FIRST DIVISION Respondent Hi-Cement presented as witness Ms.
Erlinda
G.R. No. 109491      February 28, 2001
ATRIUM MANAGEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, E.T. HENRY AND CO., LOURDES
VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND
HI-CEMENT CORPORATION, respondents.
----------------------------------------
G.R. No. 121794      February 28, 2001
LOURDES M. DE LEON, petitioner,
vs.
COURT OF APPEALS, ATRIUM MANAGEMENT
CORPORATION, AND HI-CEMENT
CORPORATION, respondents.
PARDO, J.:
What is before the Court are separate appeals from the
decision of the Court of Appeals,1 ruling that Hi-Cement
Corporation is not liable for four checks amounting to P2
million issued to E.T. Henry and Co. and discounted to
Atrium Management Corporation.
On January 3, 1983, Atrium Management Corporation filed
with the Regional Trial Court, Manila an action for collection
of the proceeds of four postdated checks in the total
amount of P2 million. Hi-Cement Corporation through its
corporate signatories, petitioner Lourdes M. de
Leon,2 treasurer, and the late Antonio de las Alas,
Chairman, issued checks in favor of E.T. Henry and Co.
Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed
the four checks to petitioner Atrium Management
Corporation for valuable consideration. Upon presentment
for payment, the drawee bank dishonored all four checks
for the common reason "payment stopped". Atrium, thus,
instituted this action after its demand for payment of the
value of the checks was denied.3
After due proceedings, on July 20, 1989, the trial court
rendered a decision ordering Lourdes M. de Leon, her
husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-
Cement Corporation to pay petitioner Atrium, jointly and
severally, the amount of P2 million corresponding to the
value of the four checks, plus interest and attorney's fees. 4
On appeal to the Court of Appeals, on March 17, 1993, the
Court of Appeals promulgated its decision modifying the
decision of the trial court, absolving Hi-Cement Corporation
from liability and dismissing the complaint as against it. The
appellate court ruled that: (1) Lourdes M. de Leon was not
authorized to issue the subject checks in favor of E.T.
Henry, Inc.; (2) The issuance of the subject checks by
Lourdes M. de Leon and the late Antonio de las Alas
constituted ultra vires acts; and (3) The subject checks
were not issued for valuable consideration.5
At the trial, Atrium presented as its witness Carlos C.
Syquia who testified that in February 1981, Enrique Tan of
E.T. Henry approached Atrium for financial assistance,
offering to discount four RCBC checks in the total amount
of P2 million, issued by Hi-Cement in favor of E.T. Henry.
Atrium agreed to discount the checks, provided it be
allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T.
Henry delivered to Hi-Cement. Carlos C. Syquia identified
two letters, dated February 6, 1981 and February 9, 1981
issued by Hi-Cement through Lourdes M. de Leon, as
treasurer, confirming the issuance of the four checks in
favor of E.T. Henry in payment for petroleum products.6
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Yap who testified that she was once a secretary to the
treasurer of Hi-Cement, Lourdes M. de Leon, and as such
she was familiar with the four RCBC checks as the
postdated checks issued by Hi-Cement to E.T. Henry upon
instructions of Ms. de Leon. She testified that E.T. Henry
offered to give Hi-Cement a loan which the subject checks
would secure as collateral.7
On July 20, 1989, the Regional Trial Court, Manila, Branch
09 rendered a decision, the dispositive portion of which
reads:
"WHEREFORE, in view of the foregoing
considerations, and plaintiff having proved its
cause of action by preponderance of evidence,
judgment is hereby rendered ordering all the
defendants except defendant Antonio de las Alas
to pay plaintiff jointly and severally the amount of
TWO MILLION (P2,000,000.00) PESOS with the
legal rate of interest from the filling of the complaint
until fully paid, plus the sum of TWENTY
THOUSAND (P20,000.00) PESOS as and for
attorney's fees and the cost of suit."
All other claims are, for lack of merit dismissed.
