent had to have a counter evidence of ownership of the shares involved. Thus, the execution of the
deed of assignment in blank, to be filled up whenever needed. The same explains the discrepancy between the
date of the deed of assignment and the date when the signature was affixed thereto.

While it is true that the 1974 standard signature of Federico O. Borromeo is to the naked eye dissimilar to
his questioned signature circa 1954-1957, which could have been caused by sheer lapse of time, Col. Jose
Fernander, respondent's expert witness, found the said signatures similar to each other after subjecting the
same to stereomicroscopic examination and analysis because the intrinsic and natural characteristics of
Federico O. Borromeo's handwriting were present in all the exemplar signatures used by both Segundo
Tabayoyong and Col. Jose Fernandez.

It is therefore beyond cavil that the findings of the Court of origin affirmed by the Court of Appeals on the
basis of the corroborative findings of the Philippine Constabulary Crime Laboratory confirmed the
genuineness of the signature of Federico O. Borromeo in the Deed of Assignment dated January 16, 1974.

Petitioners, however, question the "Report" of the document examiner on the ground that they were not given
an opportunity to cross-examine the Philippine Constabulary document examiner; arguing that they never
waived their right to question the compentecy of the examiner concerned. While the Court finds merit in the
contention of petitioners, that they did not actually waive their right to cross-examine on any aspect of
subject Report of the Philippine Constabulary Crime Laboratory, the Court discerns no proper basis for
deviating from the findings of the Court of Appeals on the matter. It is worthy to stress that courts may
place whatever weight due on the testimony of an expert witness. 13 Conformably, in giving credence and
probative value to the said "Report" of the Philippine Constabulary Crime Laboratory, corroborating the
findings of the trial Court, the Court of Appeals merely exercised its discretion. There being no grave abuse
in the exercise of such judicial discretion, the findings by the Court of Appeals should not be disturbed on
appeal.1âwphi1.nêt

Premises studiedly considered, the Court is of the irresistible conclusion, and so holds, that the respondent
Court erred not in affirming the decision of the Regional Trial Court a quo in Civil Case No. 19466.

Page 18 of 50
WHEREFORE, the Petition is DISMISSED for lack of merit and the assailed Resolution, dated March 13,
1986, AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner, 
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00
with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term
of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the
following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta
Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0%  per
annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the
checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
Februa
ry 9,
1981
————
———
VALUE
DATE
TO Raul Sesbreño
April 6,
1981
————
Page 19 of 50
 ————
MATU
RITY
DATE
NO.
10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following securities to
you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly authorized
representative at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities
fully assigned to you should this Denominated Custodianship Receipt remain outstanding in your
favor thirty (30) days after its maturity.
PILIPI
NAS
BANK
(By
Elizabe
th De
Villa
Illegibl
e
Signat
ure)1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch,
and handed her a demand letter informing the bank that his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981;
that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta
Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to
petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all
of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in
"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect
thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note
to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and
explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with
DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and
exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to
date apparently remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents
Delta and Pilipinas.5The trial court, in a decision dated 5 August 1987, dismissed the complaint and
counterclaims for lack of merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March
1989, the Court of Appeals denied the appeal and held:6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the
travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
Page 20 of 50
 This act of Philfinance in accepting the investment of plaintiff and charging it
against DMC PN No. 2731 when its entire face value was already obligated or
earmarked for set-off or compensation is difficult to comprehend and may have
been motivated with bad faith. Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff, together with its earnings, and
to answer all the damages plaintiff has suffered incident thereto. Unfortunately
for plaintiff, Philfinance was not impleaded as one of the defendants in this case
at bar; hence, this Court is without jurisdiction to pronounce judgement against
it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby
affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give
due course to the petition and required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent
Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily
liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of
petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private
respondents Delta and Pilipinas, considering that the three (3) entities belong to the "Silverio Group of
Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner  vis-a-vis  Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course,
there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance.
However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of
Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for present
purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects
the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis  Delta in respect of the Delta
promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of
P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is
"non-negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer
of an instrument from one person to another so as to constitute the transferee the holder of
the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive payment (Section 51, id.)9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly
transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the
Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamp across the face of the
Note10 and because maker Delta and payee Philfinance intended that this Note would be offset
against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A
issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not
against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid,
petitioner took the Note subject to the defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A.11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished
from the assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an
instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer
form. A negotiable instrument may, however, instead of being negotiated, also be assigned or  transferred.
The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of
course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or

