G.R. No.
L-19461       March 28, 1923 fact place, he was himself a party to the contract which supplied the
CHARLES A. FOSSUM, plaintiff-appellant,
vs.
FERNANDEZ HERMANOS, a general partnership, and JOSE F. FERNANDEZ Y
CASTRO and RAMON FERNANDEZ Y CASTRO, members of the said partnership
of FERNANDEZ HERMANOS, defendants-appellees.
Chas. E. Tenney for appellant.
Ernesto Zaragoza and Jose Varela Calderon for appellees.
STREET, J.:
Prior to the date of the making of the contract which gave rise to this litigation
the plaintiff, Charles A. Fossum, was the resident agent in Manila of the
American Iron Products Company, Inc., a concern engaged in business in New
York City; and on February 10, 1920, the said Fossum, acting as agent of that
company, procured an order from Fernandez Hermanos, a general commercial
partnership engaged in business in the Philippine Islands, to deliver to said firm
a tail shaft, to be installed on the ship Romulus, then operated by Fernandez
Hermanos, as managers of La Compañía Marítima. It was stipulated that said
tail shaft would be in accordance with the specifications contained in a
blueprint which had been placed in the hands of Fossum on or about December
18, 1919; and it was further understood that the shaft should be shipped from
New York upon some steamer sailing in March or April of the year 1920.
Considerable delay seems to have been encountered in the matter of the
manufacture and shipment of the shaft; but in the autumn of 1920 it was
dispatched to Manila, having arrived in January, 1921. Meanwhile the American
Iron Products Company, Inc., had drawn a time draft, at sixty days, upon
Fernandez Hermanos, for the purchase price of the shaft, the same being in the
amount of $2,250, and payable to the Philippine National Bank. In due course
the draft was presented to Fernandez Hermanos for acceptance, and was
accepted by said firm on December 15, 1920, according to its tenor.
Upon inspection after arrival in Manila the shaft was found not to be in
conformity with the specifications and was incapable of use for the purpose for
which it had been intended. Upon discovering this, Fernandez Hermanos
refused to pay the draft, and it remained for a time dishonored in the hands of
the Philippine National Bank in Manila. Later the bank indorsed the draft in
blank, without consideration, and delivered it to the plaintiff, Charles A.
Fossum, who thereupon instituted the present action on the instrument against
the acceptor, Fernandez Hermanos, and the two individuals named as
defendants in the complaint, in the character of members of said partnership.
On the foregoing statement it is evident that the consideration for the draft in
question and for the acceptance placed thereon by Fernandez Hermanos, has
completely failed; and no action whatever can be maintained on the instrument
by the American Iron Products Company, Inc., or by any other person against
whom the defense of failure of consideration is available. In recognition of this
fact, and considering that the plaintiff Fossum, in whose name the action is
brought, was the individual who had acted for the American Iron Products
Company, Inc., in the making of the contract, the trial court held that the action
could not be maintained and absolved the defendants from the complaint. From
this judgment the plaintiff appealed.
We are of the opinion that the trial judge has committed no error. To begin with,
the plaintiff himself is far from being a holder of this draft in due course. In the
consideration for the draft, albeit he there acted in a representative capacity.
In the second place, he procured the instrument to be indorsed by the bank and
delivered to himself without the payment of value, after it was overdue, and
with full notice that, as between the original parties, the consideration had
completely failed. Under these circumstance recovery on this draft by the
plaintiff by virtue of any merit in his own position is out of the question. His
attorney, however, calls attention to the familiar rule that a person who is not
himself a holder in due course may yet recover against the person primarily
liable where it appears that such holder derives his title through a holder in due
course.
The difficulty of the plaintiff's position from this point of view is that there is
not a line of proof in the record tending to show as a fact that the bank itself
was ever a holder of this draft in due course. In this connection it was
incumbent on the plaintiff to show, as an independent claims, i.e., the bank,
was a holder in due course; and upon this point the plaintiff can have no
assistance from the presumption, expressed in section 59 of the Negotiable
Instrument Law, to the effect that every holder is deemed   prima facie to be a
holder in due course. The presumption expressed in that section arise only in
favor of a person who is a holder in the sense defined in section 191 of the
same Law, that is, a payee or indorsee who is in possession of the draft, or the
bearer thereof. Under this definition, in order to be a holder, one must be in
possession of the note or the bearer thereof. (Night & Day
Bank vs. Rosenbaum, 191 Mo. App., 559, 574.) If this action had been
instituted by the bank itself, the presumption that the bank was a holder in due
course would have arisen from the tenor of the draft and the fact that it was in
the bank's possession; but when the instrument passed out of the possession of
the bank and into the possession of the present plaintiff, no presumption arises
as to the character in which the bank held the paper. The bank's relation to the
instrument became past history when it delivered the document to the plaintiff;
and it was incumbent upon the plaintiff in this action to show that the bank had
in fact acquired the instrument for value and under such conditions as would
constitute it a holder in due course. In the entire absence of proof on this point,
the action must fail.
There is another circumstance which exerted a decisive influence on the mind
of the trial judge in deciding the case for the defendants. This is found in the
fact that the plaintiff personally made the contract which constituted the
consideration for this draft. He was therefore a party in fact, if not in law, to the
transaction giving origin to the instrument; and it is difficult to see how the
plaintiff could strip himself of the character to agent with respect to the origin
of the contract and maintain this action in his own name where his principal
could not. Certainly an agent who actually makes a contract, and who has
notice of all equities emanating therefrom, can stand on no better footing than
his principal with respect to commercial paper growing out of the transaction.
To place him on any higher plane would be incompatible with the fundamental
conception underlying the relation of principal and agent. We note that in the
present case there is no proof that the plaintiff Fossum has ceased to be the
agent of the American Iron Products Company, Inc.; and in the absence of proof
the presumption must be that he still occupies the relation of agent to that
company.
it is a well-known rule of law that if the original payee of a note unenforceable
for lack of consideration repurchase the instrument after transferring it to a
holder in due course, the paper again becomes subject in the payee's hands to
the same defenses to which it would have been subject if the paper had never
passed through the hands of a holder in due course. (Kost vs. Bender, 25
Mich., 515; Shade vs. Hayes, L. R. A. [1915D], 271; 8 C. J., 470.) The same is
true where the instrument is retransferred to an agent of the payee
(Battersbee vs. Calkins, 128 Mich., 569).
In Dollarhide vs. Hopkins (72 Ill. App., 509), the plaintiff, as agent of a
corporation engaged in manufacturing agricultural implements, sold to the
defendant a separator for threshing small grain, with a general warranty that
the machine, properly handled, would thresh and clean grain as well as any
other separator of like size. The notes in suit were executed by the defendant
in payment of the separator, and were assigned to the plaintiff before maturity.
They were then indorsed by the plaintiff to a bank which became holder in due
course; but afterwards, and before the commencement of the action, the notes
were retransferred by the bank to the plaintiff. In an action upon the notes the
defendant alleged and proved breach of warranty and showed that the plaintiff
knew of the defect in the separator at the time he purchased the notes. It was
held that the plaintiff could not recover, notwithstanding the fact that the notes
had passed through a bank, in whose hands they would not have been subject
to the defense which had been interposed (54 L. R. A., 678).
We find nothing in the Negotiable Instrument Law that would interfere with the
application of the doctrine applied in the cases above cited, for the rule that
identifies the agent with the principal, so far as the legal consequences of
certain acts are concerned, is a rule of general jurisprudence that must operate
in conjunction with that Law. We consider the situation to be the same in
practical effect as if the action had been brought in the name of the American
Iron Products Company, Inc., itself; and the use of the name of Fossum strikes
us as a mere attempt at an evasion of the rule of law that would have been fatal
to the success of an action instituted by that company.
It appears from statements of Mr. Fossum on the witness stand that the draft in
question was indorsed and delivered to him by the bank in order that suit might
be brought thereon in his name for the use and benefit of the bank, which is
said to be the real party in interest. In addition to this it appears that during the
pendency of the cause in this court on appeal a formal transfer, or assignment,
to the bank was made by Fossum of all his interest in the draft and in the cause
of action.
Assuming that the suggestion thus made is true, and that the bank is the real
party in interest, the result of the lawsuit in this court is not thereby affected,
since it has not been affirmatively shown that the bank is an innocent
purchaser for value. It is therefore unnecessary to discuss the bearing of this
circumstance on the second feature to the case discussed in this opinion.
For the reasons stated the judgment appealed from must be affirmed, and it is
so ordered, with costs against the appellant.
G.R. No. 168274       August 20, 2008
FAR EAST BANK & TRUST COMPANY, petitioner,
vs.
GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go
and Kho Soon Huat, respondent.
DECISION
NACHURA, J.:
For the review of the Court through a Rule 45 petition are the following
issuances of the Court of Appeals (CA) in CA-G.R. CV No. 71858: (1) the March
15, 2005 Decision1 which reversed the trial court's ruling, and (2) the May 26,
2005 Resolution2 which denied the motion for reconsideration of the said CA
decision.
