G.R. No.

211564 that were signed by the accused evidencing that he received the 2 checks in
acceptance of the loan granted to him.
BENJAMIN EVANGELISTA, Petitioner
vs. As security for the payment of the loan, [Evangelista] gave two (2) open-dated
SCREENEX,1 INC., represented by ALEXANDER G, YU, Respondent checks: UCPB Check Nos. 616656 and 616657, both pay to the order of
Screenex, Inc. From the time the checks were issued by [Evangelista], they were
DECISION held in safe keeping together with the other documents and papers of the
company by Philip Gotuaco, Sr., father-in-law of respondent Alexander Yu, until
SERENO, CJ.: the former's death on 19 November 2004.

This is a Petition2 for Review on Certiorari seeking to set aside the Decision3 and Before the checks were deposited, there was a personal demand from the family
Resolution4 rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA- for [Evangelista] to settle the loan and likewise a demand letter sent by the
G.R. SP No. 110680. family lawyer.5

ANTECEDENT FACTS
The facts as summarized by the CA are as follows:
Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc.
which issued two (2) checks to [Evangelista]. The first check was UCPB Check
No. 275345 for ₱l,000,000 and the other one is China Banking Corporation
Check No. BDO 8159110 for ₱500,000. There were also vouchers of Screenex
On 25 August 2005, petitioner was charged with violation of Batas Pambansa
(BP) Blg. 22 in Criminal Case Nos. 343615-16 filed with the Metropolitan Trial
Court (MeTC) of Makati City, Branch 61.6 The Information reads:
That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-named accused, did
then and there, willfully, unlawfully and feloniously make out, draw, and issue
to SCREENEX INC., herein represented by ALEXANDER G. YU, to apply on
account or for value the checks described below:

  Check No. Date Amount

United
AGR 616656 12-22-04 ₱l ,000,000.00
Coconut

Planters Bank AGR 616657 12-22-04 500,000.00

said accused well knowing that at the time of issue thereof, said accused did not
have sufficient funds in or credit with the drawee bank for the payment in full of
the face amount of such check upon its presentment which check when
presented for payment within ninety (90) days from the date thereof, was
subsequently dishonored by the drawee bank for the reason "ACCOUNT
CLOSED" and despite receipt of notice of such dishonor, the said accused failed
to pay said payee the face amount of said checks or to make arrangement for full
payment thereof within five (5) banking days after receiving notice.
CONTRARY TO LAW.7 Petitioner pleaded not guilty when arraigned, and trial
proceeded.8
THE RULING OF THE METC
The MeTC found that the prosecution had indeed proved the first two elements
of cases involving violation of BP 22: i.e. the accused makes, draws or issues any
check to apply to account or for value, and the check is subsequently dishonored
by the drawee bank for insufficiency of funds or credit; or the check would have
been dishonored for the same reason had not the drawer, without any valid
reason, ordered the bank to stop payment. The trial court pointed out, though,
that the prosecution failed to prove the third element; i.e. at the time of the
issuance of the check to the payee, the latter did not have sufficient funds in, or
credit with, the drawee bank for payment of the check in full upon its
presentment.9 In the instant case, the court held that while prosecution witness
Alexander G. Yu declared that the lawyer had sent a demand letter to
Evangelista, Yu failed to prove that the letter had actually been received by
addressee. Because there was no way to determine when the five-day period
should start to toll, there was a failure to establish prima facie evidence of
knowledge of the insufficiency of funds on the part of Evangelista.10 Hence, the
court acquitted him of the criminal charges.
Ruling on the civil aspect of the cases, the court held that while Evangelista
admitted to having issued and delivered the checks to Gotuaco and to having
fully paid the amounts indicated therein, no evidence of payment was
presented.11 It further held that the creditor's possession of the instrument of
credit was sufficient evidence that the debt claimed had not yet been paid.12 In
the end, Evangelista was declared liable for the corresponding civil obligation.13
The dispositive portion of the Decision14 reads:
WHEREFORE, judgment is rendered acquitting the accused BENJAMIN
EVANGELISTA for failure of the prosecution to establish all the elements
constituting the offense of Violation of B.P. 22 for two (2) counts. However,
accused is hereby ordered to pay his civil obligation to the private complainant
in the total amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS
(₱l,500,000) plus twelve (12%) percent interest per annum from the date of the
filing of the two sets of Information until fully paid and to pay the costs of suit.
SO ORDERED.15
THE RULING OF THE RTC
Evangelista filed a timely Notice of Appeal16 and raised two errors of the MeTC
before the Regional Trial Court (RTC) of Makati City, Branch 147. Docketed
therein as Criminal Case Nos. 08-1723 and 08-1724, the appeal posed the
following issues: (1) the lower court erred in not appreciating the fact that the
prosecution failed to prove the civil liability of Evangelista to private
complainant; and (2) any civil liability attributable to Evangelista had been
extinguished and/or was barred by prescription.17
After the parties submitted their respective Memoranda,18 the R TC ruled that
the checks should be taken as evidence of Evangelista's indebtedness to
Gotuaco, such that even if the criminal aspect of the charge had not been
established, the obligation subsisted.19 Also, the alleged payment by Evangelista
was an affirmative defense that he had the burden of proving, but that he failed
to discharge.20 With respect to the defense of prescription, the RTC ruled in this
wise:
As to the defense of prescription, the same cannot be successfully invoked in
this appeal. The 10-year prescriptive period of the action under Art. 1144 of the
New Civil Code is computed from the time the right of action accrues. The terms
and conditions of the loan obligation have not been shown, as only the checks
evidence the same. It has not been shown when the loan obligation was to
mature such that there is no basis to show or from which to infer, when the
cause of action (non-payment of the loan) which would give the obligee the
right to seek redress for the non-payment of the obligation, accrued. In other
words, the reckoning point of prescription has not been established.
Prosecution witness Alexander G. Yu was not competent to state that the loan
was contracted in 1991 as in fact, Yu admitted that it was a few months before
his father-in-law (Philip Gotuaco) died when the latter told him about accused's
failure to pay his obligation. That was a few months before November 19, 2004,
date of death of his father-in-law.
At any rate, the right of action in this case is not upon a written contract, for
which reason, Art. 1144, New Civil Code, on prescription does not apply.21
In a Decision22 dated 18 December 2008, the R TC dismissed the appeal and
affirmed the MeTC decision in toto.23 The Motion for Reconsideration24 was
likewise denied in an Order25 dated 19 August 2009.
THE RULING OF THE CA
Evangelista filed a petition for review26 before the CA insisting that the lower
court erred in finding him liable to pay the sum with interest at 12% per
annum from the date of filing until full payment. He further alleged that witness
Yu was not competent to testify on the loan transaction; that the insertion of the
date on the checks without the knowledge of the accused was an alteration that
avoided the checks; and that the obligation had been extinguished by
prescription.27
Screenex, Inc., represented by Yu, filed its Comment.28 Yu claimed that he had
testified on the basis of his personal dealings with his father-in-law, whom
Evangelista dealt with in obtaining the loan. He further claimed that during the
trial, petitioner never raised the competence of the witness as an
issue.29 Moreover, Yu argued that prescription set in from the accrual of the
obligation; hence, while the loan was transacted in 1991, the demand was made
in February 2005, which was within the 10-year prescriptive period.30 Yu also
argued that while Evangelista claimed under oath that the loan had been paid in
1992, he was not able to present any proof of payment.31 Meanwhile, Yu insisted
that the material alteration invoked by Evangelista was unavailing, since the
checks were undated; hence, nothing had been altered.32 Finally, Yu argued that
Evangelista should not be allowed to invoke prescription, which he was raising
for the first time on appeal, and for which no evidence was adduced in the court
of origin.33
The CA denied the petition.34 It held that (1) the reckoning time for the
prescriptive period began when the instrument was issued and the
corresponding check returned by the bank to its depositor;35 (2) the issue of
prescription was raised for the first time on appeal with the RTC;36 (3) the
writing of the date on the check cannot be considered as an alteration, as the
checks were undated, so there was nothing to change to begin with;37 (4) the
loan obligation was never denied by petitioner, who claimed that it was settled
in 1992, but failed to show any proof of payment.38 Quoting the MeTC Decision,
the CA declared:
[t]he mere possession of a document evidencing an obligation by the person in
whose favor it was executed, merely raises a presumption of nonpayment which
may be overcome by proof of payment, or by satisfactory explanation of the fact
that the instrument is found in the hands of the original creditor not
inconsistent with the fact of payment.39
The dispositive portion reads:
WHEREFORE, premises considered, the petition is DENIED. The assailed
August 19, 2009 Order of the Regional Trial Court, Branch 147, Makati City,
denying petitioner's Motion for Reconsideration of the Court's December 18,
2008 Decision in Crim. Case Nos. 08-1723 and 08- 1724 are AFFIRMED.
SO ORDERED.40
Petitioner filed a Motion for Reconsideration,41 which was similarly denied in a
Resolution42 dated 27 February 2014.
Hence, this Petition,43 in which petitioner contends that the lower court erred in
ordering the accused to pay his alleged civil obligation to private complainant.
In particular, he argues that the court did not consider the prosecution's failure
to prove his civil liability to respondent, and that any civil liability there might
have been was already extinguished and/or barred by prescription.44
Meanwhile, respondent filed its Comment,45 arguing that the date of
prescription was reckoned from the date of the check, 22 December 2004. So
when the complaint was filed on 25 August 2005, it was supposedly well within
the prescriptive period of ten (10) years under Article 1144 of the New Civil
Code.46
OUR RULING
With petitioner's acquittal of the criminal charges for violation of BP 22, the
only issue to be resolved in this petition is whether the CA committed a
reversible error in holding that petitioner is still liable for the total amount of
₱l.5 million indicated in the two checks.
We rule in favor of petitioner.
A check is discharged by any other
act which will discharge a simple
contract for the payment of money.
In BP 22 cases, the action for the corresponding civil obligation is deemed
instituted with the criminal action.47 The criminal action for violation of BP 22
necessarily includes the corresponding civil action, and no reservation to file
such civil action separately shall be allowed or recognized.48
The rationale for this rule has been elucidated in this wise: Generally, no filing
fees are required for criminal cases, but because of the inclusion of the civil
action in complaints for violation of B.P. 22, the Rules require the payment of
docket fees upon the filing of the complaint. This rule was enacted to help
declog court dockets which are filled with B.P. 22 cases as creditors actually use
the courts as collectors. Because ordinarily no filing fee is charged in criminal
cases for actual damages, the payee uses the intimidating effect of a criminal
charge to collect his credit gratis and sometimes. upon being paid, the trial court
is not even informed thereof. The inclusion of the civil action in the criminal
case is expected to significantly lower the number of cases filed before the
courts for collection based on dishonored checks. It is also expected to expedite
the disposition of these cases. Instead of instituting two separate cases, one for
criminal and another for civil, only a single suit shall be filed and tried. It should
be stressed that the policy laid down by the Rules is to discourage the separate
filing of the civil action. The Rules even prohibit the reservation of a separate
civil action, which means that one can no longer file a separate civil case after
the criminal complaint is filed in court. The only instance when separate
proceedings are allowed is when the civil action is filed ahead of the criminal
case. Even then, the Rules encourage the consolidation of the civil and criminal
cases. We have previously observed that a separate civil action for the purpose
of recovering the amount of the dishonored checks would only prove to be
costly, burdensome and time-consuming for both parties and would further
delay the final disposition of the case. This multiplicity of suits must be
avoided.49 (Citations omitted)
This notwithstanding, the civil action deemed instituted with the criminal action
is treated as an "independent civil liability based on contract."50
By definition, a check is a bill of exchange drawn on a bank 'payable on
demand.51 It is a negotiable instrument - written and signed by a drawer
containing an unconditional order to pay on demand a sum certain in
money.52 It is an undertaking that the drawer will pay the amount indicated
thereon. Section 119 of the NIL, however, states that a negotiable instrument
like a check may be discharged by any other act which will discharge a simple
contract for the payment of money, to wit:
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis supplied)
A check therefore is subject to prescription of actions upon a written contract.
Article 1144 of the Civil Code provides:
Article 1144. The following actions must be brought within ten years from the
time the right of action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)
Barring any extrajudicial or judicial demand that may toll the 10-year
prescription period and any evidence which may indicate any other time when
the obligation to pay is due, the cause of action based on a check is reckoned
from the date indicated on the check.
If the check is undated, however, as in the present petition, the cause of action is
reckoned from the date of the issuance of the check. This is so because
regardless of the omission of the date indicated on the check, Section 1753 of the
Negotiable Instruments Law instructs that an undated check is presumed dated
as of the time of its issuance.
While the space for the date on a check may also be filled, it must, however, be
filled up strictly in accordance with the authority given and within a reasonable
time.54 Assuming that Yu had authority to insert the dates in the checks, the fact
that he did so after a lapse of more than 10 years from their issuance certainly
cannot qualify as changes made within a reasonable time.
Given the foregoing, the cause of action on the checks has become stale, hence,
time-barred. No written extrajudicial or judicial demand was shown to have
been made within 10 years which could have tolled the period. Prescription has
indeed set in.
Prescription allows the court to
dismiss the case motu proprio.
We therefore have no other recourse but to grant the instant petition on the
ground of prescription. Even if that defense was belatedly raised before the RTC
for the first time on appeal from the ruling of the Me TC, we nonetheless dismiss
the complaint, seeking to enforce the civil liability of Evangelista based on the