Page 21 of 50
transferred, absent an express prohibition against assignment or transfer written in the face of the
instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee
taking subject to the equities between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or
"non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be
quoted in full:
April
10,
1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory
Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A
upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very
Truly
Yours,
(Sgd.)
Floren
cio B.
Biagan
Senior
Vice
Presid
ent13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note
who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed
that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that
what Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta invested,
by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but
promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two
(2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory
notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected
without the consent of Delta, we note that such consent was not necessary for the validity and enforceability
of the assignment in favor of petitioner.14 Delta's argument that Philfinance's sale or assignment of part of
its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is
quite mistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearly
established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the
new and old obligations on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities, and
more generally, in money market transactions. In Perez v. Court of Appeals,17 the Court, speaking through
Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As
defined by Lawrence Smith "the money market is a market dealing in standardized short-term
Page 22 of 50
 credit instruments (involving large amounts) where lenders and borrowers do not deal directly
with each other but through a middle manor a dealer in the open market." It involves
"commercial papers" which are instruments "evidencing indebtness of any person or entity. . .,
which are issued, endorsed, sold or transferred or in any manner conveyed to another person
or entity, with or without recourse". The fundamental function of the money market device in
its operation is to match and bring together in a most impersonal manner both the "fund users"
and the "fund suppliers." The money market is an "impersonal market", free from personal
considerations. "The market mechanism is intended to provide quick mobility of money and
securities."
The impersonal character of the money market device overlooks the individuals or entities
concerned. The issuer of a commercial paper in the money market necessarily knows in advance
that it would be expenditiously transacted and transferred to any investor/lender without
need of notice to said issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the
Philippine commercial scene. It has been intended to facilitate the flow and acquisition of
capital on an impersonal basis. And as specifically required by Presidential Decree No. 678, the
investing public must be given adequate and effective protection in availing of the credit of a
borrower in the commercial paper market. 18(Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and
Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under
DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none
could have taken place. The essential requirements of compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged
that the relevant promissory notes were "to be offsetted ( sic) against [Philfinance] PN No. 143-A upon co-
terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the
"co-terminal maturity" date, that is to say, before any compensation had taken place. Further, the assignment
to petitioner would have prevented compensation had taken place between Philfinance and Delta, to the
extent of P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and
Delta would have ceased to be creditors and debtors of each other in their own right to the extent of the
amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance
in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to
the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14
July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner but also
of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words,  petitioner notified Delta of his
rights as assignee after compensation had taken place by operation of law because the offsetting
instruments had both reached maturity . It is a firmly settled doctrine that the rights of an assignee are not
any greater that the rights of the assignor, since the assignee is merely substituted in the place of the
assignor 20 and that the assignee acquires his rights subject to the equities — i.e., the defenses — which the
debtor could have set up against the original assignor before notice of the assignment was given to the
debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in
favor of a third person, cannot set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was notified by the debtor at the time
he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent  thereto, the
latter may set up the compensation of debts previous to the cession, but not of subsequent
ones.

Page 23 of 50
 If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the  same and also later ones until he had knowledge of the
assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation." In Sison v.  Yap-Tico,21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if
he pay before notice that his debt has been assigned, the law holds him exonerated, for the
reason that it is the duty of the person who has acquired a title by transfer to demand
payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC
PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have then
compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly
disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9
February 1981. He could have notified Delta as soon as his money market placement matured on 13 March
1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and
discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner
received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the
maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any
indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to
uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable
to petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that
Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the
following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above
securities  fully assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas
to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and
Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face
value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf and for the benefit of petitioner, at least to the
extent it had been assigned to petitioner by payee Philfinance ;24
(3) petitioner may inspect the Note either "personally or by authorized representative", at any
time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No.
2731 (or a participation therein to the extent of P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days after its
maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas
into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or
any other time. We note that both in his complaint and in his testimony before the trial court, petitioner
referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to him of
DMC PN No. 2731.25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to pay
the amount represented by a portion of the Note assigned to him by Philfinance, appears to be a new theory
constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks to
impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary
liability only when the law or the nature of the obligation requires solidarity," The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed
to us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of
the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable
with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner
under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private
respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating
Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the
Page 24 of 50
depository was owed, however, to petitioner Sesbreño as beneficiary of the custodianship or depository
agreement. We do not consider that this is a simple case of a stipulation   pour autri. The custodianship or
depositary agreement was established as an integral part of the money market transaction entered into by
petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor
deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive
delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen
that custodianship agreements are designed to facilitate transactions in the money market by providing a
basis for confidence on the part of the investors or placers that the instruments bought by them are
effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that
those instruments will be there available to the placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the security or the thing deposited upon demand of
the depositor (or, in the presented case, of the beneficiary) of the contract, even though a term for such
return may have been established in the said contract. 26 Accordingly, any stipulation in the contract of
deposit or custodianship that runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such
beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any party
that needs the equalizing protection of the law in money market transactions, it is the members of the
general public whom place their savings in such market for the purpose of generating interest revenues. 27 The
custodian bank, if it is not related either in terms of equity ownership or management control to the
borrower of the funds, or the commercial paper dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank would have every incentive to protect the interest
of its client the borrower or dealer as against the placer of funds. The providers of such funds must be
safeguarded from the impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it
when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand of
the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of
"written instructions" from  petitioner Sesbreño. The ostensible term written into the DCR (i.e., "should this
[DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreño at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled
to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained
by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary
of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes. Prima facie, the damages suffered by petitioner consisted
of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest of six percent (6%) per annum  containing from 14
March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas
may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner — that Philfinance and private respondents Delta and Pilipinas
should be treated as one corporate entity — need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by
the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance
in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized
as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been
able only to cite the presence of a common Director — Mr. Ricardo Silverio, Sr., sitting on the Board of
Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the
three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate
Page 25 of 50
affairs of the other two (2) were administered and managed for the benefit of one. There is simply not
enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas
and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No.
15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private
respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of
P304,533.33, plus legal interest thereon at the rate of six percent (6%)   per annum  counted from 2 April
1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-1405             July 31, 1948

BENJAMIN ABUBAKAR, petitioner, 
vs.
THE AUDITOR GENERAL, respondent.

Viray and Viola Viray for petitioner.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel Tomacruz for respondent.

BENGZON, J.:

We are asked to overrule the decision of the Auditor General refusing to authorize the payment of Treasury
warrant No. A-2867376 for P1,000 which was issued in favor of Placido S. Urbanes on December 10, 1941, but is
now in the hands of herein petitioner Benjamin Abubakar.

For his refusal the respondent gave two reasons: first, because the money available for the redemption of treasury
warrants issued before January 2, 1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant
does not come within the purview of said appropriation; and second, because on of the requirements of his office
had not been complied with, namely, that it must be shown that the holders of warrants covering payment or
replenishment of cash advances for official expenditures (as this warrant is) received them in payment of definite
government obligations.

Finding the first reason to be sufficiently valid we shall not discuss, nor pass upon the second.