The instant controversy traces its roots to a transaction consummated
sometime in June 1998, when a foreigner, identified as Samuel Tagoe,
purchased from the respondent Gold Palace Jewellery Co.'s (Gold Palace's)
store at SM-North EDSA several pieces of jewelry valued at P258,000.00.3 In
payment of the same, he offered Foreign Draft No. M-069670 issued by the
United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch
(UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and payable
to the respondent company for P380,000.00.4
Before receiving the draft, respondent Judy Yang, the assistant general
manager of Gold Palace, inquired from petitioner Far East Bank & Trust
Company's (Far East's) SM North EDSA Branch, its neighbor mall tenant, the
nature of the draft. The teller informed her that the same was similar to a
manager's check, but advised her not to release the pieces of jewelry until the
draft had been cleared. 5 Following the bank's advice, Yang issued Cash Invoice
No. 16096 to the foreigner, asked him to come back, and informed him that the
pieces of jewelry would be released when the draft had already been
cleared.7 Respondent Julie Yang-Go, the manager of Gold Palace, consequently
deposited the draft in the company's account with the aforementioned Far East
branch on June 2, 1998.8
When Far East, the collecting bank, presented the draft for clearing to LBP, the
drawee bank, the latter cleared the same 9-UOB's account with LBP was
debited,10 and Gold Palace's account with Far East was credited with the
amount stated in the draft.11
The foreigner eventually returned to respondent's store on June 6, 1998 to
claim the purchased goods. After ascertaining that the draft had been cleared,
respondent Yang released the pieces of jewelry to Samuel Tagoe; and because
the amount in the draft was more than the value of the goods purchased, she
issued, as his change, Far East Check No. 1730881 12 for P122,000.00.13 This
check was later presented for encashment and was, in fact, paid by the said
bank.14
On June 26, 1998, or after around three weeks, LBP informed Far East that the
amount in Foreign Draft No. M-069670 had been materially altered
from P300.00 to P380,000.00 and that it was returning the same. Attached to
its official correspondence were Special Clearing Receipt No. 002593 and the
duly notarized and consul-authenticated affidavit of a corporate officer of the
drawer, UOB.15 It is noted at this point that the material alteration was
discovered by UOB after LBP had informed it that its funds were being depleted
following the encashment of the subject draft. 16 Intending to debit the amount
from respondent's account, Far East subsequently refunded the P380,000.00
earlier paid by LBP.
Gold Palace, in the meantime, had already utilized portions of the amount.
Thus, on July 20, 1998, as the outstanding balance of its account was already
inadequate, Far East was able to debit only P168,053.36,17 but this was done
without a prior written notice to the account holder. 18 Far East only notified by
phone the representatives of the respondent company. 19
On August 12, 1998, petitioner demanded from respondents the payment
of P211,946.64 or the difference between the amount in the materially altered
draft and the amount debited from the respondent company's
account.20 Because Gold Palace did not heed the demand, Far East
consequently instituted Civil Case No. 99-296 for sum of money and damages
before the Regional Trial Court (RTC), Branch 64 of Makati City. 21
In their Answer, respondents specifically denied the material allegations in the
complaint and interposed as a defense that the complaint states no cause of
action-the subject foreign draft having been cleared and the respondent not
being the party who made the material alteration. Respondents further
counterclaimed for actual damages, moral and exemplary damages, and
attorney's fees considering, among others, that the petitioner had confiscated
without basis Gold Palace's balance in its account resulting in operational loss,
and had maliciously imputed to the latter the act of alteration. 22
After trial on the merits, the RTC rendered its July 30, 2001 Decision 23 in favor
of Far East, ordering Gold Palace to pay the former P211,946.64 as actual
damages and P50,000.00 as attorney's fees.24 The trial court ruled that, on the
basis of its warranties as a general indorser, Gold Palace was liable to Far
East.25
On appeal, the CA, in the assailed March 15, 2005 Decision, 26 reversed the
ruling of the trial court and awarded respondents' counterclaim. It ruled in the
main that Far East failed to undergo the proceedings on the protest of the
foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East
could not charge Gold Palace on its secondary liability as an indorser. 27 The
appellate court further ruled that the drawee bank had cleared the check, and
its remedy should be against the party responsible for the alteration.
Considering that, in this case, Gold Palace neither altered the draft nor knew of
the alteration, it could not be held liable. 28 The dispositive portion of the CA
decision reads:
WHEREFORE, premises considered, the appeal is GRANTED; the assailed
Decision dated 30 July 2001 of the Regional Trial Court of Makati City, Branch
64 is hereby REVERSED and SET ASIDE; the Complaint dated January 1999 is
DISMISSED; and appellee Far East Bank and Trust Company is hereby ordered
to pay appellant Gold Palace Jewellery Company the amount of Php168,053.36
for actual damages plus legal interest of 12% per annum from 20 July 1998,
Php50,000.00 for exemplary damages, and Php50,000.00 for attorney's fees.
Costs against appellee Far East Bank and Trust Company. 29
The appellate court, in the further challenged May 26, 2005
Resolution,30 denied petitioner's Motion for Reconsideration, 31 which prompted
the petitioner to institute before the Court the instant Petition for Review on
Certiorari.32
We deny the petition.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that
the acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance .33 This provision applies with equal
force in case the drawee pays a bill without having previously accepted it. His
actual payment of the amount in the check implies not only his assent to the
order of the drawer and a recognition of his corresponding obligation to pay the
aforementioned sum, but also, his clear compliance with that
obligation.34 Actual payment by the drawee is greater than his acceptance,
which is merely a promise in writing to pay. The payment of a check includes
its acceptance.35
Unmistakable herein is the fact that the drawee bank cleared and paid the
subject foreign draft and forwarded the amount thereof to the collecting bank.
The latter then credited to Gold Palace's account the payment it received.
Following the plain language of the law, the drawee, by the said payment,
recognized and complied with its obligation to pay in accordance with
the tenor of his acceptance. The tenor of the acceptance is determined by the
terms of the bill as it is when the drawee accepts. 36 Stated simply, LBP was
liable on its payment of the check according to the tenor of the check at the
time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it
erroneously made to a due course holder. We note at this point that Gold Palace
was not a participant in the alteration of the draft, was not negligent, and was a
holder in due course-it received the draft complete and regular on its face,
before it became overdue and without notice of any dishonor, in good faith and
for value, and absent any knowledge of any infirmity in the instrument or defect
in the title of the person negotiating it. 37 Having relied on the drawee bank's
clearance and payment of the draft and not being negligent (it delivered the
purchased jewelry only when the draft was cleared and paid), respondent is
amply protected by the said Section 62. Commercial policy favors the
protection of any one who, in due course, changes his position on the faith of
the drawee bank's clearance and payment of a check or draft. 38
This construction and application of the law gives effect to the plain language
of the NIL39 and is in line with the sound principle that where one of two
innocent parties must suffer a loss, the law will leave the loss where it finds
it.40 It further reasserts the usefulness, stability and currency of negotiable
paper without seriously endangering accepted banking practices. Indeed,
banking institutions can readily protect themselves against liability on altered
instruments either by qualifying their acceptance or certification, or by relying
on forgery insurance and special paper which will make alterations
obvious.41 This is not to mention, but we state nevertheless for emphasis, that
the drawee bank, in most cases, is in a better position, compared to the holder,
to verify with the drawer the matters stated in the instrument. As we have
observed in this case, were it not for LBP's communication with the drawer that
its account in the Philippines was being depleted after the subject foreign draft
had been encashed, then, the alteration would not have been discovered. What
we cannot understand is why LBP, having the most convenient means to
correspond with UOB, did not first verify the amount of the draft before it
cleared and paid the same. Gold Palace, on the other hand, had no facility to
ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was
left with no option but to rely on the representations of LBP that the draft was
good.
In arriving at this conclusion, the Court is not closing its eyes to the other view
espoused in common law jurisdictions that a drawee bank, having paid to an
innocent holder the amount of an uncertified, altered check in good faith and
without negligence which contributed to the loss, could recover from the
person to whom payment was made as for money paid by mistake .42 However,
given the foregoing discussion, we find no compelling reason to apply the
principle to the instant case.
The Court is also aware that under the Uniform Commercial Code in the United
States of America, if an unaccepted draft is presented to a drawee for payment
or acceptance and the drawee pays or accepts the draft, the person obtaining
payment or acceptance, at the time of presentment, and a previous transferor
of the draft, at the time of transfer, warrant to the drawee making payment or
accepting the draft in good faith that the draft has not been
altered.43 Nonetheless, absent any similar provision in our law, we cannot
extend the same preferential treatment to the paying bank.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of
the NIL, its collecting agent, Far East, should not have debited the money paid
by the drawee bank from respondent company's account. When Gold Palace
deposited the check with Far East, the latter, under the terms of the deposit
and the provisions of the NIL, became an agent of the former for the collection
of the amount in the draft. 44 The subsequent payment by the drawee bank and
the collection of the amount by the collecting bank closed the transaction
insofar as the drawee and the holder of the check or his agent are concerned,
converted the check into a mere voucher, 45 and, as already discussed,
foreclosed the recovery by the drawee of the amount paid. This closure of the
transaction is a matter of course; otherwise, uncertainty in commercial
transactions, delay and annoyance will arise if a bank at some future time will
call on the payee for the return of the money paid to him on the check. 46
As the transaction in this case had been closed and the principal-agent
relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on its
own and should now be responsible for its own actions. Neither can petitioner
be considered to have acted as the representative of the drawee bank when it
debited respondent's account, because, as already explained, the drawee bank
had no right to recover what it paid. Likewise, Far East cannot invoke the
warranty of the payee/depositor who indorsed the instrument for collection to
shift the burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36 of the
NIL, is a restrictive indorsement.47 It did not in any way transfer the title of the
instrument to the collecting bank. Far East did not own the draft, it merely
presented it for payment. Considering that the warranties of a general indorser
as provided in Section 66 of the NIL are based upon a transfer of title and are
available only to holders in due course, 48 these warranties did not attach to the
indorsement for deposit and collection made by Gold Palace to Far East.
Without any legal right to do so, the collecting bank, therefore, could not debit
respondent's account for the amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the
extent that Far East could not debit the account of Gold Palace, and for doing
so, it must return what it had erroneously taken. Far East's remedy under the
law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration. That, however, is another issue which we do not
find necessary to discuss in this case.
However, we delete the exemplary damages awarded by the appellate court.
Respondents have not shown that they are entitled to moral, temperate or
compensatory damages.49 Neither was petitioner impelled by malice or bad
faith in debiting the account of the respondent company and in pursuing its
cause.50 On the contrary, petitioner was honestly convinced of the propriety of
the debit. We also delete the award of attorney's fees for, in a plethora of
cases, we have ruled that it is not a sound public policy to place a premium on
the right to litigate. No damages can be charged to those who exercise such
precious right in good faith, even if done erroneously. 51
WHEREFORE, premises considered, the March 15, 2005 Decision and the May
26, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 71858
are AFFIRMED WITH THE MODIFICATION that the award of exemplary
damages and attorney's fees is DELETED.
SO ORDERED.
G.R. No. L-36549 October 5, 1988
FAR EAST REALTY INVESTMENT INC., petitioner-appellant,
vs.