SO ORDERED."8
In due time, both Lourdes M. de Leon and Hi-Cement
appealed to the Court of Appeals.9
Lourdes M. de Leon submitted that the trial court erred in
ruling that she was solidarilly liable with Hi-Cement for the
amount of the check. Also, that the trial court erred in ruling
that Atrium was an ordinary holder, not a holder in due
course of the rediscounted checks.10
Hi-Cement on its part submitted that the trial court erred in
ruling that even if Hi-Cement did not authorize the issuance
of the checks, it could still be held liable for the checks. And
assuming that the checks were issued with its authorization,
the same was without any consideration, which is a defense
against a holder in due course and that the liability shall be
borne alone by E.T. Henry.11
On March 17, 1993, the Court of Appeals promulgated its
decision modifying the ruling of the trial court, the
dispositive portion of which reads:
"Judgement is hereby rendered:
(1) dismissing the plaintiff's complaint as against
defendants Hi-Cement Corporation and Antonio De
las Alas;
(2) ordering the defendants E.T. Henry and Co.,
Inc. and Lourdes M. de Leon, jointly and severally
to pay the plaintiff the sum of TWO MILLION
PESOS (P2,000,000.00) with interest at the legal
rate from the filling of the complaint until fully paid,
plus P20,000.00 for attorney's fees.
(3) Ordering the plaintiff and defendants E.T.
Henry and Co., Inc. and Lourdes M. de Leon,
jointly and severally to pay defendant Hi-Cement
Corporation, the sum of P20,000.00 as and for
attorney's fees.
With cost in this instance against the appellee
Atrium Management Corporation and appellant
Lourdes Victoria M. de Leon.
So ordered."12
Hence, the recourse to this Court.13
The issues raised are the following:
In G. R. No. 109491 (Atrium, petitioner):
 1. Whether the issuance of the questioned checks
was an ultra vires act;
2. Whether Atrium was not a holder in due course
and for value; and
3. Whether the Court of Appeals erred in
dismissing the case against Hi-Cement and
ordering it to pay P20,000.00 as attorney's fees.14
In G. R. No. 121794 (de Leon, petitioner):
1. Whether the Court of Appeals erred in holding
petitioner personally liable for the Hi-Cement
checks issued to E.T. Henry;
2. Whether the Court of Appeals erred in ruling that
Atrium is a holder in due course;
3. Whether the Court of Appeals erred in ruling that
petitioner Lourdes M. de Leon as signatory of the
checks was personally liable for the value of the
checks, which were declared to be issued without
consideration;
4. Whether the Court of Appeals erred in ordering
petitioner to pay Hi-Cement attorney's fees and
costs.15
We affirm the decision of the Court of Appeals.
We first resolve the issue of whether the issuance of the
checks was an ultra vires act. The record reveals that Hi-
Cement Corporation issued the four (4) checks to extend
financial assistance to E.T. Henry, not as payment of the
balance of the P30 million pesos cost of hydro oil delivered
by E.T. Henry to Hi-Cement. Why else would petitioner de
Leon ask for counterpart checks from E.T. Henry if the
checks were in payment for hydro oil delivered by E.T.
Henry to Hi-Cement?
Hi-Cement, however, maintains that the checks were not
issued for consideration and that Lourdes and E.T. Henry
engaged in a "kiting operation" to raise funds for E.T.
Henry, who admittedly was in need of financial assistance.
The Court finds that there was no sufficient evidence to
show that such is the case. Lourdes M. de Leon is the
treasurer of the corporation and is authorized to sign
checks for the corporation. At the time of the issuance of
the checks, there were sufficient funds in the bank to cover
payment of the amount of P2 million pesos.
It is, however, our view that there is basis to rule that the
act of issuing the checks was well within the ambit of a valid
corporate act, for it was for securing a loan to finance the
activities of the corporation, hence, not an ultra vires act.
"An ultra vires act is one committed outside the object for
which a corporation is created as defined by the law of its
organization and therefore beyond the power conferred
upon it by law"16 The term "ultra vires" is "distinguished from
an illegal act for the former is merely voidable which may be
enforced by performance, ratification, or estoppel, while the
latter is void and cannot be validated." 17
The next question to determine is whether Lourdes M. de
Leon and Antonio de las Alas were personally liable for the
checks issued as corporate officers and authorized
signatories of the check.