There is no doubt as to the authenticity and date of the treasury warrant. There is no question that it was
regularly indorsed by the payee and is now in the custody of the herein petitioner who is a private individual. On
the other hand, it is admitted that the warrant was originally made payable to Placido S. Urbanes in his capacity as
disbursing officer  of the Food Administration for "additional cash advance for Food Production Campaign in La
Union" (Annex A). It is thus apparent that this is a treasury warrant issued in favor of a public officer or
employee  and held in possession by a private individual. Such being the case, the Auditor General can hardly be
blamed for not authorizing its redemption out of an appropriation specifically for "treasury warrants issued ... in
favor  of and held in possession by  private  individuals." (Republic Act No. 80, Item F-IV-8.) This warrant was not
issued  in favor of aprivate individual. It was issued in favor of a government employee.

Page 26 of 50
The distinction is not without a difference. Outstanding treasury warrants issued prior to January 2, 1942, amount
to more than four million pesos. The appropriation herein mentioned is only for P1,750,000. Obviously Congress
wished to provide for redemption of one class of warrants — those issued to private individuals — as distinguished
from those issued in favor of government officials. Basis for the discrimination is not lacking. Probably the
Government is not so sure that those warrants to officials have all been properly used by the latter during the
Japanese occupation or maybe it wants to conduct further inquiries as to the equities of the present holders
thereof.

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument an dis entitled to
the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the
scope of the negotiable instruments law. For one thing, the document bearing on its face the words "payable from
the appropriation for food administration," is actually an order for payment out of "a particular fund," and is not
unconditional, and does not fulfill one of the essential requirements of a negotiable instrument. (Section 3 last
sentenced and section 1[b] of the Negotiable Instruments Law.) In the United States, government warrants for
the payment of money are not negotiable instruments nor commercial proper 1

Anyway the question here is not whether the Government should eventually pay this warrant, or is ultimately
responsible for it, but whether the Auditor General erred in refusing to permit payment out of the particular
appropriation  in Item F-IV-8 of Republic Act No. 80. We think that he did not. Petition dismissed, with costs.

Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ.,  concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10221             February 28, 1958
Intestate of Luther Young and Pacita Young, spouses. PACIFICA JIMENEZ, petitioner-appellee, 
vs.
DR. JOSE BUCOY, administrator-appellant.
Frank W. Brady and Pablo C. de Guia, Jr. for appellee.
E. A. Beltran for appellant.
BENGZON, J.:
In this intestate of Luther Young and Pacita Young who died in 1954 and 1952 respectively, Pacifica Jimenez
presented for payment four promissory notes signed by Pacita for different amounts totalling twenty-one thousand
pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese occupation, in the currency then prevailing, the administrator
manifested willingness to pay provided adjustment of the sums be made in line with the Ballantyne schedule.
The claimant objected to the adjustment insisting on full payment in accordance with the notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L. Gonzales, Judge, held that the notes should
be paid in the currency prevailing after the war, and that consequently plaintiff was entitled to recover P21,000
plus attorneys fees for the sum of P2,000.
Hence this appeal.
Executed in the month of August 1944, the first promissory note read as follows:
Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand pesos payable six months
after the war, without interest.
The other three notes were couched in the same terms, except as to amounts and dates.
There can be no serious question that the notes were promises to pay "six months after the war," the amounts
mentioned.
But the important question, which obviously compelled the administrator to appeal, is whether the amounts should
be paid, peso for peso, or whether a reduction should be made in accordance with the well-known Ballantyne
schedule.
This matter of payment of loans contracted during the Japanese occupation has received our attention in many
litigations after the liberation. The gist of our adjudications, in so far as material here, is that if the loan should
be paid during the Japanese occupation, the Ballantyne schedule should apply with corresponding reduction of the
amount.1 However, if the loan was expressly agreed to be payable only after the war or after liberation, or became
payable after those dates, no reduction could be effected, and peso-for-peso payment shall be ordered in
Philippine currency.2
The Ballantyne Conversion Table does not apply where the monetary obligation, under the contract, was not
payable during the Japanese occupation but until after one year counted for the date of ratification of the
Treaty of Peace concluding the Greater East Asia War. (Arellano vs. De Domingo, 101 Phil., 902.)
Page 27 of 50
 When a monetary obligation is contracted during the Japanese occupation, to be discharged after the war,
the payment should be made in Philippine Currency. (Kare et al. vs. Imperial et al., 102 Phil., 173.)
Now then, as in the case before us, the debtor undertook to pay "six months after the war," peso for peso payment
is indicated.
The Ang Lam3 case cited by appellant is not controlling, because the loan therein given could have been repaid
during the Japanese occupation. Dated December 26, 1944, it was  payable within one year. Payment could
therefore have been made during January 1945. The notes here in question were payable only after the war.
The appellant administrator calls attention to the fact that the notes contained no express promise to pay a
specified amount. We declare the point to be without merit. In accordance with doctrines on the matter, the note
herein-above quoted amounted in effect to "a promise to pay ten thousand pesos six months after the war, without
interest." And so of the other notes.
"An acknowledgment may become a promise by the addition of words by which a promise of payment is naturally
implied, such as, "payable," "payable" on a given day, "payable on demand," "paid . . . when called for," . . . (10 Corpus
Juris Secundum p. 523.)
"To constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal
effect, to a promise to pay. In other words, if over and above the mere acknowledgment of the debt there may be
collected from the words used a promise to pay it, the instrument may be regarded as a promissory note. 1 Daniel,
Neg. Inst. sec. 36 et seq.; Byles, Bills, 10, 11, and cases cited . . . "Due A. B. $325, payable on demand," or, "I
acknowledge myself to be indebted to A in $109, to be paid on demand, for value received," or, "I O. U. $85 to be
paid on May 5th," are held to be promissory notes, significance being given to words of payment as indicating a
promise to pay." 1 Daniel Neg. Inst. see. 39, and cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700,
703.)
Another argument of appellant is that as the deceased Luther Young did not sign these notes, his estate is not
liable for the same. This defense, however, was not interposed in the lower court. There the only issue related to
the amount to be amount, considering that the money had been received in Japanese money. It is now unfair to put
up this new defense, because had it been raised in the court below, appellees could have proved, what they now
alleged that Pacita contracted the obligation to support and maintain herself, her son and her husband  (then
concentrated at Santo Tomas University) during the hard days of the occupation.
It is now settled practice that on appeal a change of theory is not permitted.
In order that a question may be raised on appeal, it is essential that it be within the issues made by the
parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is
tried and decided upon that theory in the court below, he will not be permitted to change his theory on
appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court by Moran-
1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38 Phil., 424; American Express Company vs.  Natividad, 46
Phil., 207; San Agustin vs.  Barrios, 68 Phil., 475, 480; Toribio vs.  Dacasa, 55 Phil., 461.)
Appellant's last assignment of error concerns attorneys fees. He says there was no reason for making this and
exception to the general rule that attorney's fees are not recoverable in the absence of stipulation.
Under the new Civil Code, attorney's fees and expenses of litigation new be awarded in this case if defendant
acted in gross and evident bad faith in refusing to satisfy plaintiff's plainly valid, just and demandable claim" or
"where the court deems it just and equitable that attorney's fees be recovered" (Article 2208 Civil Code). These
are — if applicable — some of the exceptions to the general rule that in the absence of stipulation no attorney's
fees shall be awarded.
The trial court did not explain why it ordered payment of counsel fees. Needless to say, it is desirable that the
decision should state the reason why such award is made bearing in mind that it must necessarily rest on an
exceptional situation. Unless of course the text of the decision plainly shows the case to fall into one of the
exceptions, for instance "in actions for legal support," when exemplary damages are awarded," etc. In the case at
bar, defendant could not obviously be held to have acted in gross and evident bad faith." He did not deny the debt,
and merely pleaded for adjustment, invoking decisions he thought to be controlling. If the trial judge considered it
"just and equitable" to require payment of attorney's fees because the defense — adjustment under Ballantyne
schedule — proved to be untenable in view of this Court's applicable rulings, it would be error to uphold his view.
Otherwise, every time a defendant loses, attorney's fees would follow as a matter of course. Under the article
above cited, even a clearly untenable defense would be no ground for awarding attorney's fees unless it amounted
to "gross and evident bad faith."
Plaintiff's attorneys attempt to sustain the award on the ground of defendant's refusal to accept her offer,
before the suit, to take P5,000 in full settlement of her claim. We do not think this is tenable, defendant's
attitude being merely a consequence of his line of defense, which though erroneous does not amount to "gross and
evident bad faith." For one thing, there is a point raised by defendant, which so far as we are informed, has not
been directly passed upon in this jurisdiction: the notes contained no express promise to pay a definite amount.
There being no circumstance making it reasonable and just to require defendant to pay attorney's fees, the last
assignment of error must be upheld.
Wherefore, in view of the foregoing considerations, the appealed decision is affirmed, except as to the attorney's
fees which are hereby disapproved. So ordered.
Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. Endencia and Felix, JJ.,  concur.