THE HONORABLE COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY
AN, respondents-appellees.
Crispino P. Reyes for petitioner-appellant.
Uy and Bacabac Law Offices for respondents-appellees.
PARAS, J.
This is a petition for review of the February 12, 1973 decision of the Court of
Appeals * in CA-G.R. No. 01031-SP, "Dy Hian Tat, et al. v. Hon. Alberto
Francisco, et als.", reversing the judgment of the Court of First Instance of
Manila, which ordered private respondents to pay, jointly and severally, the
petitioner the sum of P4,500.00 plus interest at the rate of 14% per annum, from
September 13, 1960, until fully paid, plus the sum of P1,000.00 as attorney's
fees.
The dispositive portion of respondent appellate court's decision reads:
IN VIEW WHEREOF, this Court is constrained to grant as it now grants, the
remedy prayed for; the judgment sought to be reviewed is hereby reversed;
complaint is dismissed; but for lack of sufficient merit, the claim of defendants
for attorney's fees and damages is overruled; costs are however adjudged
against plaintiff in all instances.
IT IS SO ORDERED. (Rollo P. 126)
The antecedent facts of this case are as follows:
In its complaint dated May 9,1968, filed with the City Court of Manila, (Civil
Case No. 170859) against the private respondents for the collection and
payment of P4,500.00 representing the face value of an unpaid and dishonored
cheek, the petitioner alleged, among others, that on September 13, 1960, the
private respondents approached the petitioner at its office in Manila and asked
the latter to extend to them an accommodation loan in the sum of P4,500.00,
Philippine Currency, which they needed in their business, and which they
promised to pay, jointly and severally, in one month time; that they proposed to
pay the petitioner interest thereon at the rate of 14% per annum, as in fact they
delivered to the petitioner the China Banking Corporation Check No. VN-
915564, dated September 13, 1960, for P4,500.00, drawn by Dy Hian Tat, and
signed by them at the back of said check, with the assurance that after one
month from September 13, 1960, the said check would be redeemed by them by
paying cash in the sum of P4,500.00, or the said check can be presented for
payment on or immediately after one month and said bank would honor the
same; that, in order to accomodate the private respondents, the petitioner
agreed and actually extended to the private respondents an accommodation
loan in the sum of P4,500.00 under the aforesaid conditions proposed by the
private respondents, which amount was delivered to the later; that on March 5,
1964, the aforesaid check was presented for payment to the China Banking
Corporation, but said check bounced and was not cashed by said bank, for the
reason that the current account of the drawer thereof had already been closed;
and that subsequently, the petitioner demanded from the private respondents
the payment of their aforesaid loan obligation, but the latter failed and refused
to pay notwithstanding repeated demands therefor (Rollo, pp. 35-37).
Private respondent Gaw Suy An filed an answer with compulsory counterclaim
dated July 8, 1968 denying the material allegations contained in the complaint
and by way of special and affirmative defenses alleged that the petitioner has
no cause of action against him because as it appears on the endorsement at
the back of CBC Check No. VN-915564, he signed said endorsement for his
principal, the Victory Hardware and not for his own individual account, hence,
could not be made personally liable therefor and granting that he acted in his
own capacity as the endorser, he has been wholly discharged by delay in
presentment of the check for payment. (Rollo, pp. 39-40).
Private respondent Dy Hian Tat likewise filed his answer with compulsory
counterclaim, dated February 27, 1970, denying the material allegations
contained in the complaint and by way of special and affirmative defenses
alleged that he never had any transaction or negotiation of any check with the
petitioner at anytime, so it could not be true that he and the other defendants
approached the petitioner on September 13, 1960, for an accommodation loan
of P4,500.00 for which they delivered to the petitioner CBC Check No. VN-
915564 dated September 13, 1960 because as far as he could remember, said
check was delivered by him to Sin Chin Juat Grocery and not to the petitioner;
that the manner the said check was negotiated is clearly evident by the
endorsement at its back which clearly belies the claim of the petitioner that he
(Dy Hian Tat) was one of those who approached the petitioner at its office on
September 13, 1960 to deliver the check in exchange for an accommodation
loan of P4,500.00; that according to the immediate endorser, Gaw Suy An, who
endorsed the check for his principal, Victory Hardware, this check was
delivered to the Asian Surety & Insurance Co., Inc., to be applied to the
indebtedness of the Victory Hardware with said Insurance Company; and that
petitioner not being a holder of the check for value, has no recourse against the
immediate endorser, and neither with the drawer thereof, and considering that
this check in question was dated September 13, 1960 and deposited only for
payment on March 5, 1964, this unreasonable delay in presentment wholly
discharged not only the endorser but also the drawer (Rollo, pp. 43-44).
On March 31, 1970, private respondent Siy CHEE was declared in default
(Rollo, p. 45).
After hearing, the City Court of Manila ** rendered its decision in favor of the
petitioner, the dispositive portion of which reads:
After considering the evidence presented by the parties, judgment is hereby
rendered, ordering the three defendants to pay the plaintiff, jointly and
severally, the sum of P4,500.00 with interest thereon at the legal rate from
September 13, 1960 until the said amount is fully paid; plus the sum of P500.00
by way of attorney's fees, plus the costs of suit.
The counterclaim filed by the defendants Gaw Suy An and Dy Hiat Tat are
hereby dismissed for lack of basis.
SO ORDERED. (Rollo, p. 45).
The decision of the city court was appealed by the private respondents to the
Court of First Instance of Manila, where the case was heard de novo for lack of
transcript of stenographic notes taken in the city court.
After trial, the Court of First Instance of Manila, Branch IX, *** rendered a
decision in Civil Case No. 80583, dated October 15, 1971, affirming the decision
of the city court, the dispositive portion of which reads as follows:
WHEREFORE' in view of all the foregoing considerations, judgment is hereby
rendered in favor of the plaintiff and against defendants Dy Hian Tat, Gaw Suy
An and Siy Chee ordering the latter to pay, jointly and severally, the plaintiff the
sum of P4,500.00, plus interest at the rate of 14% per annum, from September
13, 1960, until fully paid, plus the sum of Pl,000.00 in the concept of attorney's
fees; and costs of suit.
SO ORDERED. (Rollo, p. 9).
The private respondents filed a petition for review of the foregoing decision
with the Court of Appeals.
On February 12, 1973, the appellate court, finding that the questioned check
was not given as collateral to guarantee a loan secured by the three private
respondents who allegedly came as a group to the Far East Realty Investment,
Inc., on September 13, 1960, but passed through other hands before reaching
the petitioner and the said check was not presented within a reasonable time
and after its issuance, reversed the decision of the Court of First Instance
(Rollo, p. 126).
Its motion for reconsideration having been denied, petitioner filed the instant
petition.
The main issue in this case is whether or not presentment for payment and
notice of dishonor of the questioned check were made within reasonable time.
The petitioner argues that presentment for payment may be dispensed with if it
will be useless. Hence, the drawer is liable upon a check although it has not
been presented to the bank for payment and although payment has not been
refused, where such a presentment would be useless because of the conduct or
action of the drawer in the matter or where the check is drawn on insufficient
funds or no funds. Likewise, presentment for payment is not required in order to
charge the drawer, and that notice of dishonor is not required to be given to the
drawer where he has no right to expect or require that the drawee or acceptor
wig pay or honor the instrument. Therefore, where presentment for payment
and notice of dishonor are not necessary as when funds are insufficient to meet
a check, the drawer is liable, whether such presentment and notice be totally
omitted or merely delayed. However, in a situation where the presentment
and/or notice is required to be made without unreasonable delay, the drawer is
discharged "pro tanto" or only up to the degree of the loss suffered, by reason
of delay. Since discharge is the exception to the general rule, the loss must be
proven by the drawer. The drawer in the instant case has not presented in
evidence any loss which he may have suffered by reason of the delay.
On the other hand, the private respondents maintain that the questioned check
was in fact drawn by Dy Bun Kim son of Dy Hiat Tat, and delivered to the Sin
Chin Juat Grocery in payment of grocery goods for the Goodyear Climber and
not to the Far East with which private respondents have no transaction of any
kind. Such being the case, said check was not delivered directly to the Far East
in exchange for the alleged P4,500.00 as claimed by William Li Yao. Therefore,
the alleged cash of P4,500.00 claimed to have been delivered by Li Yao on
September 13, 1960 could not in fact be considered as the consideration for Far
East as holder of the check because said delivery of the check in exchange for
the alleged P4,500.00 is contrary to the findings of fact by the Court of Appeals.
Petitioner, therefore, cannot be considered a holder of the check for value and
in due course. Whether there was due presentment or not of the check, or
whether there was notice of dishonor or not to the drawer and endorsers, the
petitioner cannot recover the amount of P4,500.00 which was in fact not
delivered to the private respondents nor the amount of the check for lack of
consideration.
It is further argued by the private respondents that in order to charge the
persons secondarily liable, such as drawer and endorsers, the instrument must
be presented for payment on the date and period therein mentioned in the
instrument, if it is payable on a fixed date, or within a reasonable time after
issue, otherwise, the drawer and endorsers are discharged from liability. The
questioned check was dated September 13, 1960. Granting that it was agreed
that it will only be deposited after one month from its date, it should have been
deposited for payment after one month and not only on March 5, 1964. This
delay in the presentment for payment of the check cannot be construed as a
reasonable time.
The petition is devoid of merit.
Where the instrument is not payable on demand, presentment must be made on
the day it fags due. Where it is payable on demand, presentment must be made
within a reasonable time after issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof. (Section 71, Negotiable
Instruments Law).
Notice may be given as soon as the instrument is dishonored; and unless delay
is excused must be given within the time fixed by the law (Section 102,
Negotiable Instruments Law).
No hard and fast demarcation line can be drawn between what may be
considered as a reasonable or an unreasonable time, because "reasonable
time" depends upon the peculiar facts and circumstances in each case
(Tolentino, Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. I, Eighth Edition, p. 327).
It is obvious in this case that presentment and notice of dishonor were not
made within a reasonable time.