undated checks, by applying Section 1 of Rule 9 of the Rules of Court, to wit:
Section 1. Defenses and objections not pleaded. - Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that the
court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is
barred by a prior judgment or by statute of limitations, the court shall dismiss
the claim.
While it was on appeal before the RTC that petitioner invoked the defense of
prescription, we find that the pleadings and the evidence on record indubitably
establish that the action to hold petitioner liable for the two checks has already
prescribed.
The delivery of the check produces
the effect of payment when through
the fault of the creditor they have
been impaired
It is a settled rule that the creditor's possession of the evidence of debt is proof
that the debt has not been discharged by payment.55 It is likewise an established
tenet that a negotiable instrument is only a substitute for money and not
money, and the delivery of such an instrument does not, by itself, operate as
payment.56 Thus, in BPI v. Spouses Royeca,57 we ruled that despite the lapse of
three years from the time the checks were issued, the obligation still subsisted
and was merely suspended until the payment by commercial document could
actually be realized.58
However, payment is deemed effected and the obligation for which the check
was given as conditional payment is treated discharged, if a period of 10 years
or more has elapsed from the date indicated on the check until the date of
encashment or presentment for payment. The failure to encash the checks
within a reasonable time after issue, or more than 10 years in this instance, not
only results in the checks becoming stale but also in the obligation to pay being
deemed fulfilled by operation of law.
Art. 1249 of the Civil Code specifically provides that checks should be presented
for payment within a reasonable period after their issuance, to wit:
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
the abeyance. (Emphasis supplied)
This rule is similarly stated in the Negotiable Instruments Law as follows:
Sec. 186. Within what time a check must be presented. - A check must be
presented for p:iyment within a reasonable time after its issue or the drawer
will be discharged from liability thereon to the extent of the loss caused by the
delay. (Emphasis supplied)
These provisions were the very same ones we cited when we discharged a
check by reason of the creditor's unreasonable or unexplained delay in
encashing it. In Papa v. Valencia,59 the respondents supposedly paid the
petitioner the purchase price of the lots in cash and in check. The latter disputed
this claim and argued that he had never encashed the checks, and that he could
no longer recall the transaction that happened 10 years earlier. This Court
ruled:
Granting that petitioner had never encashed the check, his failure to do so for
more than ten (10) years undoubtedly resulted in the impairment of the check
through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only
when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if
the debtor is prejudiced by the creditor's unreasonable delay in presentment.
The acceptance of a check implies an undertaking of due diligence in presenting
it for payment, and if he from whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of the debt or obligation
for which it was given. It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or injury unless
presentment is otherwise excused. This is in harmony with Article 1249 of the
Civil Code under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when through the fault of
the creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its no-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was
given as conditional payment will be discharged.60 (Citations omitted and
emphasis supplied)
Similarly in this case, we find that the delivery of the checks, despite the
subsequent failure to encash them within a period of 10 years or more, had the
effect of payment. Petitioner is considered discharged from his obligation to pay
and can no longer be pronounced civilly liable for the amounts indicated
thereon.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October
2013 and Resolution dated 27 February 2014 in CA-G.R. SP No. 110680 are SET
ASIDE. The Complaint against petitioner is hereby DISMISSED.
SO ORDERED.
G.R. No. 184458               January 14, 2015
RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of
the Rules of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP
No. 90609 which affirmed with modification the separate rulings of the Manila
City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-
1052562 and the Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No.
163661,3 a case for collection of a sum of money due a promissory note. While
all three (3) lower courts upheld the validity and authenticity of the promissory
note as duly signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R.
No. 184458, the appellate court modified the trial courts’ consistent awards: (1)
the stipulated interest rate of sixty percent (60%) reduced to twelve percent
(12%) per annumcomputed from the date of judicial or extrajudicial demand,
and (2) reinstatement of the award of attorney’s fees also in a reduced amount
of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid
promissory note and questions the entire ruling of the lower courts. On the
other hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua
(Spouses Chua), take exception to the appellate court’s reduction of the
stipulated interest rate of sixty percent (60%) to twelve percent (12%) per
annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973:
Rivera and Salvador are kumpadres, the former is the godfather of the Spouses
Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR
C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of
(120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly
from the date of default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further
sum equivalent to twenty percent (20%) of the total amount due and payable as
and for attorney’s fees which in no case shall be less than ₱5,000.00 and to pay
in addition the cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the
proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to
the SpousesChua, as payee, a check numbered 012467, dated 30 December
1998, drawn against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably
issued by Rivera, likewise drawn against Rivera’s PCIB current account,
numbered 013224, duly signed and dated, but blank as to payee and amount.
Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was
issued in the amount of ₱133,454.00 with "cash" as payee. Purportedly, both
checks were simply partial payment for Rivera’s loan in the principal amount of
₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason
"account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at
₱366,000.00 covering the principal of ₱120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from
Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses
Chua were constrained to file a suit on 11 June 1999. The case was raffled
before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he
never executed the subject Promissory Note; (2) in all instances when he
obtained a loan from the Spouses Chua, the loans were always covered by a
security; (3) at the time of the filing of the complaint, he still had an existing
indebtedness to the Spouses Chua, secured by a real estate mortgage, but not
yet in default; (4) PCIB Check No. 132224 signed by him which he delivered to
the Spouses Chua on 21 December 1998, should have been issued in the amount
of only 1,300.00, representing the amount he received from the Spouses Chua’s
saleslady; (5) contrary to the supposed agreement, the Spouses Chua presented
the check for payment in the amount of ₱133,454.00; and (6) there was no
demand for payment of the amount of ₱120,000.00 prior to the encashment of
PCIB Check No. 0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and denied
his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral
evidence (consisting of the testimonies of [the spouses] Chua and NBI Senior
Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987);
NBI document examiner (1989); NBI Senior Document Examiner (1994 to the
date he testified); registered criminologist; graduate of 18th Basic Training
Course [i]n Questioned Document Examination conducted by the NBI; twice
attended a seminar on US Dollar Counterfeit Detection conducted by the US
Embassy in Manila; attended a seminar on Effective Methodology in Teaching
and Instructional design conducted by the NBI Academy; seminar lecturer on
Questioned Documents, Signature Verification and/or Detection; had examined
more than a hundred thousand questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of
[Rivera] appearing in the Promissory Note and compared the signature thereon
with the specimen signatures of [Rivera] appearing on several documents. After
a thorough study, examination, and comparison of the signature on the
questioned document (Promissory Note) and the specimen signatures on the
documents submitted to him, he concluded that the questioned signature
appearing in the Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by one and the same
person. In connection with his findings, Magbojos prepared Questioned
Documents Report No. 712-1000 dated 8 January 2001, with the following
conclusion: "The questioned and the standard specimen signatures RODGRIGO
RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in
May 1998, he obtained a loan from [respondent] Salvador and executed a real
estate mortgage over a parcel of land in favor of [respondent Salvador] as
collateral; aside from this loan, in October, 1998 he borrowed ₱25,000.00 from
Salvador and issued PCIB Check No. 126407 dated 30 December 1998; he
expressly denied execution of the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was not his signature; [respondent
Salvador’s] claim that PCIB Check No. 0132224 was partial payment for the
Promissory Note was not true, the truth being that he delivered the check to
[respondent Salvador] with the space for amount left blank as he and
[respondent] Salvador had agreed that the latter was to fill it in with the amount
of ₱1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had
written ₱133,454.00 instead of ₱1,300.00; x x x. To rebut the testimony of NBI
Senior Document Examiner Magbojos, [Rivera] reiterated his averment that the
signature appearing on the Promissory Note was not his signature and that he
did not execute the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal
interest at the rate of 12% percent per annum from 11 June 1999, as actual and
compensatory damages; 20% of the whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of
the MeTC, but deleted the award of attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby
deleted, the rest of the Decision dated October 21, 2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera. Undaunted, Rivera appealed to the Court of Appeals which
affirmed Rivera’s liability under the Promissory Note, reduced the imposition of
interest on the loan from 60% to 12% per annum, and reinstated the award of
attorney’s fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the interest rate of 60% per annum is hereby reduced
to12% per annum and the award of attorney’s fees is reinstated atthe reduced
amount of ₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the
following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT THERE WAS A VALID
PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DEMAND IS NO LONGER NECESSARY AND IN APPLYING THE
PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME HAS NO
BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT [THE SPOUSES
CHUA] DID NOT APPEAL FROM THE DECISION OF THE RTC DELETING THE
AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED
GROSS LEGAL ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY
REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER ANNUM
IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE
DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS EXORBITANT,
UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR
VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and
denied the petition, via a Minute Resolution, for failure to sufficiently show any
reversible error in the ruling of the appellate court specifically concerning the
correct rate of interest on Rivera’s indebtedness under the Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that
given his friendship withthe Spouses Chua who were money lenders, he has
been able to maintain a loan account with them. However, each of these loan
transactions was respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan
nor interest thereof (sic) from [Rivera] for almost four (4) years from the time
of the alleged default in payment [i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note, we are not inclined
to depart from the lower courts’ uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the
promissory note was forged, only that the signature is not his and varies from
his usual signature. He likewise makes a confusing defense of having previously
obtained loans from the Spouses Chua who were money lenders and who had
allowed him a period of "almost four (4) years" before demanding payment of
the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the
testimony of the National Bureau of Investigation (NBI) handwriting expert on
the integrity of the promissory note. On that score, the appellate court aptly
disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on
the promissory note is a forgery. The fact of forgery cannot be presumed but
must be proved by clear, positive and convincing evidence. Mere variance of
signatures cannot be considered as conclusive proof that the same was forged.
Save for the denial of Rivera that the signature on the note was not his, there is
nothing in the records to support his claim of forgery. And while it is true that
resort to experts is not mandatory or indispensable to the examination of
alleged forged documents, the opinions of handwriting experts are nevertheless