Page 28 of 50
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, 
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney
Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine
Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of
P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them with a private checks were not
generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order
Division, but instead of doing so, Montinola managed to leave building with his own check and the ten(10) money
orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent
message was sent to all postmasters, and the following day notice was likewise served upon all banks, instructing
them not to pay anyone of the money orders aforesaid if presented for payment. The Bank of America received a
copy of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of
its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the
latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post
Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that
money order No. 124688 attached to his letter had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the bank's clearing account. For its part, on August 2
Page 29 of 50
of the same year, the Bank of America debited appellant's account with the same amount and gave it advice
thereof by means of a debit memo.

On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office
deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So
was appellant's subsequent request that the matter be referred to the Secretary of Justice for advice.
Thereafter, appellant elevated the matter to the Secretary of Public Works and Communications, but the latter
sustained the actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of
Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for
judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from
the said Bank's clearing account the sum of P200.00 represented by postal money order No.
124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-½% per
annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its
overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral
damages in the amount of P1,000.00 or in such amount as will be proved and/or determined by this
Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and
the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of
the Record on Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice
given to the Bank of America on September 27, 1961, deducting from said Bank's clearing account
the sum of P200.00 representing the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate
of 8-½% per annum from September 27, 1961 until fully paid; without any pronouncement as to cost
and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same
stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will
therefore be discussed jointly. They raise this main issue: that the postal money order in question is a negotiable
instrument; that its nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the
Director of Posts and addressed to all banks with a clearing account with the Post Office, and that money orders,
once issued, create a contractual relationship of debtor and creditor, respectively, between the government, on
the one hand, and the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this
reason, ours are generally construed in accordance with the construction given in the United States to their own
postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight
of authority in the United States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S.
189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in commercial transactions
but merely exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of
circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in the letter of the
Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money
Page 30 of 50
orders received by it from its depositors. Among others, the condition is imposed that "in cases of adverse claim,
the money order or money orders involved will be returned to you (the bank) and the, corresponding amount will
have to be refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from any
amount due you if such step is deemed necessary." The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The
latter is therefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice that
the amount represented by the money order in question had been deducted from its clearing account with the
Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the
Bank of America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that
the letter setting forth the terms and conditions aforesaid is void because it was not issued by a Department Head
in accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not
apply to the letter in question because it does not provide for a department regulation but merely sets down
certain conditions upon the privilege granted to the Bank of Amrica to accept and pay postal money orders
presented for payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had
ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth
assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Castro and Makasiar, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner, 

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo  and adopted by respondent court,
appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of P1,120,000.00, as follows: (Joint