"Reasonable time" has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do, conveniently,
what the contract or duty requires should be done, having a regard for the
rights, and possibility of loss, if any, to the other party (Citizens' Bank Bldg. v. L
& E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E, 520).
In the instant case, the check in question was issued on September 13, 1960,
but was presented to the drawee bank only on March 5, 1964, and dishonored
on the same date. After dishonor by the drawee bank, a formal notice of
dishonor was made by the petitioner through a letter dated April 27, 1968.
Under these circumstances, the petitioner undoubtedly failed to exercise
prudence and diligence on what he ought to do al. required by law. The
petitioner likewise failed to show any justification for the unreasonable delay.
PREMISES CONSIDERED, the petition is DENIED and the decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 141968      February 12, 2001
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE
PHILIPPINES), petitioner,
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.
KAPUNAN, J.:
The respondent Gueco Spouses obtained a loan from petitioner International
Corporate Bank (now Union Bank of the Philippines) to purchase a car - a
Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses
executed promissory notes which were payable in monthly installments and
chattel mortgage over the car to serve as security for the notes. 1âwphi1.nêt
The Spouses defaulted in payment of installments. Consequently, the Bank filed
on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for "Sum of
Money with Prayer for a Writ of Replevin" 1 before the Metropolitan Trial Court
of Pasay City, Branch 45.2 On August 25, 1995, Dr. Francis Gueco was served
summons and was fetched by the sheriff and representative of the bank for a
meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President
demanded payment of the amount of P184,000.00 which represents the unpaid
balance for the car loan. After some negotiations and computation, the amount
was lowered to P154,000.00, However, as a result of the non-payment of the
reduced amount on that date, the car was detained inside the bank's
compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its
Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson
Rivera. The negotiations resulted in the further reduction of the outstanding
loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a manager's check in amount of
P150,000.00 but the car was not released because of his refusal to sign the
Joint Motion to Dismiss. It is the contention of the Gueco spouses and their
counsel that Dr. Gueco need not sign the motion for joint dismissal considering
that they had not yet filed their Answer. Petitioner, however, insisted that the
joint motion to dismiss is standard operating procedure in their bank to effect a
compromise and to preclude future filing of claims, counterclaims or suits for
damages.
After several demand letters and meetings with bank representatives, the
respondents Gueco spouses initiated a civil action for damages before the
Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court
dismissed the complaint for lack of merit.3
On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision
of the Metropolitan Trial Court was reversed. In its decision, the RTC held that
there was a meeting of the minds between the parties as to the reduction of the
amount of indebtedness and the release of the car but said agreement did not
include the signing of the joint motion to dismiss as a condition sine qua
non  for the effectivity of the compromise. The court further ordered the bank:
1. to return immediately the subject car to the appellants in good working
condition; Appellee may deposit the Manager's check - the proceeds of which
have long been under the control of the issuing bank in favor of the appellee
since its issuance, whereas the funds have long been paid by appellants to
.secure said Manager's Check, over which appellants have no control;
2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00
as exemplary damages, and P25,000.00 as attorney's fees, and
3. to pay the cost of suit.
In other respect, the decision of the Metropolitan Trial Court Branch 33 is
hereby AFFIRMED.4
The case was elevated to the Court of Appeals, which on February 17, 2000,
issued the assailed decision, the decretal portion of which reads:
WHEREFORE, premises considered, the petition for review on certiorari is
hereby DENIED and the Decision of the Regional Trial Court of Quezon City,
Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is
AFFIRMED in toto.  Costs against petitioner.
SO ORDERED.5
The Court of Appeals essentially relied on the respect accorded to the finality
of the findings of facts by the lower court and on the latter's finding of the
existence of fraud which constitutes the basis for the award of damages.
The petitioner comes to this Court by way of petition for review
on certiorari  under Rule 45 of the Rules of Court, raising the following
assigned errors:
I dismissal of the case against him is for his own good and benefit. In fact, the
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO
DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.
II
THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN
THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY
PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK
BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE
ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE.6
As to the first issue, we find for the respondents. The issue as to what
constitutes the terms of the oral compromise or any subsequent novation is a
question of fact that was resolved by the Regional Trial Court and the Court of
Appeals in favor of respondents. It is well settled that the findings of fact of the
lower court, especially when affirmed by the Court of Appeals, are binding upon
this Court.7 While there are exceptions to this rule,8 the present case does not
fall under anyone of them, the petitioner's claim to the contrary,
notwithstanding.
Being an affirmative allegation, petitioner has the burden of evidence to prove
his claim that the oral compromise entered into by the parties on August 28,
1995 included the stipulation that the parties would jointly file a motion to
dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court,
while ruling in favor of the petitioner and thereby dismissing the complaint, did
not make a factual finding that the compromise agreement included the
condition of the signing of a joint motion to dismiss.
The Court of Appeals made the factual findings in this wise:
In support of its claim, petitioner presented the testimony of Mr. Jefferson
Rivera who related that respondent Dr. Gueco was aware that the signing of the
draft of the Joint Motion to Dismiss was one of the conditions set by the bank
for the acceptance of the reduced amount of indebtedness and the release of
the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents,
however, maintained that no such condition was ever discussed during their
meeting of August 28, 1995 (Rollo, p. 32).
The trial court, whose factual findings are entitled to respect since it has the
'opportunity to directly observe the witnesses and to determine by their
demeanor on the stand the probative value of their testimonies' (People vs.
Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the
issue. In dismissing the claim of damages of the respondents, it merely
observed that respondents are not entitled to indemnity since it was their
unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the
release of the car. The trial court opined, thus:
'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the
plaintiffs could have avoided the renting of another car and could have avoided
this litigation had he signed the Joint Motion to Dismiss. While it is true that
herein defendant can unilaterally dismiss the case for collection of sum of
money with replevin, it is equally true that there is nothing wrong for the
plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the
signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages.
First, he will recover his car. Second, he will pay his obligation to the bank on
its reduced amount of P150,000.00 instead of its original claim of P184,985.09.
And third, the case against him will be dismissed. Plaintiffs, likewise, are not
entitled to the award of moral damages and exemplary damages as there is no
showing that the defendant bank acted fraudulently or in bad faith.' (Rollo, p.
15)
The Court has noted, however, that the trial court, in its findings of facts,
clearly indicated that the agreement of the parties on August 28, 1995 was
merely for the lowering of the price, hence -
'xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff
entered into an oral compromise agreement, whereby the original claim of the
bank of P184,985.09 was reduced to P150,000.00 and that upon payment of
which, plaintiff was informed that the subject motor vehicle would be released
to him.' (Rollo, p. 12)
The lower court, on the other hand, expressly made a finding that petitioner
failed to include the aforesaid signing of the Joint Motion to Dismiss as part of
the agreement. In dismissing petitioner's claim, the lower court declared, thus:
'If it is true, as the appellees allege, that the signing of the joint motion was a
condition sine qua non  for the reduction of the appellants' obligation, it is only
reasonable and logical to assume that the joint motion should have been shown
to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a
copy of the joint motion that day of August 28, 1995, for his family or legal
counsel to see to be brought signed, together with the P150,000.00 in
manager's check form to be submitted on the following day on August 29,
1995? (sic) [I]s a question whereby the answer up to now eludes this Court's
comprehension. The appellees would like this Court to believe that Dr Gueco
was informed by Mr. Rivera Rivera of the bank requirement of signing the joint
motion on August 28, 1995 but he did not bother to show a copy thereof to his
family or legal counsel that day August 28, 1995. This part of the theory of
appellee is too complicated for any simple oral agreement. The idea of a Joint
Motion to Dismiss being signed as a condition to the pushing through a deal
surfaced only on August 29, 1995.
'This Court is not convinced by the appellees' posturing. Such claim rests on
too slender a frame, being inconsistent with human experience. Considering the
effect of the signing of the Joint Motion to Dismiss on the appellants'
substantive right, it is more in accord with human experience to expect Dr.
Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the
Manager's Check and for the bank to refuse to accept the manager's check.
The only logical explanation for this inaction is that Dr. Gueco was not shown
the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his
claim that its signing was never put into consideration in reaching a
compromise.' xxx.9
We see no reason to reverse.
Anent the issue of award of damages, we find the claim of petitioner
meritorious. In finding the petitioner liable for damages, both .the Regional Trial
Court and the Court of Appeals ruled that there was fraud on the part of the
petitioner. The CA thus declared:
The lower court's finding of fraud which became the basis of the award of
damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil
Code of the Philippines, as amended is the 'deliberate and intentional evasion
of the normal fulfillment of obligation' When petitioner refused to release the
car despite respondent's tender of payment in the form of a manager's check,
the former intentionally evaded its obligation and thereby became liable for
moral and exemplary damages, as well as attorney's fees. 10
We disagree.
Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally and necessarily arise from
such act or omission; the fraud referred to in Article 1170 of the Civil Code is
the deliberate and intentional evasion of the normal fulfillment of
obligation.11 We fail to see how the act of the petitioner bank in requiring the
respondent to sign the joint motion to dismiss could constitute as fraud. True,
petitioner may have been remiss in informing Dr. Gueco that the signing of a
joint motion to dismiss is a standard operating procedure of petitioner bank.
However, this can not in anyway have prejudiced Dr. Gueco. The motion to
dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by
petitioner against it before the lower court would be dismissed with prejudice.
The whole point of the parties entering into the compromise agreement was in
order that Dr. Gueco would pay his outstanding account and in return petitioner
would return the car and drop the case for money and replevin before the
Metropolitan Trial Court. The joint motion to dismiss was but a natural
consequence of the compromise agreement and simply stated that Dr. Gueco
had fully settled his obligation, hence, the dismissal of the case. Petitioner's
act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to
be a deliberate attempt on the part of petitioner to renege on the compromise
agreement of the parties. It should, likewise, be noted that in cases of breach
of contract, moral damages may only be awarded when the breach was
attended by fraud or bad faith.12 The law presumes good faith. Dr. Gueco failed
to present an iota of evidence to overcome this presumption. In fact, the act of
petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to
P150,000.00 is indicative of its good faith and sincere desire to settle the case.