helpful in the court’s determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in evidence would lead to the
conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must
establish his case by preponderance of evidence, which simply means "evidence
which is of greater weight, or more convincing than that which is offered in
opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua]
have established a prima faciecase in their favor, hence, the burden of evidence
has shifted to [Rivera] to prove his allegation of forgery. Unfortunately for
[Rivera], he failed to substantiate his defense.14 Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when
affirmed by the appellate court, are accorded the highest degree of respect and
are considered conclusive between the parties.15 A review of such findings by
this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded
entirely on speculation, surmises or conjectures; (2) when a lower court's
inference from its factual findings is manifestly mistaken, absurd or impossible;
(3) when there is grave abuse of discretion in the appreciation of facts; (4)
when the findings of the appellate court go beyond the issues of the case, or fail
to notice certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6) when the
findings of fact are conclusions without mention of the specific evidence on
which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.16 None of these exceptions obtains in this
instance. There is no reason to depart from the separate factual findings of the
three (3) lower courts on the validity of Rivera’s signature reflected in the
Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets
up in his Answer to the plaintiff’s claim or cause of action, upon which issue is
joined, whether they relate to the whole case or only to certain issues in the
case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by
the testimony of a handwriting expert from the NBI. While it is true that resort
to experts is not mandatory or indispensable to the examination or the
comparison of handwriting, the trial courts in this case, on its own, using the
handwriting expert testimony only as an aid, found the disputed document
valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following:
categorical statement of [respondent] Salvador that [Rivera] signed the
Promissory Note before him, in his ([Rivera’s]) house; the conclusion of NBI
Senior Documents Examiner that the questioned signature (appearing on the
Promissory Note) and standard specimen signatures "Rodrigo Rivera" "were
written by one and the same person"; actual view at the hearing of the enlarged
photographs of the questioned signature and the standard specimen
signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is
beyond logic for a money lender to extend another loan on May 4, 1998 secured
by a real estate mortgage, when he was already in default and has not been
paying any interest for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the
parties as "kumpadres," Rivera was allowed another loan, albeit this time
secured by a real estate mortgage, which will cover Rivera’s loan should Rivera
fail to pay. There is nothing inconsistent with the Spouses Chua’s two (2) and
successive loan accommodations to Rivera: one, secured by a real estate
mortgage and the other, secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties,
Rivera was allowed a substantial amount of time before the Spouses Chua
demanded payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of
forgery and a discordant defense to assail the authenticity and validity of the
Promissory Note. Although the burden of proof rested on the Spouses Chua
having instituted the civil case and after they established a prima facie case
against Rivera, the burden of evidence shifted to the latter to establish his
defense.21 Consequently, Rivera failed to discharge the burden of evidence,
refute the existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On the whole,
there was no question left on where the respective evidence of the parties
preponderated—in favor of plaintiffs, the Spouses Chua. Rivera next argues that
even assuming the validity of the Promissory Note, demand was still necessary
in order to charge him liable thereunder. Rivera argues that it was grave error
on the part of the appellate court to apply Section 70 of the Negotiable
Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument and
the provisions of the NIL do not apply to this case. Section 1 of the NIL requires
the concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory
note is: SECTION 184. Promissory Note, Defined. – A negotiable promissory note
within the meaning of this Act is an unconditional promise in writing made by
one person to another, signed by the maker, engaging to pay on demand, or at a
fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the maker’s own order, it is not complete until
indorsed by him.
The Promissory Note in this case is made out to specific persons, herein
respondents, the Spouses Chua, and not to order or to bearer, or to the order of
the Spouses Chua as payees. However, even if Rivera’s Promissory Note is not a
negotiable instrument and therefore outside the coverage of Section 70 of the
NIL which provides that presentment for payment is not necessary to charge
the person liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls
due and becomes demandable—31 December 1995. As of 1 January 1996,
Rivera had already incurred in delay when he failed to pay the amount of
₱120,000.00 due to the Spouses Chua on 31 December 1995 under the
Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the service
is to be rendered was a controlling motive for the establishment of the contract;
or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor
in default: (1) when there is an express stipulation to that effect; (2) where the
law so provides; (3) when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where demand would be
useless. In the first two paragraphs, it is not sufficient that the law or obligation
fixes a date for performance; it must further state expressly that after the period
lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of
interest:
It is agreed and understood that failure on my part to pay the amount of
(₱120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly
from the date of default until the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from
the "date of default" until the entire obligation is fully paid for. The parties
evidently agreed that the maturity of the obligation at a date certain, 31
December 1995, will give rise to the obligation to pay interest. The Promissory
Note expressly provided that after 31 December 1995, default commences and
the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day
following 31 December 1995, the due date of the obligation. On that date, Rivera
became liable for the stipulated interest which the Promissory Note says is
equivalent to 5% a month. In sum, until 31 December 1995, demand was not
necessary before Rivera could be held liable for the principal amount of
₱120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable
to pay the Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of
delay, in the performance of their obligations is laid down on Article 117024 of
the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest
as an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum.
(Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation
is for a sum of money; (2) the debtor, Rivera, incurred in delay when he failed to
pay on or before 31 December 1995; and (3) the Promissory Note provides for
an indemnity for damages upon default of Rivera which is the payment of a
5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal
clause although Rivera, as obligor, assumed to pay additional 5% monthly
interest on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance,
if there isno stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
The penal clause is generally undertaken to insure performance and works as
either, or both, punishment and reparation. It is an exception to the general
rules on recovery of losses and damages. As an exception to the general rule, a
penal clause must be specifically set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of
interest, not as a penal clause, and is simply an indemnity for damages incurred
by the Spouses Chua because Rivera defaulted in the payment of the amount of
₱120,000.00. The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in default of
stipulation, the interest is that provided by law.26
In this instance, the parties stipulated that in case of default, Rivera will pay
interest at the rate of 5% a month or 60% per annum. On this score, the
appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the
date of payment tobe 31 December 1995. Given this circumstance, demand by
the creditor isno longer necessary in order that delay may exist since the
contract itself already expressly so declares. The mere failure of [Spouses Chua]
to immediately demand or collect payment of the value of the note does not
exonerate [Rivera] from his liability therefrom. Verily, the trial court committed
no reversible error when it imposed interest from 1 January 1996 on the
ratiocination that [Spouses Chua] were relieved from making demand under
Article 1169 of the Civil Code.
As observed by [Rivera], the stipulated interest of 5% per month or 60% per
annum in addition to legal interests and attorney’s fees is, indeed, highly
iniquitous and unreasonable. Stipulated interest rates are illegal if they are
unconscionable and the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the parties are considered
to have no stipulation regarding the interest rate, thus, the rate of interest
should be 12% per annum computed from the date of judicial or extrajudicial
demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on
top of the legal interest and attorney’s fees, steep, tantamount to it being illegal,
iniquitous and unconscionable. Significantly, the issue on payment of interest
has been squarely disposed of in G.R. No. 184472 denying the petition of the
Spouses Chua for failure to sufficiently showany reversible error in the ruling of
the appellate court, specifically the reduction of the interest rate imposed on
Rivera’s indebtedness under the Promissory Note. Ultimately, the denial of the
petition in G.R. No. 184472 is res judicata in its concept of "bar by prior
judgment" on whether the Court of Appeals correctly reduced the interest rate
stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following
requisites concur: (1) the former judgment or order must be final; (2) the
judgment or order must be on the merits; (3) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties;
and (4) there must be, between the first and the second action, identity of
parties, of subject matter and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of
parties and subject matter raising specifically errors in the Decision of the Court
of Appeals. Where the Court of Appeals’ disposition on the propriety of the
reduction of the interest rate was raised by the Spouses Chua in G.R. No.
184472, our ruling thereon affirming the Court of Appeals is a "bar by prior
judgment."
At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum
under Central Bank (CB) Circular No. 416 in cases involving the loan or for
bearance of money.29 Thus, the legal interest accruing from the Promissory Note
is 12% per annum from the date of default on 1 January 1996. However, the
12% per annumrate of legal interest is only applicable until 30 June 2013,
before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular
No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum.
Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is
prospectively applied from 1 July 2013. In short, the applicable rate of legal
interest from 1 January 1996, the date when Rivera defaulted, to date when this
Decision becomes final and executor is divided into two periods reflecting two
rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013;
and (2) 6% per annum FROM 1 July 2013 to date when this Decision becomes
final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was
made, to the date when this Decision becomes final and executory, such is
likewise divided into two periods: (1) 12% per annum from 11 June 1999, the
date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July
2013 to date when this Decision becomes final and executor.31 We base this
imposition of interest on interest due earning legal interest on Article 2212 of
the Civil Code which provides that "interest due shall earn legal interest from
the time it is judicially demanded, although the obligation may be silent on this
point."
From the time of judicial demand, 11 June 1999, the actual amount owed by
Rivera to the Spouses Chua could already be determined with reasonable
certainty given the wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or for bearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extra judicial demand under and subject to the
provisions ofArticle 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum.1âwphi1 No interest,
however, shall be adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established
at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally
adjudged. 3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a for bearance of credit. And, in addition to the above, judgments
that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest
fixed therein. (Emphasis supplied)
On the reinstatement of the award of attorney’s fees based on the stipulation in
the Promissory Note, weagree with the reduction thereof but not the
ratiocination of the appellate court that the attorney’s fees are in the nature of
liquidated damages or penalty. The interest imposed in the Promissory Note
already answers as liquidated damages for Rivera’s default in paying his
obligation. We award attorney’s fees, albeit in a reduced amount, in recognition
that the Spouses Chua were compelled to litigate and incurred expenses to
protect their interests.34 Thus, the award of ₱50,000.00 as attorney’s fees is For clarity and to obviate confusion, we chart the breakdown of the total
proper. amount owed by Rivera to the Spouses Chua:

Face value of the Stipulated Interest A & B Interest due earning legal Attorney’s fees Total
Promissory Note interest A & B Amount
February 24, 1995 to A. January 1, 1996 to A. June 11, 1999 (date of Wholesale  
December 31, 1995 June 30, 2013 judicial demand) to June 30, Amount
2013
B. July 1 2013 to date when B. July 1, 2013 to date when
this Decision becomes final this Decision becomes final
and executory and executory

₱120,000.00 A. 12 % per annumon the
principal amount of
₱120,000.00
B. 6% per annumon the
principal amount of
₱120,000.00
A. 12% per annumon the ₱50,000.00 Total amount of
total amount of column 2 Columns 1-4
B. 6% per annumon the total
amount of column 235

The total amount owing to the Spouses Chua set forth in this Decision shall (5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1 July
further earn legal interest at the rate of 6% per annum computed from its 2013 to date when this Decision becomes final and executor, asinterest due
finality until full payment thereof, the interim period being deemed to be a earning legal interest;
forbearance of credit.
(6) Attorney’s fees in the amount of ₱50,000.00; and
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the
Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo (7) 6% per annum interest on the total of the monetary awards from the finality
Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the of this Decision until full payment thereof.
following:
Costs against petitioner Rodrigo Rivera.
(1) the principal amount of ₱120,000.00;
SO ORDERED.
(2) legal interest of 12% per annumof the principal amount of ₱120,000.00
reckoned from 1 January 1996 until 30 June 2013; G.R. No. 129910             September 5, 2006

(3) legal interest of 6% per annumof the principal amount of ₱120,000.00 form THE INTERNATIONAL CORPORATE BANK, INC., petitioner,
1 July 2013 to date when this Decision becomes final and executory; vs.
COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents.
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June
1999, date of judicial demand, to 30 June 2013, as interest due earning legal DECISION
interest;
CARPIO, J.:
 The Case
Before the Court is a petition for review1 assailing the 9 August 1994 Amended
Decision2 and the 16 July 1997 Resolution3 of the Court of Appeals in CA-G.R. CV
No. 25209.
The Antecedent Facts
The case originated from an action for collection of sum of money filed on 16
March 1982 by the International Corporate Bank, Inc.4 ("petitioner")
against the Philippine National Bank ("respondent"). The case was raffled to the
then Court of First Instance (CFI) of Manila, Branch 6. The complaint was
amended on 19 March 1982. The case was eventually re-raffled to the Regional
Trial Court of Manila, Branch 52 ("trial court").
The Ministry of Education and Culture issued 15 checks5 drawn against
respondent which petitioner accepted for deposit on various dates. The checks
are as follows:

Check Number Date Payee Amount

7-3694621-4 7-20-81 Trade Factors, Inc. P 97,500.00
7-3694609-6 7-27-81 Romero D. Palmares 98,500.50
7-3666224-4 8-03-81 Trade Factors, Inc. 99,800.00
7-3528348-4 8-07-81 Trade Factors, Inc. 98,600.00
7-3666225-5 8-10-81 Antonio Lisan 98,900.00
7-3688945-6 8-10-81 Antonio Lisan 97,700.00
7-4535674-1 8-21-81 Golden City Trading 95,300.00
7-4535675-2 8-21-81 Red Arrow Trading 96,400.00
7-4535699-5 8-24-81 Antonio Lisan 94,200.00
7-4535700-6 8-24-81 Antonio Lisan 95,100.00
7-4697902-2 9-18-81 Ace Enterprises, Inc. 96,000.00
7-4697925-6 9-18-81 Golden City Trading 93,030.00
7-4697011-6 10-02-81 Wintrade Marketing 90,960.00
7-4697909-4 10-02-81 ABC Trading, Inc. 99,300.00
7-4697922-3 10-05-81 Golden Enterprises 96,630.00

The checks were deposited on the following dates for the following accounts:

Check Number Date Deposited Account Deposited

7-3694621-4 7-23-81 CA 0060 02360 3
7-3694609-6 7-28-81 CA 0060 02360 3
7-3666224-4 8-4-81 CA 0060 02360 3
7-3528348-4 8-11-81 CA 0060 02360 3
7-3666225-5 8-11-81 SA 0061 32331 7
7-3688945-6 8-17-81 CA 0060 30982 5
7-4535674-1 8-26-81 CA 0060 02360 3
7-4535675-2 8-27-81 CA 0060 02360 3
7-4535699-5 8-31-81 CA 0060 30982 5
7-4535700-6 8-24-81 SA 0061 32331 7
7-4697902-2 9-23-81 CA 0060 02360 3
7-4697925-6 9-23-81 CA 0060 30982 5
7-4697011-6 10-7-81 CA 0060 02360 3
7-4697909-4 10-7-81 CA 0060 30982 56
After 24 hours from submission of the checks to respondent for clearing,
petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent returned all the checks to
petitioner without clearing them on the ground that they were materially
altered. Thus, petitioner instituted an action for collection of sums of money
against respondent to recover the value of the checks.
The Ruling of the Trial Court
The trial court ruled that respondent is expected to use reasonable business
practices in accepting and paying the checks presented to it. Thus, respondent
cannot be faulted for the delay in clearing the checks considering the ingenuity
in which the alterations were effected. The trial court observed that there was
no attempt from petitioner to verify the status of the checks before petitioner
paid the value of the checks or allowed withdrawal of the deposits. According to
the trial court, petitioner, as collecting bank, could have inquired by telephone
from respondent, as drawee bank, about the status of the checks before paying
their value. Since the immediate cause of petitioner’s loss was the lack of
caution of its personnel, the trial court held that petitioner is not entitled to
recover the value of the checks from respondent.
The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered dismissing both the complaint and
the counterclaim. Costs shall, however be assessed against the plaintiff.
SO ORDERED.7
Petitioner appealed the trial court’s Decision before the Court of Appeals.
The Ruling of the Court of Appeals
In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial court’s
Decision. Applying Section 4(c) of Central Bank Circular No. 580, series of
1977,9 the Court of Appeals held that checks that have been materially altered
shall be returned within 24 hours after discovery of the alteration. However, the
Court of Appeals ruled that even if the drawee bank returns a check with
material alterations after discovery of the alteration, the return would not
relieve the drawee bank from any liability for its failure to return the checks
within the 24-hour clearing period. The Court of Appeals explained:
Does this mean that, as long as the drawee bank returns a check with material
alteration within 24 hour[s] after discovery of such alteration, such return
would have the effect of relieving the bank of any liability whatsoever despite
its failure to return the check within the 24- hour clearing house rule?
We do not think so.
Obviously, such bank cannot be held liable for its failure to return the check in
question not later than the next regular clearing. However, this Court is of the
opinion and so holds that it could still be held liable if it fails to exercise due
diligence in verifying the alterations made. In other words, such bank would still
be expected, nay required, to make the proper verification before the 24-hour
regular clearing period lapses, or in cases where such lapses may be deemed
inevitable, that the required verification should be made within a reasonable
time.
The implication of the rule that a check shall be returned within the 24-hour
clearing period is that if the collecting bank paid the check before the end of the
aforesaid 24-hour clearing period, it would be responsible therefor such that if
the said check is dishonored and returned within the 24-hour clearing period,
the drawee bank cannot be held liable. Would such an implication apply in the
case of materially altered checks returned within 24 hours after discovery? This
Court finds nothing in the letter of the above-cited C.B. Circular that would
justify a negative answer. Nonetheless, the drawee bank could still be held liable
in certain instances. Even if the return of the check/s in question is done within
24 hours after discovery, if it can be shown that the drawee bank had been
patently negligent in the performance of its verification function, this Court
finds no reason why the said bank should be relieved of liability.
Although banking practice has it that the presumption of clearance is conclusive
when it comes to the application of the 24-hour clearing period, the same
principle may not be applied to the 24-hour period vis-a-vis material alterations
in the sense that the drawee bank which returns materially altered checks
within 24 hours after discovery would be conclusively relieved of any liability
thereon. This is because there could well be various intervening events or
factors that could affect the rights and obligations of the parties in cases such as
the instant one including patent negligence on the part of the drawee bank
resulting in an unreasonable delay in detecting the alterations. While it is true
that the pertinent proviso in C.B. Circular No. 580 allows the drawee bank to
return the altered check within the period "provided by law for filing a legal
action", this does not mean that this would entitle or allow the drawee bank to
be grossly negligent and, inspite thereof, avail itself of the maximum period
allowed by the above-cited Circular. The discovery must be made within a
reasonable time taking into consideration the facts and circumstances of the
case. In other words, the aforementioned C.B. Circular does not provide the
drawee bank the license to be grossly negligent on the one hand nor does it
preclude the collecting bank from raising available defenses even if the check is
properly returned within the 24-hour period after discovery of the material
alteration.10
The Court of Appeals rejected the trial court’s opinion that petitioner could have
verified the status of the checks by telephone call since such imposition is not
required under Central Bank rules. The dispositive portion of the 10 October
1991 Decision reads:
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and
the defendant-appellee Philippine National Bank is declared liable for the value
of the fifteen checks specified and enumerated in the decision of the trial court
(page 3) in the amount of P1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the 10 October 1991 Decision.
In its 9 August 1994 Amended Decision, the Court of Appeals reversed itself and
affirmed the Decision of the trial court dismissing the complaint.
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision
failed to appreciate that the rule on the return of altered checks within 24 hours
from the discovery of the alteration had been duly passed by the Central Bank
and accepted by the members of the banking system. Until the rule is repealed
or amended, the rule has to be applied.
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July
1997 Resolution, the Court of Appeals denied the motion for lack of merit.
Hence, the recourse to this Court.
The Issues
Petitioner raises the following issues in its Memorandum:
1. Whether the checks were materially altered;
2. Whether respondent was negligent in failing to recognize within a reasonable
period the altered checks and in not returning the checks within the period; and
3. Whether the motion for reconsideration filed by respondent was out of time
thus making the 10 October 1991 Decision final and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and 65
Respondent asserts that the petition should be dismissed outright since
petitioner availed of a wrong mode of appeal. Respondent cites Ybañez v. Court
of Appeals13 where the Court ruled that "a petition cannot be subsumed
simultaneously under Rule 45 and Rule 65 of the Rules of Court, and neither
may petitioners delegate upon the court the task of determining under which
rule the petition should fall."
The remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.14 However, this Court may set aside technicality for
justifiable reasons. The petition before the Court is clearly meritorious. Further,
the petition was filed on time both under Rules 45 and 65.15 Hence, in
accordance with the liberal spirit which pervades the Rules of Court and in the
interest of justice,16 we will treat the petition as having been filed under Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their serial numbers.
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a
holder in due course, not a party to the alteration, he may enforce payment
thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which
changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any
respect, is a material alteration.
The question on whether an alteration of the serial number of a check is a
material alteration under the Negotiable Instruments Law is already a settled
matter. In Philippine National Bank v. Court of Appeals, this Court ruled that the
alteration on the serial number of a check is not a material alteration. Thus:
An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an instrument that purports to modify in any
respect the obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the obligation
of a party. In other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the Negotiable Instrument[s]
Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. ― Form of negotiable instruments. An instrument to be negotiable
must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice
Jose C. Vitug opines that "an innocent alteration (generally, changes on items
other than those required to be stated under Sec. 1, N.I.L.) and spoliation
(alterations done by a stranger) will not avoid the instrument, but the holder
may enforce it only according to its original tenor.
xxxx
The case at the bench is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is
not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations
between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee
remained the same. x x x
xxxx
The check’s serial number is not the sole indication of its origin. As succinctly
found by the Court of Appeals, the name of the government agency which issued
the subject check was prominently printed therein. The check’s issuer was
therefore sufficiently identified, rendering the referral to the serial number
redundant and inconsequential. x x x
xxxx
Petitioner, thus cannot refuse to accept the check in question on the ground that
the serial number was altered, the same being an immaterial or innocent one.17
Likewise, in the present case the alterations of the serial numbers do not
constitute material alterations on the checks.
Incidentally, we agree with the petitioner’s observation that the check in
the PNB case appears to belong to the same batch of checks as in the present
case. The check in the PNB case was also issued by the Ministry of Education
and Culture. It was also drawn against PNB, respondent in this case. The serial
number of the check in the PNB case is 7-3666-223-3 and it was issued on 7
August 1981.
Timeliness of Filing of Respondent’s Motion for Reconsideration
Respondent filed its motion for reconsideration of the 10 October 1991 Decision
on 6 November 1991. Respondent’s motion for reconsideration states that it
received a copy of the 10 October 1991 Decision on 22 October 1991.18 Thus, it
appears that the motion for reconsideration was filed on time. However, the
Registry Return Receipt shows that counsel for respondent or his agent
received a copy of the 10 October 1991 Decision on 16 October 1991,19 not on
22 October 1991 as respondent claimed. Hence, the Court of Appeals is correct
when it noted that the motion for reconsideration was filed late. Despite its late
filing, the Court of Appeals resolved to admit the motion for reconsideration "in
the interest of substantial justice."20
There are instances when rules of procedure are relaxed in the interest of
justice. However, in this case, respondent did not proffer any explanation for the
late filing of the motion for reconsideration. Instead, there was a deliberate
attempt to deceive the Court of Appeals by claiming that the copy of the 10
October 1991 Decision was received on 22 October 1991 instead of on 16
October 1991. We find no justification for the posture taken by the Court of
Appeals in admitting the motion for reconsideration. Thus, the late filing of the
motion for reconsideration rendered the 10 October 1991 Decision final and
executory.
The 24-Hour Clearing Time
The Court will not rule on the proper application of Central Bank Circular No.
580 in this case. Since there were no material alterations on the checks,
respondent as drawee bank has no right to dishonor them and return them to
petitioner, the collecting bank.21 Thus, respondent is liable to petitioner for the
value of the checks, with legal interest from the time of filing of the complaint on
16 March 1982 until full payment.22 Further, considering that respondent’s
motion for reconsideration was filed late, the 10 October 1991 Decision, which
held respondent liable for the value of the checks amounting to P1,447,920, had
become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16
July 1997 Resolution of the Court of Appeals. We rule that respondent
Philippine National Bank is liable to petitioner International Corporate Bank,
Inc. for the value of the checks amounting to P1,447,920, with legal interest
from 16 March 1982 until full payment. Costs against respondent.
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 maintained that no such condition was ever discussed during their meeting of
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,
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
dismissal of the case against him is for his own good and benefit. In fact, 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 payment20 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
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
the nature of the instrument, the usage of trade or business with respect to 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 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 considered a stale
check.25 Failure of a payee to encash a check for more than ten (10) years
undoubtedly resulted in the check becoming stale.26 Thus, even a delay of one
(1) week27 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
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 to effect
and use. A cashier's check is a check of the bank's cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the
bank itself, and accepted in advance by the act of its issuance.29 It is really the
bank's own check and may be treated as a promissory note with the bank as a
maker.30 The check becomes the primary obligation of the bank which issues it
and constitutes its written promise to pay upon demand. The mere issuance of
it is considered an acceptance thereof. If treated as promissory note, the drawer
would be the maker and in which case the holder need not prove presentment
for payment or present the bill to the drawee for acceptance.31
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
extent of the loss caused by the delay.32 Failure to present on time, thus, does
not totally wipe out all liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in the check. In this case, the
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
non-presentment. Definitely, the original obligation to pay certainly has not
been erased.
It has been held that, if the check had become stale, it becomes imperative that
the circumstances that caused its non-presentment be determined.33 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.1âwphi1.nêt
WHEREFORE, premises considered, the petition for review is given due course.
The decision of the Court of Appeals affirming the decision of the Regional Trial
Court is SET ASIDE. Respondents are further ordered to pay the original
obligation amounting to P150,000.00 to the petitioner upon surrender or
cancellation of the manager's check in the latter's possession, afterwhich,
petitioner is to return the subject motor vehicle in good working condition.
SO ORDERED.
G.R. No. 141408               October 18, 2007
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE
CORPORATION, PIPE MASTER CORPORATION and TAN JUAN
LIAN, Respondents.
x---------------------------------------------x
G.R. No. 141429               October 18, 2007
SOLID BANK CORPORATION, Petitioner,
vs.
FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION,
TAN JUAN LIAN and/or PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu
Kio, its president, applied for check discounting with Filipinas Orient Finance
Corporation (Filipinas Orient). The latter approved and granted the same.
On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution
authorizing Yu Kio, in his capacity as president, and/or Tan Juan Lian, in his
capacity as vice-president, to execute, indorse, make, sign, deliver or negotiate
instruments, documents and such other papers necessary in connection with
any transaction coursed through Filipinas Orient for and in behalf of the
corporation.
Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty
that he shall pay at maturity any and all promissory notes, drafts, checks, or
other instruments or evidence of indebtedness for which Pipe Master may
become liable; that the extent of his liability shall not at any one time exceed the
sum of ₱1,000,000.00; and that in the event of default by Pipe Master, Filipinas
Orient may proceed directly against him.
On April 9, 1980, under the check discounting agreement between Pipe Master
and Filipinas Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and
Trust Company (Metro Bank) checks amounting to ₱1,000,000.00. In exchange
for the four Metro Bank checks, Filipinas Orient issued to Yu Kio four Philippine
Bank of Communications (PBCom) crossed checks totaling ₱964,303.62,
payable to Pipe Master with the statement "for payee’s account only."
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in
the Metro Bank, in his personal account, three of the checks valued at
₱721,596.95. As to the remaining check amounting to ₱242,706.67, he
deposited it in the Solid Bank Corporation (Solid Bank), also in his personal
account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the
checks. In turn, Metro Bank and Solid Bank credited the value of the checks to
the personal accounts of Yu Kio.
Subsequently, when Filipinas Orient presented the four Metro Bank checks
equivalent to ₱1,000,000.00 it received from Yu Kio, they were dishonored by
the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the
checks, claiming that it never received the proceeds of the PBCom checks as
they were delivered and paid to the wrong party, Yu Kio, who was not the
named payee.
Filipinas Orient then demanded that PBCom restore to its (Filipinas Orient’s)
account the value of the PBCom checks. In turn, PBCom sought reimbursement
from Metro Bank and Solid Bank, being the collecting banks, but they refused.
Thus, Filipinas Orient filed with the Regional Trial Court (RTC), Branch 39,
Manila a complaint for a sum of money against Pipe Master, Tan Juan Lian
and/or PBCom.
In their answer to the complaint, Pipe Master and Tan Juan Lian averred that
they did not authorize Yu Kio to negotiate and enter into discounting
transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe
Master never received the proceeds of the checks. Consequently, they filed a
cross-claim against PBCom for gross negligence for having paid the wrong
party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party
complaints against Metro Bank and Solid Bank.
On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid
Bank, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of
Seven Hundred Twenty One Thousand Five Hundred Ninety Six Pesos and
Ninety-Five Centavos (₱721,596.95) plus legal interest;
2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two
Hundred Forty-Two Thousand Seven Hundred Six Pesos and Sixty-Seven
Centavos (₱242,706.67) plus legal interest;
3. Ordering third-party defendants to pay the costs of suit.
SO ORDERED.
On appeal, the appellate court affirmed in toto the Decision of the trial court.
Metro Bank and Solid Bank filed their respective motions for reconsideration
but the same were denied.
Hence, the instant consolidated petitions for review on certiorari filed by Metro
Bank and Solid Bank.
The issue for our resolution is whether Metro Bank and Solid Bank, petitioners,
are liable to respondent Filipinas Orient for accepting the PBCom crossed
checks payable to Pipe Master.
Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or
PBCom should be made liable to respondent Filipinas Orient for the value of the
checks.
Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was
expressly authorized to indorse Pipe Master’s checks, such authority extended
only to acts done in the ordinary course of business, not in his personal
capacity. For its part, respondent Filipinas Orient contends that petitioner
banks were negligent in allowing Yu Kio to deposit the PBCom checks in his
account. Respondent PBCom, as the drawee bank, maintains that it has no
liability because in clearing the checks, it relied on the express guarantee made
by petitioner banks that the checks were validly indorsed.
We find in favor of respondents.
A check is defined by law as a bill of exchange drawn on a bank payable on
demand.1 The Negotiable Instruments Law is silent with respect to crossed
checks. Nonetheless, this Court has taken judicial cognizance of the practice that
a check with two parallel lines on the upper left hand corner means that it could
only be deposited and not converted into cash.2 The crossing of a check with the
phrase "Payee’s Account Only" is a warning that the check should be deposited
in the account of the payee. It is the collecting bank which is bound to scrutinize
the check and to know its depositors before it can make the clearing
indorsement, "all prior indorsements and/or lack of indorsement guaranteed."3
Here, petitioner banks have the obligation to ensure that the PBCom checks
were deposited in accordance with the instructions stated in the checks.4 The
four PBCom checks in question had been crossed and issued "for payee’s
account only." This could only mean that the drawer, Filipinas Orient, intended
the same for deposit only by the payee, Pipe Master. The effect of crossing a
check means that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein5 – Pipe Master.
As what transpired in this case, petitioner banks accommodated Yu Kio, being a
valued client and the president of Pipe Master, and accepted the crossed checks.
They stamped at the back thereof that "all prior indorsements and/or lack of
indorsements are guaranteed." In so doing, they became general endorsers.
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 a good title to it; that all prior parties had capacity to contract; and that
the instrument is at the time of his indorsement valid and subsisting."
Clearly, petitioner banks, being endorsers, cannot deny liability.
In Associated Bank v. Court of Appeals,6 we held that the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements and is privy to the depositor who
negotiated the check.
PBCom, as the drawee bank, cannot be held liable since it mainly relied on the
express guarantee made by petitioners, the collecting banks, of all prior
indorsements.
Evidently, petitioner banks disregarded established banking rules and
procedures. They were negligent in accepting the checks and allowing the
transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil.
Islands,7 we ruled that one who accepts and encashes a check from an individual
knowing that the payee is a corporation does so at his peril. Therefore,
petitioner banks are liable to respondent Filipinas Orient.1âwphi1
In fine, it must be emphasized that the law imposes on the collecting bank the
duty to diligently scrutinize the 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 on this
field, and the law thus holds it to a high standard of conduct.8 Since petitioner
banks’ negligence was the direct cause of the misappropriation of the checks,
they should bear and answer for respondent Filipinas Orient’s loss, without
prejudice to their filing of an appropriate action against Yu Kio.
WHEREFORE, we DENY the petitions. The challenged Decision9 and Resolution
of the Court of Appeals in CA-G.R. CV No. 30702 are AFFIRMED. Costs against
petitioners.
SO ORDERED.
G.R. No. 107508 April 25, 1996
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE
BANK OF COMMUNICATIONS, and F. ABANTE MARKETING, respondents.
 