Page 31 of 50
Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat
Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February
9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the
required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of
loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits
282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant
bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the
same date, said depositor executed a notarized Deed of Assignment of Time Deposit
(Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and after date" of the assignment
and further authorizes said bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts may be due" on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.)
Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff
"as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of its
decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela
Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff
proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

Page 32 of 50
 10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of
the value of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell
due and on August 5, 1983, the latter set-off and applied the time deposits in question to
the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant
bank be ordered to pay it the aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded interest therein at 16%   per annum,
moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding
of the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with
interest at the rate of 16% per cent  per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued,
it is important to note that after the word "BEARER" stamped on the space provided
supposedly for the name of the depositor, the words "has deposited" a certain amount
follows. The document further provides that the amount deposited shall be "repayable to
said depositor" on the period indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who made the
deposit and further engages itself to pay said depositor the amount indicated thereon at
the stipulated date. 6
Page 33 of 50
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone
of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco,
Security Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered
to in the CTDs is no other than Mr. Angel de la Cruz.

x x x           x x x          x x x

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank,
the depositor referred (sic) in these certificates states that it was Angel
dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was
the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of

time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

x x x           x x x          x x x

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a
bill or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing
may be read in the light of surrounding circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The duty
of the court in such case is to ascertain, not what the parties may have secretly intended as
Page 34 of 50
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide
that the amounts deposited shall be repayable to the depositor. And who, according to the document, is
the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and
that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to
the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what
is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for
resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls
for the application of the elementary rule that the interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz,
as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to
deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its
fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as
a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex
Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela
Cruz to guarantee his purchases of fuel products " (Emphasis ours.) 13 This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter aforequoted.
Besides, when respondent bank, as defendant in the court below, moved for a bill of particularity
therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with sufficient
definiteness or particularity (a) the due date or dates of   payment  of the alleged indebtedness of Angel
de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered
to it by De la Cruz as payment  of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact,
that the CTDs were delivered as payment and not as security. Having opposed the motion, petitioner now
labors under the presumption that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al.  20 is apropos:

Page 35 of 50
 . . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined

by their intention, regardless of what language was used or what the form of
the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is
not a pledge. However, even though a transfer, if regarded by itself, appears
to have been absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a deposit of
the property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to make
an absolute conveyance, should be treated as a pledge if the debt continues
in inexistence and is not discharged by the transfer, and that accordingly
the use of the terms ordinarily importing conveyance of absolute ownership
will not be given that effect in such a transaction if they are also commonly
used in pledges and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.
Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard
the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a
holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of
such security, in the event of non-payment of the principal obligation, must be contractually provided
for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge
of incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor, and
if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective
against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank
was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:

Page 36 of 50
 Art. 1625. An assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of
its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments and
the issuance of replacement certificates therefor, on the ground that petitioner failed to raised that
issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted by
them to the trial court. 29 The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs against
the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amount covered by
the CTDs and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the
maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An issue
raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred
by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are
properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still
cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying
down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal
that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for itself.
Page 37 of 50
 Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the
judge or court of competent jurisdiction, asking that the principal, interest or dividends
due or about to become due, be not paid a third person, as well as in order to prevent the
ownership of the instrument that a duplicate be issued him. (Emphasis ours.)

x x x           x x x          x x x

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part
of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of
a duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not
mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary
verb indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce,
on which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that
he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon
who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly,
none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans  compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-39815             April 28, 1934

EULALIO BELISARIO, plaintiff-appellant, 
vs.
PAZ NATIVIDAD VIUDA DE ZULUETA, defendant-appellee.

Jose V. Claravall for appellant.

Jose C. Zulueta for appellee.

BUTTE, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action for the
recovery of two tracts of land situated in the barrio of San Francisco, municipality of Lupao, in said
province, and described in certificates of transfer Nos. 3357 and 3358 issued by the register of deeds
of the Povince of Pangasinan (in which the lands were formerly situated) in favor of the defendant.

It appears from Exhibit A that the plaintiff sold the said lands absolutely and without reservation to
the defendant for the consideration of P37,000, which was duly paid, and the agreement on the part of
the grantee to assume an indebtedness secured by a lien for 4, 500, which was likewise duly paid. The
deed recites that the sale is absolute and in perpetuity and the grantor warrants to defend the title.
The deed bears the date of April 29, 1927.

On the same date the defendant executed and delivered in favor of the plaintiff Exhibit B which, after
reciting that the defendant is the plaintiff an option to repurchase the lands on or before the end of
May, 1931, for the sum of P37,000.

Page 38 of 50
These two instruments are very clear in their terms, were duly signed by both parties in the presence of
two witnesses and acknowledge before a notary public and recorded. we see no reason whatever for
varying the terms thereof.

On the 28th of May, 1931, the plaintiff appeared at the house of the defendant and offered to exercise
his option of repurchase under said Exhibit B by tendering to the defendant a check in the sum of
P37,000, drawn by Rosendo Santiago against his account in the Peoples Bank and Trust Company. the
books of the disclosed that at the time said check was tendered to the defendant the drawer thereof
had on deposit in the said bank subject to check the sum of P5.85. Even if the check had been good, the
defendant was not legally bound to accept it because such a check does not satisfy the requirements of
a legal tender.

Finding no merit in this appeal, the judgment of the court below is affirmed with costs against the
appellant.