If respondent did suffer any damage, as a result of the withholding of his car by
petitioner, he has only himself to blame. Necessarily, the claim for exemplary
damages must fait. In no way, may the conduct of petitioner be characterized
as "wanton, fraudulent, reckless, oppressive or malevolent." 13
We, likewise, find for the petitioner with respect to the third assigned error. In
the meeting of August 29, 1995, respondent Dr. Gueco delivered a manager's
check representing the reduced amount of P150,000.00. Said check was given
to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco
refused to sign the joint motion to dismiss, he was made to execute a
statement to the effect that he was withholding the payment of the
check.14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president
of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to
disregard the 'hold order" letter and demanded the immediate release of his
car,15 to which the former replied that the condition of signing the joint motion
to dismiss must be satisfied and that they had kept the check which could be
claimed by Dr. Gueco anytime.16 While there is controversy as to whether the
document evidencing the order to hold payment of the check was formally
offered as evidence by petitioners, 17 it appears from the pleadings that said
check has not been encashed.
The decision of the Regional Trial Court, which was affirmed in toto  by the
Court of Appeals, orders the petitioner:
1. to return immediately the subject car to the appellants in good working
condition. Appellee may deposit the Manager's Check - the proceeds of which
have long been under the control of the issuing bank in favor of the appellee
since its issuance, whereas the funds have long been paid by appellants to
secure said Manager's Check over which appellants have no control. 18
Respondents would make us hold that petitioner should return the car or its
value and that the latter, because of its own negligence, should suffer the loss
occasioned by the fact that the check had become stale. 19 It is their position
that delivery of the manager's check produced the effect of payment 20 and,
thus, petitioner was negligent in opting not to deposit or use said check.
Rudimentary sense of justice and fair play would not countenance respondents'
position.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be
paid. Under the negotiable instruments law, an instrument not payable on
demand must be presented for payment on the day it falls due. When the
instrument is payable on demand, presentment must be made within a
reasonable time after its issue. In the case of a bill of exchange, presentment is
sufficient if made within a reasonable time after the last negotiation thereof. 21 RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.
A check must be presented for payment within a reasonable time after its
issue,22 and in determining what is a "reasonable time," regard is to be had to DECISION
the nature of the instrument, the usage of trade or business with respect to CARPIO, J.:
such instruments, and the facts of the particular case. 23 The test is whether
the payee employed such diligence as a prudent man exercises in his own The Case
affairs.24 This is because the nature and theory behind the use of a check
points to its immediate use and payability. In a case, a check payable on
demand which was long overdue by about two and a half (2-1/2) years was Before the Court is a petition for review on certiorari 1 assailing the 26 March
considered a stale check.25 Failure of a payee to encash a check for more than 2014 Decision2 and the 18 June 2015 Resolution3 of the Court of Appeals in CA-
ten (10) years undoubtedly resulted in the check becoming stale. 26 Thus, even G.R. CV No. 94890.
a delay of one (1) week 27 or two (2) days,28 under the specific circumstances of
the cited cases constituted unreasonable time as a matter of law.
In the case at bar, however, the check involved is not an ordinary bill of The Facts
exchange but a manager's check. A manager's check is one drawn by the
bank's manager upon the bank itself. It is similar to a cashier's check both as In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand
to effect and use. A cashier's check is a check of the bank's cashier on his own Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million Five
or another check. In effect, it is a bill of exchange drawn by the cashier of a Hundred Ten Thousand Pesos (P1,510,000). Of the total consideration, Six
bank upon the bank itself, and accepted in advance by the act of its Hundred Ten Thousand Pesos (P610,000) was initially paid by Lim and the
issuance.29 It is really the bank's own check and may be treated as a balance of Nine Hundred Thousand Pesos (P900,000) was financed by petitioner
promissory note with the bank as a maker. 30 The check becomes the primary RCBC Savings Bank (RCBC) through a car loan obtained by Lim. 4 As a requisite
obligation of the bank which issues it and constitutes its written promise to pay for the approval of the loan, RCBC required Lim to submit the original copies of
upon demand. The mere issuance of it is considered an acceptance thereof. If the Certificate of Registration (CR) and Official Receipt (OR) in his name.
treated as promissory note, the drawer would be the maker and in which case Unable to produce the Montero's OR and CR, Lim requested RCBC to execute a
the holder need not prove presentment for payment or present the bill to the letter addressed to Odrada informing the latter that his application for a car
drawee for acceptance.31 loan had been approved.
Even assuming that presentment is needed, failure to present for payment
within a reasonable time will result to the discharge of the drawer only to the On 5 April 2002, RCBC issued a letter that the balance of the loan would be
extent of the loss caused by the delay. 32 Failure to present on time, thus, does delivered to Odrada upon submission of the OR and CR. Following the letter and
not totally wipe out all liability. In fact, the legal situation amounts to an initial down payment, Odrada executed a Deed of Absolute Sale on 9 April 2002
acknowledgment of liability in the sum stated in the check. In this case, the in favor of Lim and the latter took possession of the Montero. 5chanrobleslaw
Gueco spouses have not alleged, much less shown that they or the bank which
issued the manager's check has suffered damage or loss caused by the delay or When RCBC received the documents, RCBC issued two manager's checks dated
non-presentment. Definitely, the original obligation to pay certainly has not 12 April 2002 payable to Odrada for Nine Hundred Thousand Pesos (P900,000)
been erased. and Thirteen Thousand Five Hundred Pesos (P13,500). 6 After the issuance of
It has been held that, if the check had become stale, it becomes imperative the manager's checks and their turnover to Odrada but prior to the checks'
that the circumstances that caused its non-presentment be determined. 33 In presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was
the case at bar, there is no doubt that the petitioner bank held on the check an issue regarding the roadworthiness of the Montero. The letter states:
and refused to encash the same because of the controversy surrounding the
signing of the joint motion to dismiss. We see no bad faith or negligence in this chanRoblesvirtualLawlibraryApril 15, 2002
position taken by the Bank.1âwphi1.nêt
WHEREFORE, premises considered, the petition for review is given due course. Mr. Noel M. Odrada
The decision of the Court of Appeals affirming the decision of the Regional Trial C/o Kotse Pilipinas
Court is SET ASIDE. Respondents are further ordered to pay the original Fronting Ultra, Pasig City
obligation amounting to P150,000.00 to the petitioner upon surrender or
cancellation of the manager's check in the latter's possession, afterwhich, Thru: Shan Mendez;.
petitioner is to return the subject motor vehicle in good working condition.
SO ORDERED. Dear Mr. Odrada,

G.R. No. 219037, October 19, 2016 Please be inform[ed] that I am going to cancel or exchange the (1) one unit
Montero that you sold to me thru Mr. Shan Mendez because it did not match It was later disclosed during trial that RCBC also sent a formal notice of
your representations the way Mr. Shan Mendez explained to me cancellation of the loan on 18 April 2002 to both Odrada and
like:ChanRoblesVirtualawlibrary Lim.15chanrobleslaw
1. You told me that the said vehicle has not experience [d] collision. However,
it is hidden, when you open its engine cover there is a trace of a head-on
collision. The condenser is smashed,; the fender support is not align[ed], both The Regional Trial Court's Ruling
bumper supports] connecting [the] chassis were crippled and welded, the hood
support was repaired, etc. In its Decision16 dated 1 October 2009, the trial court ruled in favor of Odrada.
The trial court held that Odrada was the proper party to ask for
2. The 4-wheel drive shift is not functioning. When Mr. Mendez was asked about rescission.17 The lower court reasoned that the right of rescission is implied in
it, he said it would not function until you can reach the speed of 30 miles. reciprocal obligations where one party fails to perform what is incumbent upon
him when the other is willing and ready to comply. The trial court ruled that it
3. During Mr. Mendez['s] representation, he said the odometer has still an was not proper for Lim to exercise the right of rescission since Odrada had
original mileage data but found tampered. already complied with the contract of sale by delivering the Montero while Lim
remained delinquent in payment. 18 Since Lim was not ready, willing, and able to
4. You represented the vehicle as model 1998 however; it is indicated in the comply with the contract of sale, he was not the proper party entitled to
front left A-pillar inscribed at the identification plate [as] model 1997.Therefore, rescind the contract.
please show your sincerity by personally inspecting the said vehicle at RCBC,
Pacific Bldg. Pearl Drive, Ortigas Center, Pasig City. Let us meet at the said The trial court ruled that the defective condition of the Montero was not a
bank at 10:00 A.M., April 17, 2002. supervening event that would justify the dishonor of the manager's checks. The
trial court reasoned that a manager's check is equivalent to cash and is really
Meanwhile, kindly hold or do not encash the manager's check[s] issued to you the bank's own check. It may be treated as a promissory note with the bank as
by RCBC until you have clarified and satisfied my complaints. maker. Hence, the check becomes the primary obligation of the bank which
issued it and constitutes a written promise to pay on demand. 19 Being the party
Sincerely yours, primarily liable, the trial court ruled that RCBC was liable to Odrada for the
value of the manager's checks.
Teodoro L. Lim
Finally, the trial court found that Odrada suffered sleepless nights, humiliation,
Cc: Dario E. Santiago, RCBC loan and was constrained to hire the services of a lawyer meriting the award of
Legal7Odrada did not go to the slated meeting and instead deposited the damages.20chanrobleslaw
manager's checks with International Exchange Bank (Ibank) on 16 April 2002
and redeposited them on 19 April 2002 but the checks were dishonored both The dispositive portion of the Decision reads:
times apparently upon Lim's instruction to RCBC. 8 Consequently, Odrada filed a
collection suit9 against Lim and RCBC in the Regional Trial Court of chanRoblesvirtualLawlibraryWHEREFORE, premises considered, judgment is
Makati.10chanrobleslaw hereby rendered:ChanRoblesVirtualawlibrary
(a) Directing defendant RCBC to pay plaintiff the amount of Php 913,500.00
In his Answer,11 Lim alleged that the cancellation of the loan was at his representing the cash equivalent of the two (2) manager's checks, plus 12%
instance, upon discovery of the misrepresentations by Odrada about the interest from the date of filing of the case until fully paid;
Montero's roadworthiness. Lim claimed that the cancellation was not done ex
parte but through a letter12 dated 15 April 2002.13 He further alleged that the (b) Directing defendants to solidarity pay moral damages in the amount of Php
letter was delivered to Odrada prior to the presentation of the manager's 500,000.00 and exemplary damages in the amount of Php 500,000.00;
checks to RCBC.14chanrobleslaw
(c) Directing defendants to solidarity pay attorney's fees in the amount of Php
On the other hand, RCBC contended that the manager's checks were 300,000.00.Finally, granting the cross-claim of defendant RCBC, Teodoro L. Lim
dishonored because Lim had cancelled the loan. RCBC claimed that the is hereby directed to indemnify RCBC Savings Bank for the amount adjudged for
cancellation of the loan was prior to the presentation of the manager's checks. it to pay plaintiff.