KAPUNAN, J.:p
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision dated April 29, 1992 of respondent Court of Appeals in
CA-G.R. CV No. 24776 and its resolution dated September 16, 1992, denying
petitioner Philippine National Bank's motion for reconsideration of said
decision.
The facts of the case are as follows.
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount
of P97,650.00 was issued by the Ministry of Education and Culture (now
Department of Education, Culture and Sports [DECS]) payable to F. Abante
Marketing. This check was drawn against Philippine National Bank (herein
petitioner).
On August 11, 1981, F. Abante Marketing, a client of Capitol City Development
Bank (Capitol), deposited the questioned check in its savings account with said
bank. In turn, Capitol deposited the same in its account with the Philippine Bank
of Communications (PBCom) which, in turn, sent the check to petitioner for
clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's
account for the amount stated in the check. However, on October 19, 1981,
petitioner returned the check to PBCom and debited PBCom's account for the
amount covered by the check, the reason being that there was a "material
alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's
account for the same amount, and subsequently, sent the check back to
petitioner. Petitioner, however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's
account since the latter had already withdrawn the amount of the check as of
October 15, 1981. Capitol sought clarification from PBCom and demanded the
re-crediting of the amount. PBCom followed suit by requesting an explanation
and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the
Regional Trial Court of Manila against PBCom which, in turn, filed a third-party
complaint against petitioner for reimbursement/indemnity with respect to the
claims of Capitol. Petitioner, on its part, filed a fourth-party complaint against F.
Abante Marketing.
On October 3, 1989; the Regional Trial Court rendered its decision the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1.) On plaintiffs complaint, defendant Philippine Bank of Communications is
ordered to re-credit or reimburse plaintiff Capitol City Development Bank the
amount of P97,650.00, plus interest of 12 percent thereto from October 19,
1981 until the amount is fully paid;
2.) On Philippine Bank of Communications third-party complaint third-party
defendant PNB is ordered to reimburse and indemnify Philippine Bank of
Communications for whatever amount PBCom pays to plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is
ordered to reimburse and indemnify PNB for whatever amount PNB pays to
PBCom;
4.) On attorney's fees, Philippine Bank of Communications is ordered to pay
Capitol City Development Bank attorney's fees in the amount of Ten Thousand
(P10,000.00) Pesos; but PBCom is entitled to reimbursement/indemnity from
PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by
F. Abante Marketing for the same amount;
5.) The Counterclaims of PBCom and PNB are hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED.1
An appeal was interposed before the respondent Court of Appeals which
rendered its decision on April 29, 1992, the decretal portion of which reads:
WHEREFORE, the judgment appealed from is modified by exempting PBCom
from liability to plaintiff-appellee for attorney's fees and ordering PNB to honor
the check for P97,650.00, with interest as declared by the trial court, and pay
plaintiff-appellee attorney's fees of P10,000.00. After the check shall have been
honored by PNB, PBCom shall re-credit plaintiff-appellee's account with it with
the amount. No pronouncement as to costs.
SO ORDERED.2
A motion for reconsideration of the decision was denied by the respondent
Court in its resolution dated September 16, 1992 for lack of merit.3
Hence, petitioner filed the instant petition which raises the following issues:
I
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS
A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
II
WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF
EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE.
III
WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK
WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER
THE VALUE OF THE CHECK FROM THE COLLECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER
PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES.4
We find no merit in the petition.
We shall first deal with the effect of the alteration of the serial number on the
negotiability of the check in question.
Petitioner anchors its position on Section 125 of the Negotiable Instruments
Law (ACT No. 2031)5 which provides:
Sec. 225. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect, is a material alteration.
Petitioner alleges that there is no hard and fast rule in the interpretation of the
aforequoted provision of the Negotiable Instruments Law. It maintains that
under Section 125(f), any change that alters the effect of the instrument is a
material alteration.6
We do not agree.
An alteration is said to be material if it alters the effect of the
instrument.7 It means an unauthorized change in an instrument that purports to
modify in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to the
obligation of a party.8 In other words, a material alteration is one which changes
the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Sec. 1. — Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice
Jose C. Vitug opines that "an innocent alteration (generally, changes on items
other than those required to be stated under Sec. 1, N.I.L.) and spoliation
(alterations done by a stranger) will not avoid the instrument, but the holder
may enforce it only according to its original tenor."9
Reproduced hereunder are some examples of material and immaterial
alterations:
A. Material Alterations:
(1) Substituting the words "or bearer" for "order."
(2) Writing "protest waived" above blank indorsements.
(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls,
Mich. Aug. 5, 1901. Pay to G.L. or order $9 fifty cents CTR" The insertion of the
figure 5 before the figure 9, the instrument being otherwise unchanged.
(5) Adding the words "with interest" with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for payment is
thereby curtailed or extended.
(7) An instrument was payable "First Nat'l Bank" the plaintiff added the word
"Marion."
(8) Plaintiff, without consent of the defendant, struck out the name of the
defendant as payee and inserted the name of the maker of the original note.
(9) Striking out the name of the payee and substituting that of the person who
actually discounted the note.
(10) Substituting the address of the maker for the name of a co-maker.10
B. Immaterial Alterations:
(1) Changing "I promise to pay" to "We promise to pay", where there are two
makers.
(2) Adding the word "annual" after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of actual delivery where the makers of a note gave it with
the date in blank, "July ____."
(5) An alteration of the marginal figures of a note where the sum stated in
words in the body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a provision for
"interest at _______ per cent."
(7) A printed form of promissory note had on the margin the printed words,
"Extended to ________." The holder on or after maturity wrote in the blank space
the words "May 1, 1913," as a reference memorandum of a promise made by
him to the principal maker at the time the words were written to extend the
time of payment.
(8) Where there was a blank for the place of payment, filling in the blank with
the place desired.
(9) Adding to an indorsee's name the abbreviation "Cash" when it had been
agreed that the draft should be discounted by the trust company of which the
indorsee was cashier.
(10) The indorsement of a note by a stranger after its delivery to the payee at
the time the note was negotiated to the plaintiff.
(11) An extension of time given by the holder of a note to the principal maker,
without the consent of a surety co-maker.11
The case at bench is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is
not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations
between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee
remained the same. Despite these findings, however, petitioner insists, that:
xxx xxx xxx
It is an accepted concept, besides being a negotiable instrument itself, that a
TCAA check by its very nature is the medium of exchange of governments (sic)
instrumentalities of agencies. And as (a) safety measure, every government
office o(r) agency (is) assigned TCAA checks bearing different number series.
A concrete example is that of the disbursements of the Ministry of Education
and Culture. It is issued by the Bureau of Treasury sizeable bundles of checks in
booklet form with serial numbers different from other government office or
agency. Now, for fictitious payee to succeed in its malicious intentions to
defraud the government, all it need do is to get hold of a TCAA Check and have
the serial numbers of portion (sic) thereof changed or altered to make it appear
that the same was issued by the MEG.
Otherwise, stated, it is through the serial numbers that (a) TCAA Check is
determined to have been issued by a particular office or agency of the
government.12
xxx xxx xxx
Petitioner's arguments fail to convince. The check's serial number is not the sole
indication of its origin.. As succinctly found by the Court of Appeals, the name of
the government agency which issued the subject check was prominently printed
therein. The check's issuer was therefore sufficiently identified, rendering the
referral to the serial number redundant and inconsequential. Thus, we quote
with favor the findings of the respondent court:
xxx xxx xxx
If the purpose of the serial number is merely to identify the issuing government
office or agency, its alteration in this case had no material effect whatsoever on
the integrity of the check. The identity of the issuing government office or
agency was not changed thereby and the amount of the check was not charged
against the account of another government office or agency which had no
liability under the check. The owner and issuer of the check is boldly and clearly
printed on its face, second line from the top: "MINISTRY OF EDUCATION AND
CULTURE," and below the name of the payee are the rubber-stamped words:
"Ministry of Educ. & Culture." These words are not alleged to have been falsely or
fraudulently intercalated into the check. The ownership of the check is established
without the necessity of recourse to the serial number. Neither there any proof
that the amount of the check was erroneously charged against the account of a
government office or agency other than the Ministry of Education and Culture.
Hence, the alteration in the number of the check did not affect or change the
liability of the Ministry of Education and Culture under the check and, therefore,
is immaterial. The genuineness of the amount and the signatures therein of then
Deputy Minister of Education Hermenegildo C. Dumlao and of the resident
Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of
the different codes appearing therein questioned . . .13 (Emphasis ours.)
Petitioner, thus cannot refuse to accept the check in question on the ground that
the serial number was altered, the same being an immaterial or innocent one.
We now go to the second issue. It is petitioner's submission that the
certification issued by Minrado C. Batonghinog, Cashier III of the MEC clearly
shows that the check was altered. Said certification reads:
July 22, 1985
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of this Office, TCAA PNB Check
Mo. SN7-3666223-3 dated August 7, 1981 drawn in favor of F. Abante
Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY
PESOS ONLY (P97,650.00) was not issued by this Office nor released to the
payee concerned. The series number of said check was not included among
those requisition by this Office from the Bureau of Treasury.
Very truly yours,
 (SGD.) MINRADO C. BATONGHINOG
Cashier III14
Petitioner claims that even if the author of the certification issued by the
Ministry of Education and Culture (MEG) was not presented, still the best
evidence of the material alteration would be the disputed check itself and the
serial number thereon. Petitioner thus assails the refusal of respondent court to
give weight to the certification because the author thereof was not presented to
identify it and to be cross-examined thereon.15
We agree with the respondent court.
The one who signed the certification was not presented before the trial court to
prove that the said document was really the document he prepared and that the
signature below the said document is his own signature. Neither did petitioner
present an eyewitness to the execution of the questioned document who could
possibly identify it. 16 Absent this proof, we cannot rule on the authenticity of
the contents of the certification. Moreover, as we previously emphasized, there
was no material alteration on the check, the change of its serial number not
being substantial to its negotiability.
Anent the third issue — whether or not the drawee bank may still recover the
value of the check from the collecting bank even if it failed to return the check
within the twenty-four (24) hour clearing period because the check was
tampered — suffice it to state that since there is no material alteration in the
check, petitioner has no right to dishonor it and return it to PBCom, the same
being in all respects negotiable.
However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their
respective decisions, the trial court and the Court of Appeals failed to explicitly
state the rationale for the said award. The trial court merely ruled as follows:
With respect to Capitol's claim for damages consisting of alleged loss of
opportunity, this Court finds that Capitol failed to adequately substantiate its
claim. What Capitol had presented was a self-serving, unsubstantiated and
speculative computation of what it allegedly could have earned or realized were
it not for the debit made by PBCom which was triggered by the return and debit
made by PNB. However, this Court finds that it would be fair and reasonable to
impose interest at 12% per annum on the principal amount of the check
computed from October 19, 1981 (the date PBCom debited Capitol's account)
until the amount is fully paid and reasonable attorney's fees.17 (Emphasis ours.)
And contrary to the Court of Appeal's resolution, petitioner unambiguously
questioned before it the award of attorney's fees, assigning the latter as one of
the errors committed by the trial court.18
The foregoing is in conformity with the guiding principles laid down in a long
line of cases and reiterated recently in Consolidated Bank & Trust Corporation
(Solidbank) v. Court of Appeals:19
The award of attorney's fees lies within the discretion of the court and depends
upon the circumstances of each case. However, the discretion of the court to
award attorney's fees under Article 2208 of the Civil Code of the Philippines
demands factual, legal and equitable justification, without which the award is a
conclusion without a premise and improperly left to speculation and conjecture.
It becomes a violation of the proscription against the imposition of a penalty on
the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate
Court, 188 SCRA 170 [1990]). The reason for the award must be stated in the
text of the court's decision. If it is stated only in the dispositive portion of the
decision, the same shall be disallowed. As to the award of attorney's fees being
an exception rather than the rule, it is necessary for the court to make findings