Abad Santos, Imperial, Goddard, and Diaz, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, 
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First
Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default, 1 and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant
were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are involved. 5

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No.
42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs.  6 The
complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring
to twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering
the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered represents the
cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate
the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus,
for every printing of the "World Current Events," the printer, Encal Press and Photo Engraving, collected

Page 39 of 50
the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the amounts advanced to Encal
Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt
in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and
to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On
December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the hearing
on December 16, 1959. 10At the hearing, the court denied defendant's motion for extension. Whereupon,
the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground that the
complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the
amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving),
without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an
accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the
event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the
defendant on December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon
the motion for reconsideration filed by the plaintiff, the trial court set aside its order dismissing the
complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning.  14 A copy of the order
setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00 o'clock in
the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the
ground that there having been no answer as yet, the issues had not yet been joined. 15 On the same date,
the defendant filed his answer to the complaint interposing the following defenses: That he signed the
document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the
ground that the defendant should have filed his answer on March 11, 1960. He contends that by filing his
answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court declared the
defendant in default. 18 The defendant learned of the order declaring him in default on March 21, 1960.
On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that although
the order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it
could not have been reasonably expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially because the order of the court
dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960.
The defendant also alleged that he has a good and substantial defense. Attached to the motion are the
affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7,
1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that
he has a good and substantial defense. 19 The trial court denied the defendant's motion on March 25,
1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the
plaintiff the sum of P35,444.35 representing the total amount of his obligation to the said plaintiff
under the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the
sum of P10,000.00 as attorney's fees. 21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his
motion to set aside the order declaring him in default, an appeal bond in the amount of P60.00, and his
record on appeal. The plaintiff filed his opposition to the approval of defendant's record on appeal on
May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendant's appeal from the
order dated March 25, 1960 denying his motion to set aside the order of default. 22 On May 19, 1960, the

Page 40 of 50
defendant filed a motion for reconsideration of the trial court's order dismissing his appeal.  23 The
plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order dismissing
appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal and
approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal
filed ed by the defendant was forwarded to the Clerk of Court of Appeals. 26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the order
of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the court denying his motion to set
aside the judgment by default, his appeal bond, and his record on appeal. The defendant's record on
appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the
Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order
of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside
the judgment by default docketed as CA-G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.

II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE

DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE
AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF

ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31

It has been held that to entitle a party to relief from a judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious
defense. 32 In other words, in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he
has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion
to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23,
1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the
order was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the
affidavit of the deputy sheriff; and that on the following day, March 12, 1960, the defendant filed his
answer to the complaint.

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order
setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his answer on that same day because the courts then held
office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his answer on
the following day.

However, while the defendant successfully proved that his failure to answer was due to excusable
negligence, he has failed to show that he has a meritorious defense. The defendant does not have a good
and substantial defense.
Page 41 of 50
Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a
representative capacity, as the then President of the Philippine Education Foundation Company, publisher
of "World Current Events and Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer
of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or
additional party obligor, to add to the security of said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon
acceptance of the same by the drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although these documents are labelled bills of
exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the
drawee who received the face value thereof, with the defendant as only additional security of the
same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does not exempt him from personal
liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was
signing as a representative of the Philippine Education Foundation Company. 34 He merely signed as
follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego
is personally liable for the drafts he accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such,
should be made liable only after a showing that the drawer is incapable of paying. This contention is also
without merit.

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of
the instrument knew him to be only an accommodation party. 35 In lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the consideration for the
instrument but assumes liability to the other parties thereto because he wants to accommodate another.
In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law,
a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments were made before acceptance. This is also without
merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writting
addressed by one person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order
or to bearer. 36 As long as a commercial paper conforms with the definition of a bill of exchange, that
paper is considered a bill of exchange. The nature of acceptance is important only in the determination
of the kind of liabilities of the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will
result in a new trial which will serve no purpose and will just waste the time of the courts as well as of
the parties because the defense is nil or ineffective. 37

Page 42 of 50
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila
denying the petition for relief from the judgment rendered in said case is hereby affirmed, without
pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-31025             August 15, 1929

FRANCISCO GUTIERREZ, ET AL., plaintiffs-appellees, 

vs.
JUAN CARPIO, defendant-appellant.

Eusebio Orense and Marcelino Aguas for appellant.

Gutierrez David, Dizon & David for appellee.

ROMUALDEZ, J.:

The litigants herein compromised a civil case on July 13, 1928, agreeing that if within one month from
the date thereof the plaintiffs failed to repurchase certain land, its ownership would vest in the
defendant.

The question now raised is whether or not the plaintiffs duly tendered the amount of the reimbursement
agreed upon in the proper form of money to the defendant.

Page 43 of 50
The court below held in the affirmative, but the defendant, appealing from such judgment, maintains
that on August 13, when the plaintiffs tendered it, the stipulated period had already elapsed; that the
tender of reimbursement made by check is insufficient; and that the holding of the trial court that the
land in question is valued at P27,000 is groundless.

When did the stipulated month terminate? This is the first point in controversy, the determination of
which depends upon the kind of month agreed upon by the parties, and on the day from its should be
counted.

As to the kind of month, it is to be noted that, according to the ruling in the case of Guzman vs. Lichauco
(42 Phil., 291), article 7 of the Civil Code had been modified by section 13 of the Administrative Code,
according to which "month" now means the civil or calendar month and not the regular thirty-day month.

And the civil or calendar month is defined as follows :

The civil or solar month is that which agrees with the Gregorian calendar; and these months are
known by the names of January, February, March, etc. They are composed of unequal portions of
time . . . (Bouvier's Law Dictionary.)

A calendar month is a month as designated in the calendar, without regard to the number of days
it may contain. In commercial transactions it means a month ending on the day in the succeeding
month corresponding to the day in the preceding month from which the computation began, and if
the last month have not so many days, then on the last day of that month. Daley vs. Anderson, 48
Pac., 839, 840; 7 Wyo., 1; 75 Am. St. Rep., 870 (citing Migotti vs. Colvill, 4 C.P. Div., 233). (1
Words and Phrases, 943.)