Moreover, RCBC alleged that despite notice of the defective condition of the
Montero, which constituted a failure of consideration, Odrada still proceeded SO ORDERED.21
with presenting the manager's checks. RCBC and Lim appealed from the trial court's decision.
 the right to rescind the contract of sale finding failure to perform an obligation
The Court of Appeals' Ruling under the contract of sale on the part of the latter only despite the contested
roadworthiness of the vehicle, subject matter of the sale.
1. Whether or not the court a quo erred in holding that Lim cannot cancel the
In its assailed 26 March 2014 Decision, the Court of Appeals dismissed the auto loan despite the failure in consideration due to the contested
appeal and affirmed the trial court's 1 October 2009 Decision. roadworthiness of the vehicle delivered by Odrada to him. 29B. The court a quo
gravely erred when it found that Odrada is a holder in due course of the
The Court of Appeals ruled that the two manager's checks, which were manager's checks in question despite being informed of the cancellation of the
complete and regular, reached the hands of Lim who deposited the same in his auto loan by the borrower, Lim.
bank account with Ibank. RCBC knew that the amount reflected on the 1. Whether or not Lim can validly countermand the manager's checks in the
manager's checks represented Lim's payment for the remaining balance of the hands of a holder who does not hold the same in due course. 30
Montero's purchase price. The appellate court held that when RCBC issued the Odrada failed to file a comment 31 within the period prescribed by this
manager's checks in favor of Odrada, RCBC admitted the existence of the Court.32chanrobleslaw
payee and his then capacity to endorse, and undertook that on due
presentment the checks which were negotiable instruments would be accepted
or paid, or both according to its tenor. 22 The appellate court held that the The Ruling of this Court
effective delivery of the checks to Odrada made RCBC liable for the
checks.23chanrobleslaw We grant the petition.

On RCBC's defense of want of consideration, the Court of Appeals affirmed the Under the law on sales, a contract of sale is perfected the moment there is a
finding of the trial court that Odrada was a holder in due course. The appellate meeting of the minds upon the thing which is the object of the contract and
court ruled that the defense of want of consideration is not available against a upon the price which is the consideration. From that moment, the parties may
holder in due course. 24chanrobleslaw reciprocally demand performance. 33 Performance may be done through
delivery, actual or constructive. Through delivery, ownership is transferred to
Lastly, the Court of Appeals found that the award of moral and exemplary the vendee.34 However, the obligations between the parties do not cease upon
damages and attorney's fees was excessive. Hence, modification was proper. delivery of the subject matter. The vendor and vendee remain concurrently
bound by specific obligations. The vendor, in particular, is responsible for an
The dispositive portion of the Decision reads: implied warranty against hidden defects.

chanRoblesvirtualLawlibraryWHEREFORE, the impugned Decision of the court a Article 1547 of the Civil Code states: "In a contract of sale, unless a contrary
quo in Civil Case No. 02-453 is hereby AFFIRMED with MODIFICATION insofar as intention appears, there is an implied warranty that the thing shall be free from
the reduction of awards for moral, exemplary damages and attorney's fees to any hidden faults or defects."35 Article 1566 of the Civil Code provides that "the
P50,000.00, P20,000.00, and P20,000.00 respectively. vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof." 36 As a consequence, the law
SO ORDERED.25cralawred fixes the liability of the vendor for hidden defects whether known or unknown
26
RCBC and Lim filed a motion for reconsideration  on 28 April 2014. In its 18 to him at the time of the sale.
June 2015 Resolution, the Court of Appeals denied the motion for lack of
merit.27chanrobleslaw The law defines a hidden defect as one which would render the thing sold unfit
for the use for which it is intended, or would diminish its fitness for such use to
RCBC alone28 filed this petition before the Court. Thus, the decision of the such an extent that, had the vendee been aware thereof, he would not have
Court of Appeals became final and executory as to Lim. acquired it or would have given a lower price for it. 37chanrobleslaw

In this case, Odrada and Lim entered into a contract of sale of the Montero.
The Issues Following the initial downpayment and execution of the deed of sale, the
Montero was delivered by Odrada to Lim and the latter took possession of the
Montero. Notably, under the law, Odrada's warranties against hidden defects
RCBC presented the following, issues in this petition: continued even after the Montero's delivery. Consequently, a misrepresentation
as to the Montero's roadworthiness constitutes a breach of warranty against
chanRoblesvirtualLawlibraryA. The court a quo gravely erred in finding that as hidden defects.
between Odrada as seller and Lim as buyer of the vehicle, only the former has
In Supercars Management & Development Corporation v. Flores ,38 we held that
a breach of warranty against hidden defects occurred when the vehicle, after it
was delivered to respondent, malfunctioned despite repairs by petitioner. 39 In
the present case, when Lim acquired possession, he discovered that the
Montero was not roadworthy. The engine was misaligned, the automatic
transmission was malfunctioning, and the brake rotor disks needed
refacing.40 However, during the proceedings in the trial court, Lim's testimony
was stricken off the record because he failed to appear during cross-
examination.41 In effect, Lim was not able to present clear preponderant
evidence of the Montero's defective condition.
RCBC May Refuse to Pay Manager's Checks
We address the legal question of whether or not the drawee bank of a
manager's check has the option of refusing payment by interposing a personal
defense of the purchaser of the manager's check who delivered the check to a
third party.
In resolving this legal question, this Court will examine the nature of a
manager's check and its relation to personal defenses under the Negotiable
Instruments Law.42chanrobleslaw
Jurisprudence defines a manager's check as a check drawn by the bank's
manager upon the bank itself and accepted in advance by the bank by the act
of its issuance.43 It is really the bank's own check and may be treated as a
promissory note with the bank as its maker. 44 Consequently, upon its purchase,
the check becomes the primary obligation of the bank and constitutes its
written promise to pay the holder upon demand. 45 It is similar to a cashier's
check46 both as to effect and use in that the bank represents that the check is
drawn against sufficient funds.47chanrobleslaw
48
As a general rule, the drawee bank is not liable until it accepts.  Prior to a
bill's acceptance, no contractual relation exists between the holder 49 and the
drawee. Acceptance, therefore, creates a privity of contract between the
holder and the drawee so much so that the latter, once it accepts, becomes the
party primarily liable on the instrument. 50 Accordingly, acceptance is the act
which triggers the operation of the liabilities of the drawee (acceptor) under
Section 6251of the Negotiable Instruments Law. Thus, once he accepts, the
drawee admits the following: (a) existence of the drawer; (b) genuineness of the
drawer's signature; (c) capacity and authority of the drawer to draw the
instrument; and (d) existence of the payee and his then capacity to endorse.
As can be gleaned in a long line of cases decided by this Court, a manager's
check is accepted by the bank upon its issuance. As compared to an ordinary
bill of exchange where acceptance occurs after the bill is presented to the
drawee, the distinct feature of a manager's check is that it is accepted in
advance. Notably, the mere issuance of a manager's check creates a privity of
contract between the holder and the drawee bank, the latter primarily binding
itself to pay according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a
manager's check to a holder in due course irrespective of any available
personal defenses. However, while this Court has consistently held that a
manager's check is automatically accepted, a holder other than a holder in due
course is still subject to defenses. In International Corporate Bank v. Spouses
Gueco,52 which involves a delivered manager's check, the Court still
considered whether the check had become stale:
chanRoblesvirtualLawlibraryIt has been held that, if the check had become
stale, it becomes imperative that the circumstances that caused its non-
presentment be determined. In the case at bar, there is no doubt that the
petitioner bank held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to dismiss. We see
no bad faith or negligence in this position taken by the bank. 53
In International Corporate Bank, this Court considered whether the holder
presented the manager's check within a reasonable time after its issuance - a
circumstance required for holding the instrument in due course. 54chanrobleslaw
Similarly, in  Rizal Commercial Banking Corporation v. Hi-Tri Development
Corporation,55 the Court observed that the mere issuance of a manager's check
does not ipso facto  work as an automatic transfer of funds to the account of
the payee.56 In order for the holder to acquire title to the instrument, there still
must have been effective delivery. Accordingly, the Court, taking exception to
the manager's check automatic transfer of funds to the payee, declared that:
"the doctrine that the deposit represented by a manager's check automatically
passes to the payee is inapplicable, because the instrument - although
accepted in advance remains undelivered." 57 This Court ruled that the holder
did not acquire the instrument in due course since title had not passed for lack
of delivery.58chanrobleslaw
We now address the main legal question: if the holder of a manager's check is
not a holder in due course, can the drawee bank interpose a personal defense
of the purchaser?
Our rulings in Mesina v. Intermediate Appellate Court 59 and United Coconut
Planters Bank v. Intermediate Appellate Court 60 shed light on the matter.