of fact and law that would bring the case within the exception and justify the
grant of the award (Refractories Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539 [176 SCRA 539]).
WHEREFORE, premises considered, except for the deletion of the award of
attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. L-14883             July 31, 1963
NARCISA BUENCAMINO, AMADA DE LEON-ERAÑA, ENCARNACION DE LEON
and BIENVENIDO B. ERAÑA, petitioners-appellants,
vs.
C. HERNANDEZ, as City Treasurer of Quezon City,
JAIME HERNANDEZ, as Secretary of Finance and
LAND TENURE ADMINISTRATION, respondents-appellees.
N. S. Sison for petitioners-appellants.
Revilla, Lustre and Agloro for respondents-appellees.
REGALA, J.:
This is an appeal from the order of the Quezon City Court of First Instance, Judge
Nicasio Yatco, presiding, dismissing the petition for mandamus filed by the
herein petitioners to compel the respondent City Treasurer of Quezon City to
accept Government negotiable land certificates as payment for land taxes.
The respondent City Treasurer accepts the following statement of facts set forth
in the petitioners' brief:
On May 11, 1957, the Land Tenure Administration, LTA for short, purchased
from the petitioners Narcisa Buencamino, Amada de Leon-Erañ a, and
Encarnacion de Leon, and other members of the de Leon family their hacienda
in Talavera, Nueva Ecija for a total consideration of P2,746,000.00. For the
purpose, a Memorandum Agreement was executed on the said date which
expressly declared that the LTA was purchasing the hacienda upon petition of
the tenants thereof in accordance with Republic Act No. 1400, otherwise known
as the Land Reform Act of 1955.
The parties to the sale agreed that of the full price of P2,746,000.00, 50% or
P1,373,000.00 was to be paid in cash and the balance in negotiable land
certificates. Below is a reproduction of one such negotiable land certificate
typical of and identical to all the other issued by the LTA to the petitioners.
AMOUNT: P10,000.00
NEGOTIABLE LAND CERTIFICATE
THE GOVERNMENT OF THE REPUBLIC OF
THE PHILIPPINES
is indebted unto the
BEARER
in the sum of TEN THOUSAND PESOS. This certificate is issued in accordance
with the provisions of Section 9, Republic Act No. 1400, entitled "AN ACT
DEFINING A LAND TENURE POLICY, PROVIDING FOR AN INSTRUMENTALITY
TO CARRY OUT THE POLICY, AND APPROPRIATING FUNDS FOR ITS
IMPLEMENTATION", approved September 9, 1955, and is due and payable to
BEARER on demand and upon presentation at the Central Bank of the
Philippines without interest, if presented for payment within five years from the
date of issue; with interest at the rate of 4 per centum per annum, if presented
for payment after five years from the date of issue; with interest at the rate of 4-
½ per centum per annum, if presented for payment after ten years from the
date of issue; and, with interest at the rate of 5 per centum per annum, if
presented for payment after fifteen years from the date of issue. Both principal
and interest are payable by the Treasurer of the Philippines, through the Central
Bank of the Philippines, in legal tender currency of the Philippines.
This land certificate is part of the total negotiable land certificates issued and
limited to the aggregate principal sum of SIXTY MILLION PESOS a year, to be
issued during the first two years from September 9, 1955 when Republic Act No.
1400 was approved, and P30 million each year during the succeeding years, for
the purchase of private agricultural lands for resale at cost to bona-fide tenants
or occupants, or, in the case of estates abandoned by the owners for the last five
years, to private individuals who will work the lands themselves and who are
qualified to acquire or own lands, but who do not own more than six hectares of
lands in the Philippines.
Manila, Philippines, August 9, 1957.
Encashment of this certificate may not be made until after five (5) years from
the date of execution of the Deed of Sale of Hacienda de Leon, pursuant to the
conditions under Paragraph "b" of the Memorandum Agreement executed
between the Land Tenure Administration and the owners of Hacienda de Leon
on May 11, 1957, acknowledged before Marcelo Lagramada, Notary Public for
Manila, as Doc. No. 324, Page 66, Book No. 6, Series of 1957.
(Sgd.) JUAN CAÑ IZARES
Registrar of the Central
Bank of the Philippines
(Sgd.) CARLOS P. GARCIA
President of the Phil.
(Sgd.) VICENTE GELLA
Treasurer of the Phil.
Date of issue: August 9, 1957
Recorded: Illegible
Examined: Illegible
The condition in the certificate regarding its encashment only after the lapse of
five years from the date of execution of the Deed of Sale of Hacienda de Leon
was adopted or taken from the Memorandum Agreement of May 11, 1957 first
mentioned above and which was subsequently ratified by the Cabinet and the
President. As stipulated in the said document, the condition reads:
B. That the mode of payment shall be 50% in cash and 50% in negotiable land
certificates except that the encashment of the said negotiable land certificate
may not be made until after five (5) years from the date of the execution of the
deed of sale with the payments of the corresponding interest, said negotiable
land certificate may be applied and used for all the purposes authorized by
Republic Act No. 1400 and other pertinent laws on the matter within the said
period of five (5) years; (page 3, Memorandum Agreement).1äwphï1.ñët
Subsequently, this stipulation was incorporated and clarified in the Absolute
Deed of Sale executed to formalize the terms contained in the Memorandum
Agreement. Under the deed of sale, dated July 31, 1957, the above condition was
—
That the VENDORS shall not, however, within five (5) years, present for
encashment the negotiable land certificates amounting to ONE MILLION THREE
HUNDRED SEVENTY THREE THOUSAND PESOS (P1,373,000.00) but
nevertheless, shall be authorized to use the same for payment of land taxes or
obligations due and payable in favor of the Government and such other uses or
purposes provided for by Section 10 of Republic Act No. 1400 within the said
period of five (5) years from this date. (page 4, Absolute Deed of Sale)
Doubtless, therefore, the aforecited provisions of the Memorandum Agreement
and the Absolute Deed of Sale in relation to the condition in the negotiable land
certificate were mere implementation of Section 10 of Republic Act No. 1400,
which provided:
Sec. 10. Uses of certificates. — Negotiable land certificates maybe used by the
holder thereof for any of the following purposes:
xxx     xxx     xxx
(3) Payment of all tax obligations of the holder thereof, or of any debt or
monetary obligation of the holder to the Government or any of its
instrumentalities or agencies, including the Rehabilitation Finance Corporation
and the Philippine National Bank; Provided, however, That payment of
indebtedness shall not be less than twenty per centum of the total indebtedness
of the debtor; and .
xxx     xxx     xxx
Availing themselves of what they considered was their contractual and
statutory rights under the certificate, the petitioners presented two of them to
the respondent City Treasurer in payment of certain 1957 realty tax obligations
to Quezon City. The respondent Treasurer refused to accept the same and
claimed that as per the opinion rendered by the Secretary of Finance, it was
discretionary on his part, the respondent Treasurer, to accept or reject the said
certificates. And, invoking his discretion in the premises, the respondent
Treasurer explained that he could not accept the certificates offered as Quezon
City was then in great need of funds.
The petitioners were thus obliged to settle in cash the 1957 tax obligation
aforementioned. Subsequently, however, the petitioners tendered once more
the same certificates in payment of their 1958 realty taxes and the respondent
Treasurer similarly rejected the tender. As a result, the petitioners filed the
instant mandamus proceedings with the Court of First Instance of Quezon City.
To the above petition, the LTA filed a timely answer sustaining the petitioners'
stand. The Secretary of Finance, represented by the Solicitor General, also filed
an answer, which argued that he was not a necessary party to the case as he was
not the officer with the duty of collecting taxes.
The respondent Treasurer did not file an answer. Instead, represented by the
City Attorney's Office, he filed a Motion to Dismiss on the ground that the
petition filed to state a cause of action.
The Motion to Dismiss discussed various arguments for the position of the
respondent that he could not be compelled to accept the certificates. In effect,
however, they resolve themselves into the single question of whether or not the
said certificates where drawn payable on demand as required by Section 9 of
Republic Act 1400.
The respondent Treasurer contends that the certificates in question were not
issued strictly in accordance with the provisions of Republic Act No. 1400
because while Section 9 of that Act inquires that "negotiable land certificates
shall be issued in denominations of one thousand pesos or multiples of one
thousand pesos and shall be payable to bearer on demand . . ., " the ones issue to
the petitioners were payable to bearer not on demand but, only upon the
expiration of the five-year period there in specified.
On the other hand, the petitioners contend that although the certificates issued
could not really be encashed within the period therein mentioned, they could,
however, still be used for the settlement of tax liabilities at any time after their
issue in accordance with Section 10 of the same Act. The petitioners maintain
that the 5-year restriction against encashment referred merely and exclusively
to the time when the certificates may be converted to cash and not anymore to
the utility of the said instruments as substitutes for tax obligations.
The court a quo sustained the position of the respondent Treasurer and
dismissed the suit for mandamus. Thus, this appeal.
Although the issue raised by the instant appeal has already been rendered moot,
by time, it is the sense of this Court that a brief discussion of the point of
controversy will favor the best interest of justice as well as of the parties hereto.
We hold the refusal of the respondent Treasurer to accept the land certificates
to be legally justified. They failed to comply with the requirements of Republic
Act No. 1400.
Under the above-mentioned law, the land certificates "shall be payable to bearer
on demand." (Section 9) The one issued, however, were payable to bearer only
after the lapse of five years from a given period. Obviously then, the
requirement that they should be payable on demand was not met since an
instrument payable on demand is one which (a) is expressed to be payable on
demand, or at sight, or on presentation; or (b) expresses no time for payment
(Sec. 7, Negotiable Instruments Law) The 5-year period within which the
certificates could not be encashed was an expression of the time for payment
contrary to paragraph (b) of the last law cited.
The petitioners maintain, as already indicated above, that although the
questioned certificates may not really be payable on demand, they may
nevertheless be used for the payment of realty obligations to the Government
because of Section 10 of Republic Act No. 1400. As expressed by the petitioners,
"as to Government agencies and instrumentalities, the certificate is payable to
bearer on demand during that first five-year period."
There is no merit in the above assertion. It is a conclusion unsupported by any
provision of law. While Section 10 of Republic Act No. 1400 expressly
authorizes the use of the said certificates for the "payment of all tax obligations
of the holder thereof," the said section can only have meant such certificates as
were issued strictly in accordance with Section 9 of the same Act, i.e., that the
instrument is payable on demand. And, as discussed above, the certificates
issued were not payable on demand, then the benefits of Section 10 cannot be
properly invoked.
IN VIEW OF ALL THE FOREGOING, the order appealed from is hereby affirmed,
with costs against the appellants.
BATAS PAMBANSA BLG. 22
AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A
CHECK WITHOUT SUFFICIENT FUNDS OR CREDIT AND FOR OTHER
PURPOSES.
Section 1. Checks without sufficient funds. - Any person who makes or draws
and issues any check to apply on account or for value, knowing at the time of
issue that he does not have sufficient funds in or credit with the drawee bank
for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit
or would have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment, shall be punished
by imprisonment of not less than thirty days but not more than one (1) year or
by a fine of not less than but not more than double the amount of the check
which fine shall in no case exceed Two Hundred Thousand Pesos, or both such
fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient
funds in or credit with the drawee bank when he makes or draws and issues a
check, shall fail to keep sufficient funds or to maintain a credit to cover the full
amount of the check if presented within a period of ninety (90) days from the
date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or
persons who actually signed the check in behalf of such drawer shall be liable
under this Act.
Section 2. Evidence of knowledge of insufficient funds. - The making, drawing
and issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety
(90) days from the date of the check, shall be prima facie evidence of knowledge
of such insufficiency of funds or credit unless such maker or drawer pays the
holder thereof the amount due thereon, or makes arrangements for payment in
full by the drawee of such check within (5) banking days after receiving notice
that such check has not been paid by the drawee.
Section 3. Duty of drawee; rules of evidence. - It shall be the duty of the drawee
of any check, when refusing to pay the same to the holder thereof upon
presentment, to cause to be written, printed, or stamped in plain language
thereon, or attached thereto, the reason for drawee's dishonor or refusal to pay
the same: Provided, That where there are no sufficient funds in or credit with
such drawee bank, such fact shall always be explicitly stated in the notice of
dishonor or refusal. In all prosecutions under this Act, the introduction in
evidence of any unpaid and dishonored check, having the drawee's refusal to
pay stamped or written thereon or attached thereto, with the reason therefor as
aforesaid, shall be prima facie evidence of the making or issuance of said check,
and the due presentment to the drawee for payment and the dishonor thereof,
and that the same was properly dishonored for the reason written, stamped or
attached by the drawee on such dishonored check.
Not with standing receipt of an order to stop payment, the drawee shall state in
the notice that there were no sufficient funds in or credit with such bank for the
payment in full of such check, if such be the fact.

Section 4. Credit construed. - The word "credit" as used herein shall be

construed to mean an arrangement or understanding with the bank for the
payment of such check.

Section 5. Liability under the Revised Penal Code. - Prosecution under this Act
shall be without prejudice to any liability for violation of any provision of the
Revised Penal Code.

Section 6. Separability clause. - If any separable provision of this Act be

declared unconstitutional, the remaining provisions shall continue to be in
force.

Section 7. Effectivity. - This Act shall take effect fifteen days after publication in
the Official Gazette.1âwphi1

Approved: April 3, 1979.