Hence, this court held in the case of Villegas vs. Capistrano (9 Phil., 416), that the period of three
months counted from February 13 did not expire on the 12th of the following May.

As to when said month began, said section 13 of the Administrative Code provides as follows:

In computing any fixed period of time, with reference to the performance of an act required by
law or contract to be done at a certain time or within a certain limit of time, the day of date,
or day from which the time is reckoned, is to be excluded and the date of performance included,
unless otherwise provided. (Emphasis ours)

Similar provisions may be found in article 1130 of the Civil Code, and in section 4 of the Code of Civil
Procedure.

There is nothing in the agreement under discussion providing otherwise, and according to the phrase
therein contained, "one month from this date," said date, which was July 13, 1928, is exactly the date
which must be excluded being the "day from which the time is reckoned," according to the words of the
aforementioned section 13 of the Administrative Code, which we have italicized above.

Wherefore, that civil month of thirty-one days began on July 14 and terminated with the end of the
thirteenth day of the following August. And as it has been proved without discussion that the plaintiffs
offered to repurchase the land from the defendant on August 13th, it follows that such offer was made
within the period stipulated.

But the defendant alleges that the offer to repurchase made by check was legally insufficient. We
agree that the payment by check does not per se have the effect of such payment. (Section 189, Act
No. 2031, on Negotiable Instruments; article 1170, Civil Code; Bryan, Landon Co. vs. American Bank, 7
Phil., 255; and Tan Sunco vs.Santos, 9 Phil., 44; 21 R.C.L., 60, 61.) But it appears from Felipe Gutierrez's
testimony that the defendant told him on August 12th that he would accept the repurchase by check.
Felipe Gutierrez is not very explicit about it, but we deem this to be the drift of his testimony. The
defendant must have so understood it, seeing that he thought it necessary to rebut said detail in his
testimony which, notwithstanding the defendant's denial, we hold to be established by a preponderance
of evidence, considering all the circumstances of the case. The defendant having thus consented to the
repurchase by check and having signified that by reason of such repurchase the plaintiffs could return
to their home, said defendant was in estoppel, and could not, on the following day, refuse to accept such
Page 44 of 50
payment by check, because he induced the plaintiffs to act upon the belief that he had consented to said
manner of payment.

From this it follows that by virtue of the defendant's having consented to that payment by check, which
was neither alleged nor proved to be in any way defective, that offer to repurchase was legally effective
and sufficient to compel the defendant to accept it.

We conclude that the offer to repurchase was made within the stipulated period and in the form of
money accepted by the defendant, from whose refusal to allow the repurchase in such terms originates
the plaintiffs' right of action herein.

The last assignment of error touching the value of the land, cannot be a cause for the reversal of the
judgment appealed from for under the circumstances of the case, it has no bearing on the decision of
the case nor affects the result thereof.

The judgment appealed from is modified, and it is hereby ordered that the plaintiffs may, within ten
days from the date on which this judgment becomes final, repurchase the land, the subject matter of
these proceedings, through the delivery to the defendant at the latter's residence in the municipality of
Santa Rita, Pampanga, of the sum of fourteen thousand six hundred forty three pesos and forty-three
centavos (P14,643.43), Philippine currency (in coin or paper money). The judgment appealed from is
affirmed in all other respects, with costs against the appellant. So ordered.

Avanceña, C.J., Johnson, Street, Villamor, Johns and Villa-Real, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-41764 December 19, 1980

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner, 

vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S.
ABDULWAHID, respondents.

CONCEPCION JR., J.:

A petition for certiorari  with preliminary injunction to annul and/or modify the order of the Court of
First Instance of Zamboanga City (Branch ii) dated August 28, 1975 denying petitioner's  Ex-
Parte Motion for Issuance of Certificate Of Satisfaction Of Judgment.

Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent. 1On July 19, 1974, a compromise judgment was rendered by the respondent Judge in

Page 45 of 50
accordance with an amicable settlement entered into by the parties the terms and conditions of which,
are as follows:

(1) That defendant will pay to the plaintiff the amount of Fifty Four Thousand Five
Hundred Pesos (P54,500.00) at 6% interest per annum to be reckoned from August 25,
1972;

(2) That defendant will pay to the plaintiff the amount of Six Thousand Pesos (P6,000.00)
as attorney's fees for which P5,000.00 had been acknowledged received by the plaintiff
under Consolidated Bank and Trust Corporation Check No. 16-135022 amounting to
P5,000.00 leaving a balance of One Thousand Pesos (P1,000.00);

(3) That the entire amount of P54,500.00 plus interest, plus the balance of P1,000.00 for
attorney's fees will be paid by defendant to the plaintiff within five months from today,
July 19, 1974; and

(4) Failure one the part of the defendant to comply with any of the above-conditions, a
writ of execution may be issued by this Court for the satisfaction of the obligation. 2

For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon motion
of the private respondent, issued an order for the issuance of a writ of execution on December 21, 1974.
Accordingly, writ of execution was issued for the amount of P63,130.00 pursuant to which, the Ex-
Officio Sheriff levied upon the following personal properties of the petitioner, to wit:

(1) Unit American Lathe 24

(1) Unit American Lathe 18 Cracker Wheeler

(1) Unit Rockford Shaper 24

and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner
deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-
Officio Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the judgment obligation,
consisting of the following:

1. P50.000.00 in Cashier's Check No. S-314361 dated January 3, 1975 of the Equitable
Banking Corporation; and

2. P13,130.00 incash. 3

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private respondent through counsel,

refused to accept the check as well as the cash deposit. In the 'same letter, private respondent
requested the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot produce
the cash. However, the scheduled auction sale at 10:00 a.m. on January 15, 1975 was postponed to 3:00
o'clock p.m. of the same day due to further attempts to settle the case. Again, the scheduled auction
sale that afternoon did not push through because of a last ditch attempt to convince the private
respondent to accept the check. The auction sale was then postponed on the following day, January 16,
1975 at 10:00 o'clock a.m. 5 At about 9:15 a.m., on January 16, 1975, a certain Mr. Tañedo representing
the petitioner appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr. Tañedo
that the auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Tañedo and Mr. Librado, both
representing the petitioner requested the Ex-Officio  Sheriff to give them fifteen minutes within which
to contract their lawyer which request was granted. After Mr. Tañedo and Mr. Librado failed to return,
counsel for private respondent insisted that the sale must proceed and the   Ex-Officio Sheriff
proceeded with the auction sale. 6 In the course of the proceedings, Deputy Sheriff Castro sold the
levied properties item by item to the private respondent as the highest bidder in the amount of
P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a deficiency of
P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of
Sale" in favor of the private respondent, Ricardo Tong, married to Pascuala Tong for the total amount of
P50,000.00 only. 8 Subsequently, on January 17, 1975, petitioner filed an ex-parte motion for issuance of
certificate of satisfaction of judgment. This motion was denied by the respondent Judge in his order
Page 46 of 50
dated August 28, 1975. In view thereof, petitioner now questions said order by way of the present
petition alleging in the main that said respondent Judge capriciously and whimsically abused his
discretion in not granting the motion for issuance of certificate of satisfaction of judgment for the
following reasons: (1) that there was already a full satisfaction of the judgment before the auction sale
was conducted with the deposit made to the Ex-Officio Sheriff in the amount of P63,000.00 consisting
of P50,000.00 in Cashier's Check and P13,130.00 in cash; and (2) that the auction sale was invalid for
lack of proper notice to the petitioner and its counsel when the Ex-Officio Sheriff postponed the sale
from June 15, 1975 to January 16, 1976 contrary to Section 24, Rule 39 of the Rules of Court. On
November 10, 1975, the Court issued a temporary restraining order enjoining the respondent  Ex-
Officio Sheriff from delivering the personal properties subject of the petition to Ricardo A. Tong in
view of the issuance of the "Sheriff Certificate of Sale."
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as to whether or not the private respondent can validly
refuse acceptance of the payment of the judgment obligation made by the petitioner consisting of
P50,000.00 in Cashier's Check and P13,130.00 in cash which it deposited with the Ex-Officio Sheriff
before the date of the scheduled auction sale. In upholding private respondent's claim that he has the
right to refuse payment by means of a check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. — Checks representing deposit money do not have legal tender
power and their acceptance in payment of debts, both public and private, is at the option
of the creditor, Provided, however, that a check which has been cleared and credited to
the account of the creditor shall be equivalent to a delivery to the creditor in cash in an
amount equal to the amount credited to his account.
Article 1249 of the New Civil Code:
Art. 1249. — The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent that he has the
right to refuse payment of the amount of P13,130.00 in cash because the said amount is less than the
judgment obligation, citing the following Article of the New Civil Code:

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the presentations in which the obligation consists. Neither
may the debtor be required to make partial payment.

However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter.

It is to be emphasized in this connection that the check deposited by the petitioner in the amount of
P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a bank
of good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check. 9It is a well-known and accepted practice in the business
sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been certified by
the drawee bank, by the certification, the funds represented by the check are transferred from the
credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation. 10 Where a check is
certified by the bank on which it is drawn, the certification is equivalent to acceptance. 11 Said
certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that
they have been set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue good, and
this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable to
the order of the depositor, or any other obligation it can assume. The object of certifying a check, as
regards both parties, is to enable the holder to use it as money ." 12When the holder procures the check
to be certified, "the check operates as an assignment of a part of the funds to the creditors." 13 Hence,
Page 47 of 50
the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect "that a
check which has been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor in cash in an amount equal to the amount credited to his account" shall apply in
this case. Considering that the whole amount deposited by the petitioner consisting of Cashier's Check
of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the
writ of execution, then, We see no valid reason for the private respondent to have refused acceptance
of the payment of the obligation in his favor. The auction sale, therefore, was uncalled for. Furthermore,
it appears that on January 17, 1975, the Cashier's Check was even withdrawn by the petitioner and
replaced with cash in the corresponding amount of P50,000.00 on January 27, 1975 pursuant to an
agreement entered into by the parties at the instance of the respondent Judge. However, the private
respondent still refused to receive the same. Obviously, the private respondent is more interested in the
levied properties than in the mere satisfaction of the judgment obligation. Thus, petitioner's motion for
the issuance of a certificate of satisfaction of judgment is clearly meritorious and the respondent
Judge gravely abused his discretion in not granting the same under the circumstances.
In view of the conclusion reached in this instance, We find no more need to discuss the ground relied in
the petition.
It is also contended by the private respondent that Appeal and not a special civil action for certiorari is
the proper remedy in this case, and that since the period to appeal from the decision of the respondent
Judge has already expired, then, the present petition has been filed out of time. The contention is
untenable. The decision of the respondent Judge in Civil Case No. 250 (166) has long become final and
executory and so, the same is not being questioned herein. The subject of the petition at bar as having
been issued in grave abuse of discretion is the order dated August 28, 1975 of the respondent Judge
which was merely issued in execution of the said decision. Thus, even granting that appeal is open to the
petitioner, the same is not an adequate and speedy remedy for the respondent Judge had already issued
a writ of execution. 14
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring as null and void the order of the respondent Judge dated August 28, 1975;
2. Declaring as null and void the auction sale conducted on January 16, 1975 and the certificate of sale
issued pursuant thereto;
3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of the
judgment obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied properties to
the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.
Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.

Page 48 of 50
NEGOTIABLE
INSTRUMENTS
Cases

Page 49 of 50
NEGOTIABLE
INSTRUMENTS
Case Digests

Page 50 of 50