In Mesina, Jose Go purchased a manager's check from Associated Bank. As he
left the bank, Go inadvertently left the check on top of the desk of the bank
manager. The bank manager entrusted the check for safekeeping to another
bank official who at the time was attending to a customer named Alexander
Lim.61 After the bank official answered the telephone and returned from the
men's room, the manager's check could no longer be found. After learning that
his manager's check was missing, Go immediately returned to the bank to give
a stop payment order on the check. A third party named Marcelo Mesina
deposited the manager's check with Prudential Bank but the drawee bank sent
back the manager's check to the collecting bank with the words "payment
stopped." When asked how he obtained the manager's check, Mesina claimed it
was paid to him by Lim in a "certain transaction." 62chanrobleslaw conclusion reached by this Court that respondent appellate court had
committed reversible error. Makati Bel-Air was a party to the contract of sale of
While this Court acknowledged the general causes and effects of a manager's an office condominium unit to Altiura, for the payment of which the manager's
check, it noted that other factors were needed to be considered, namely the check was issued. Accordingly, Makati Bel-Air was fully aware, at the time it
manner by which Mesina acquired the instrument. This Court declared: had received the manager's check, that there was, or had arisen, at least
partial failure of consideration since it was unable to comply with its obligation
chanRoblesvirtualLawlibraryPetitioner's allegations hold no water. Theories to deliver office space amounting to 165 square meters to Altiura. Makati Bel-
and examples advanced by petitioner on causes and effects of a cashier's Air was also aware that petitioner Bank had been informed by Altiura of the
check such as (1) it cannot be countermanded in the hands of a holder in due claimed defect in Makati Bel-Air's title to the manager's check or its right to the
course and (2) a cashier's check is a bill of exchange drawn by the bank proceeds thereof. Vis-a-vis both Altiura and petitioner Bank, Makati Bel-Air was
against itself - are general principles which cannot be aptly applied to the case not a holder in due course of the manager's check. 69
at bar, without considering other things. Petitioner failed to substantiate his The foregoing rulings clearly establish that the drawee bank of a manager's
claim that he is a holder in due course and for consideration or value as shown check may interpose personal defenses of the purchaser of the manager's
by the established facts of the case. Admittedly, petitioner became the holder check if the holder is not a holder in due course. In short, the purchaser of a
of the cashier's check as endorsed by Alexander Lim who stole the check. He manager's check may validly countermand payment to a holder who is not a
refused to say how and why it was passed to him. He had therefore notice of holder in due course. Accordingly, the drawee bank may refuse to pay the
the defect of his title over the check from the start. 63 manager's check by interposing a personal defense of the purchaser. Hence,
Ultimately, the notice of defect affected Mesina's claim as a holder of the the resolution of the present case requires a determination of the status of
manager's check. This Court ruled that the issuing bank could validly refuse Odrada as holder of the manager's checks.
payment because Mesina was not a holder in due course. Unequivocally, the
Court declared: "the holder of a cashier's check who is not a holder in due In this case, the Court of Appeals gravely erred when it considered Odrada as a
course cannot enforce such check against the issuing bank which dishonors holder in due course. Section 52 of the Negotiable Instruments Law defines a
the same."64chanrobleslaw holder in due course as one who has taken the instrument under the following
conditions:
In the same manner, in United Coconut Planters Bank  (UCPB),65 this Court
ruled that the drawee bank was legally justified in refusing to pay the holder of chanRoblesvirtualLawlibrary(a) That it is complete and regular upon its face;
a manager's check who did not hold the check in due course. In UCPB, Altiura
Investors, Inc. purchased a manager's check from UCPB, which then issued a (b) That he became the holder of it before it was overdue, and without notice
manager's check in the amount of Four Hundred Ninety Four Thousand Pesos that it has been previously dishonored, if such was the fact;
(P494,000) to Makati Bel-Air Developers, Inc. The manager's check represented
the payment of Altiura Investors, Inc. for a condominium unit it purchased from (c) That he took it in good faith and for value;
Makati Bel-Air Developers, Inc. Subsequently, Altiura Investors, Inc. instructed
UCPB to hold payment due to material misrepresentations by Makati Bel-Air (d) That at the time it was negotiated to him, he had no notice of any infirmity
Developers, Inc. regarding the condominium unit. 66 Pending negotiations; and in the instrument or defect in the title of the person negotiating it. ( Emphasis
while the stop payment order was in effect, Makati Bel-Air Developers, Inc. supplied)
insisted that UCPB pay the value of the manager's check. UCPB refused to pay To be a holder in due course, the law requires that a party must have acquired
and filed an interpleader to allow Altiura Investors, Inc. and Makati Bel-Air the instrument in good faith and  for value.
Developers, Inc. to litigate their respective claims. Makati Bel-Air Developers,
Inc. also filed a counterclaim against UCPB in the amount of Five Million Pesos Good faith means that the person taking the instrument has acted with due
(P5,000,000) based on UCPB's violation of its warranty on its manager's honesty with regard to the rights of the parties liable on the instrument and
check.67chanrobleslaw that at the time he,took the instrument, the holder has no knowledge of any
defect or infirmity of the instrument. 70 To constitute notice of an infirmity in the
In upholding UCPB's refusal to pay the value of the manager's check, this Court instrument or defect in the title of the person negotiating the same, the person
reasoned that Makati Bel-Air Developers, Inc.'s title to the instrument became to whom it is negotiated must have had actual knowledge of the infirmity or
defective when there arose a partial failure of consideration. 68 We held that defect, or knowledge of such facts that his action in taking the instrument
UCPB could validly invoke a personal defense of the purchaser against Makati would amount to bad faith.71chanrobleslaw
Bel-Air Developers, Inc. because the latter was not a holder in due course of the
manager's check: Value, on the other hand, is defined as any consideration sufficient to support a
simple contract.72chanrobleslaw
chanRoblesvirtualLawlibraryThere are other considerations supporting the
In the present case, Odrada attempted to deposit the manager's checks on 16
April 2002, a day after Lim had informed him that there was a serious problem
with the Montero. Instead of addressing the issue, Odrada decided to deposit
the manager's checks. Odrada's actions do not amount to good faith. Clearly,
Odrada failed to make an inquiry even when the circumstances strongly
indicated that there arose, at the very least, a partial failure of consideration
due to the hidden defects of the Montero. Odrada's action in depositing the
manager's checks despite knowledge of the Montero's defects amounted to bad
faith. Moreover, when Odrada redeposited the manager's checks on 19 April
2002, he was already formally notified by RCBC the previous day of the
cancellation of Lim's auto loan transaction. Following UCPB,73 RCBC may
refuse payment by interposing a personal defense of Lim - that the title of
Odrada had become defective when there arose a partial failure or lack of
consideration.74chanrobleslaw
RCBC acted in good faith in following the instructions of Lim. The records show
that Lim notified RCBC of the defective condition of the Montero before Odrada
presented the manager's checks.75 Lim informed RCBC of the hidden defects of
the Montero including a misaligned engine, smashed condenser, crippled
bumper support, and defective transmission. RCBC also received a formal
notice of cancellation of the auto loan from Lim and this prompted RCBC to
cancel the manager's checks since the auto loan was the consideration for
issuing the manager's checks. RCBC acted in good faith in stopping the
payment of the manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any
holder other than a holder in due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable, x x x." Since Odrada was not a
holder in due course, the instrument becomes subject to personal defenses
under the Negotiable Instruments Law. Hence, RCBC may legally act on a
countermand by Lim, the purchaser of the manager's checks.
Lastly, since Lim's testimony involving the Montero's hidden defects was
stricken off the record by the trial court, Lim failed to prove the existence of
the hidden defects and thus Lim remains liable to Odrada for the purchase price
of the Montero. Lim's failure to file an appeal from the decision of the Court of
Appeals made the decision of the appellate court final and executory as to Lim.
RCBC cannot be made liable because it acted in good faith in carrying out the
stop payment order of Lim who presented to RCBC the complaint letter to
Odrada when Lim issued the stop payment order.
BANK OF AMERICA, NT & SA, Petitioner,
vs.
ASSOCIATED CITIZENS BANK, BA-FINANCE CORPORATION, MILLER OFFSET
PRESS, INC., UY KIAT CHUNG, CHING UY SENG, UY CHUNG GUAN SENG, and
COURT OF APPEALS, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 141018        May 21, 2009
ASSOCIATED CITIZENS BANK (now UNITED OVERSEAS BANK
PHILS.), Petitioner,
vs.
BA-FINANCE CORPORATION, MILLER OFFSET PRESS, INC., UY KIAT CHUNG,
CHING UY SENG, UY CHUNG GUAN SENG, and BANK OF AMERICA, NT &
SA, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court are consolidated cases docketed as G.R. No. 141001 and G.R.
No. 141018. These two cases are petitions for review on certiorari 1 of the
Decision2 dated 26 February 1999 and the Resolution dated 6 December 1999
of the Court of Appeals in CA-G.R. CV No. 48821. The Court of Appeals affirmed
with modifications the Decision of the Regional Trial Court of Makati, Branch 64
(RTC).
The Antecedent Facts
On 6 October 1978, BA-Finance Corporation (BA-Finance) entered into a
transaction with Miller Offset Press, Inc. (Miller), through the latter’s authorized
representatives, i.e., Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
BA-Finance granted Miller a credit line facility through which the latter could
assign or discount its trade receivables with the former. On 20 October 1978,
Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing
Suretyship Agreement with BA-Finance whereby they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness which
Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by
executing Deeds of Assignment in favor of the latter. In consideration of the
assignment, BA-Finance issued four checks payable to the "Order of Miller
Offset Press, Inc." with the notation "For Payee’s Account Only." These checks
were drawn against Bank of America and had the following details: 3
Check No. Date Amount
128274 13 February 1981 ₱222,363.33

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 129067 26 February 1981 252,551.16

March 2014 Decision and the 18 June 2015 Resolution of the Court of Appeals
in CA-G.R. CV No. 94890 only insofar as RCBC Savings Bank is concerned. 132133 20 April 1981 206,450.57

SO ORDERED.chanRoblesvirtualLawlibrary 133057 7 May 1981 59,862.72

Total ₱741,227.78
G.R. No. 141001        May 21, 2009
The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then
the corporate secretary of Miller, in Account No. 989 in Associated Citizens
Bank (Associated Bank). Account No. 989 is a joint bank account under the
names of Ching Uy Seng and Uy Chung Guan Seng. Associated Bank stamped
the checks with the notation "all prior endorsements and/or lack of
endorsements guaranteed," and sent them through clearing. Later, the drawee
bank, Bank of America, honored the checks and paid the proceeds to
Associated Bank as the collecting bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade
receivables. Consequently, BA-Finance filed a Complaint against Miller for
collection of the amount of ₱731,329.63 which BA-Finance allegedly paid in
consideration of the assignment, plus interest at the rate of 16% per annum and
penalty charges.4 Likewise impleaded as party defendants in the collection
case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
Miller, Uy Kiat Chung, and Uy Chung Guan Seng filed a Joint Answer (to the BA-
Finance’s Complaint) with Cross-Claim against Ching Uy Seng, wherein they
denied that (1) they received the amount covered by the four Bank of America
checks, and (2) they authorized their co-defendant Ching Uy Seng to transact
business with BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung Guan
Seng also denied having signed the Continuing Suretyship Agreement with BA-
Finance. In view thereof, BA-Finance filed an Amended Complaint impleading
Bank of America as additional defendant for allegedly allowing encashment and
collection of the checks by person or persons other than the payee named
thereon. Ching Uy Seng, on the other hand, did not file his Answer to the
complaint.
Bank of America filed a Third Party Complaint against Associated Bank. In its
Answer to the Third Party Complaint, Associated Bank admitted having
received the four checks for deposit in the joint account of Ching Uy Seng
(a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert Ching,
being one of the corporate officers of Miller, was duly authorized to act for and
on behalf of Miller.
On 28 September 1994, the RTC rendered a Decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered against
defendant Bank of America to pay plaintiff BA Finance Corporation the sum of
₱741,277.78, the value of the four (4) checks subject matter of this case, with
legal interest thereon from the time of the filing of this complaint until payment
is made and attorney’s fees corresponding to 15% of the amount due and to pay
the costs of the suit.
Judgment is likewise rendered ordering the third-party defendant Associated
Citizens Bank to reimburse Bank of America, the defendant third-party plaintiff,
of the aforestated amount.
SO ORDERED.5
The Court of Appeals’ Ruling
On appeal, the Court of Appeals rendered judgment, 6 affirming with
modifications the decision of the RTC, thus:
WHEREFORE, judgment is hereby rendered, as follows:
(1) Defendant and third-party plaintiff-appellant, Bank of America, NT & SA, is
ordered to pay plaintiff-appellee BA-Finance Corporation the sum of
₱741,277.78, with legal interest thereon from the time of the filing of the
complaint until the whole amount is fully paid;
(2) Third-party defendant-appellant Associated Citizens Bank is likewise
ordered to reimburse Bank of America the aforestated amount;
(3) Defendants Ching Uy Seng and/or Uy Chung Guan Seng are also ordered to
pay Associated Citizens Bank the aforestated amount; and
(4) The award of attorney’s fees is ordered deleted.
SO ORDERED.7
Associated Bank and Bank of America filed their respective Motions for
Reconsideration, but these were denied by the Court of Appeals in its
Resolution of 6 December 1999.8
Hence, these petitions.
The Issue
The issues raised in these consolidated cases may be summarized as follows:
Whether the Court of Appeals erred in rendering judgment finding (1) Bank of
America liable to pay BA-Finance the amount of the four checks; (2) Associated
Bank liable to reimburse Bank of America the amount of the four checks; and
(3) Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank
the amount of the four checks.
The Court’s Ruling
We find the petitions unmeritorious.
The Court of Appeals did not err in finding Bank of America
liable to pay BA-Finance the amount of the four checks.
Bank of America denies liability for paying the amount of the four checks issued
by BA-Finance to Miller, alleging that it (Bank of America) relied on the stamps
made by Associated Bank stating that "all prior endorsement and/or lack of
endorsement guaranteed," through which Associated Bank assumed the
liability of a general endorser under Section 66 of the Negotiable Instruments
Law. Moreover, Bank of America contends that the proximate cause of BA-
Finance’s injury, if any, is the gross negligence of Associated Bank which
allowed Ching Uy Seng (Robert Ching) to deposit the four checks issued to
Miller in the personal joint bank account of Ching Uy Seng and Uy Chung Guan
Seng.
We are not convinced.
The bank on which a check is drawn, known as the drawee bank, is under strict
liability, based on the contract between the bank and its customer (drawer), to
pay the check only to the payee or the payee’s order. The drawer’s instructions
are reflected on the face and by the terms of the check. When the drawee bank
pays a person other than the payee named on the check, it does not comply
with the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items.9 Thus, we ruled in Philippine National
Bank v. Rodriguez10 that a drawee should charge to the drawer’s accounts only
the payables authorized by the latter; otherwise, the drawee will be violating
the instructions of the drawer and shall be liable for the amount charged to the
drawer’s account.
Among the different types of checks issued by a drawer is the crossed check.
The Negotiable Instruments Law is silent with respect to crossed checks,
although the Code of Commerce 11 makes reference to such instruments. 12 This
Court has taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could only be
deposited and could not be converted into cash. 13 Thus, the effect of crossing a
check relates to the mode of payment, meaning that the drawer had intended
the check for deposit only by the rightful person, i.e., the payee named
therein.14 The crossing may be "special" wherein between the two parallel
lines is written the name of a bank or a business institution, in which case the
drawee should pay only with the intervention of that bank or company, or
"general" wherein between two parallel diagonal lines are written the words
"and Co." or none at all, in which case the drawee should not encash the same
but merely accept the same for deposit. 15 In Bataan Cigar v. Court of
Appeals,16 we enumerated the effects of crossing a check as follows: (a) the
check may not be encashed but only deposited in the bank; (b) the check may
be negotiated only once – to one who has an account with a bank; and (c) the
act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose; otherwise, he is not a holder in due course. 17
In this case, the four checks were drawn by BA-Finance and made payable to
the "Order of Miller Offset Press, Inc." The checks were also crossed and
issued "For Payee’s Account Only." Clearly, the drawer intended the check for
deposit only by Miller Offset Press, Inc. in the latter’s bank account. Thus, when
a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented
and deposited the checks in his own personal account (Ching Uy Seng’s joint
account with Uy Chung Guan Seng), and the drawee bank, Bank of America,
paid the value of the checks and charged BA-Finance’s account therefor, the
drawee Bank of America is deemed to have violated the instructions of the
drawer, and therefore, is liable for the amount charged to the drawer’s account.
The Court of Appeals did not err in finding Associated
Bank liable to reimburse Bank of America the
amount of the four checks.
A collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser. 18 Under Section 66 of
the Negotiable Instruments Law, an endorser warrants "that the instrument is
genuine and in all respects what it purports to be; that he has good title to it;
that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting." This Court has repeatedly held
that in check transactions, the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements. 19
When Associated Bank stamped the back of the four checks with the phrase
"all prior endorsements and/or lack of endorsement guaranteed," that bank had
for all intents and purposes treated the checks as negotiable instruments and,
accordingly, assumed the warranty of an endorser. Being so, Associated Bank
cannot deny liability on the checks. In Banco de Oro Savings and Mortgage
Bank v. Equitable Banking Corporation,20 we held that:
x x x the law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank being primarily engaged in banking holds itself
out to the public as the expert and the law holds it to a high standard of
conduct. x x x In presenting the checks for clearing and for payment, the
defendant [collecting bank] made an express guarantee on the validity of "all
prior endorsements." Thus, stamped at the back of the checks are the
defendant’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff [drawee]
would not have paid on the checks. No amount of legal jargon can reverse the
clear meaning of defendant’s warranty. As the warranty has proven to be false
and inaccurate, the defendant is liable for any damage arising out of the falsity
of its representation.
Associated Bank was also clearly negligent in disregarding established banking
rules and regulations by allowing the four checks to be presented by, and
deposited in the personal bank account of, a person who was not the payee
named in the checks. The checks were issued to the "Order of Miller Offset
Press, Inc.," but were deposited, and paid by Associated Bank, to the personal
joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng.
It could not have escaped Associated Bank’s attention that the payee of the
checks is a corporation while the person who deposited the checks in his own
account is an individual. Verily, when the bank allowed its client to collect on
crossed checks issued in the name of another, the bank is guilty of
negligence.21 As ruled by this Court in Jai-Alai Corporation of the Philippines
v. Bank of the Philippine Islands, 22 one who accepts and encashes a check
from an individual knowing that the payee is a corporation does so at his peril.
Accordingly, we hold that Associated Bank is liable for the amount of the four
checks and should reimburse the amount of the checks to Bank of America.
The Court of Appeals did not err in finding Ching Uy Seng
and/or Uy Chung Guan Seng liable to pay Associated
Bank the amount of the four checks.
It is well-settled that a person who had not given value for the money paid to
him has no right to retain the money he received. 23 This Court, therefore,
quotes with approval the ruling of the Court of Appeals in its decision:
It appearing, however, from the evidence on record that since Ching Uy Seng
and/or Uy Chung Guan Seng received the proceeds of the checks as they were
deposited in their personal joint account with Associated Bank, they should,
therefore, be obliged to reimburse Associated Bank for the amount it has to pay
to Bank of America, in line with the rule that no person should be allowed to
unjustly enrich himself at the expense of another. 241avvphi1
As regards the trial court’s grant of attorney’s fees to BA-Finance, the Court of
Appeals found that there was no sufficient justification therefor; hence, the
deletion of the award is proper. An award of attorney’s fees necessitates a
factual, legal, or equitable justification. Without such justification, the award is
a conclusion without a premise, its basis being improperly left to speculation
and conjecture.25
We note that the Decision of the Court of Appeals provides for the amount of
₱741,277.78 as the sum of the four checks subject of this case. 26 This amount
should be modified as records show that the total value of the four checks is
₱741,227.78.27
WHEREFORE, we DENY the petitions. We AFFIRM the Court of Appeals’
Decision dated 26 February 1999 in CA-G.R. CV No. 48821 with
the MODIFICATION that Bank of America, NT & SA is ordered to pay BA-
Finance Corporation the amount of ₱741,227.78, with legal interest from the
time of filing of the complaint until the amount is fully paid. Associated Citizens
Bank is ordered to reimburse Bank of America the abovementioned amount.
Ching Uy Seng and/or Uy Chung Guan Seng are also ordered to pay Associated
Citizens Bank the abovementioned amount.
SO ORDERED.