"Personal liability of a corporate director, trustee or officer
along (although not necessarily) with the corporation may
so validly attach, as a rule, only when:
"1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence
in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
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"2. He consents to the issuance of watered down
stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written
objection thereto;
"3. He agrees to hold himself personally and
solidarily liable with the corporation; or
"4. He is made, by a specific provision of law, to
personally answer for his corporate action."18
In the case at bar, Lourdes M. de Leon and Antonio de las
Alas as treasurer and Chairman of Hi-Cement were
authorized to issue the checks. However, Ms. de Leon was
negligent when she signed the confirmation letter requested
by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T.
Henry. She was aware that the checks were strictly
endorsed for deposit only to the payee's account and not to
be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, "that the
checks issued to E.T. Henry were in payment of Hydro oil
bought by Hi-Cement from E.T. Henry". Her negligence
resulted in damage to the corporation. Hence, Ms. de Leon
may be held personally liable therefor.1âwphi1.nêt
The next issue is whether or not petitioner Atrium was a
holder of the checks in due course. The Negotiable
Instruments Law, Section 52 defines a holder in due
course, thus:
"A holder in due course is a holder who has taken
the instrument under the following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before
it was overdue, and without notice that it
had been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for
value;
(d) That at the time it was negotiated to
him he had no notice of any infirmity in the
instrument or defect in the title of the
person negotiating it."
In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payee's account only.
From the beginning, Atrium was aware of the fact that the
checks were all for deposit only to payee's account,
meaning E.T. Henry. Clearly, then, Atrium could not be
considered a holder in due course.
However, it does not follow as a legal proposition that
simply because petitioner Atrium was not a holder in due
course for having taken the instruments in question with
notice that the same was for deposit only to the account of
payee E.T. Henry that it was altogether precluded from
recovering on the instrument. The Negotiable Instruments
Law does not provide that a holder not in due course can
not recover on the instrument.19
The disadvantage of Atrium in not being a holder in due
course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. 20 One such defense
is absence or failure of consideration.21
We need not rule on the other issues raised, as they merely
follow as a consequence of the foregoing resolutions.
WHEREFORE, the petitions are hereby DENIED. The
decision and resolution of the Court of Appeals in CA-G. R.
CV No. 26686, are hereby AFFIRMED in toto.
No costs.
SO ORDERED.
G.R. No. 187769               June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN
III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari 1 under Rule
45 of the Revised Rules of Court is the decision 2 dated
September 24, 2008 and the resolution 3 dated April 30,
2009 of the Court of Appeals (CA) in CA-G.R. CV No.
82301. The appellate court affirmed the decision of the
Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan
filed by petitioner Alvin Patrimonio and ordering him to pay
respondent Octavio Marasigan III (Marasigan) the sum of
₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly
summarized below.
The petitioner and the respondent Napoleon Gutierrez
(Gutierrez) entered into a business venture under the name
of Slam Dunk Corporation (Slum Dunk), a production outfit
that produced mini-concerts and shows related to
basketball. Petitioner was already then a decorated
professional basketball player while Gutierrez was a well-
known sports columnist.
In the course of their business, the petitioner pre-signed
several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payee’s name, date
or amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without
previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that
he could verify the validity of the payment and make the
proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge
and consent, Gutierrez went to Marasigan (the petitioner’s
former teammate), to secure a loan in the amount of
₱200,000.00 on the excuse that the petitioner needed the
money for the construction of his house. In addition to the
payment of the principal, Gutierrez assured Marasigan that
he would be paid an interest of 5% per month from March
to May 1994.
After much contemplation and taking into account his
relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez’ request and gave him ₱200,000.00
sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with
the words "Cash" "Two Hundred Thousand Pesos Only",
and the amount of "₱200,000.00". The upper right portion of
the check corresponding to the date was also filled out with
the words "May 23, 1994" but the petitioner contended that
the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it
was dishonored for the reason "ACCOUNT CLOSED." It
was later revealed that petitioner’s account with the bank
had been closed since May 28, 1993.
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Marasigan sought recovery from Gutierrez, to no avail. He
thereafter sent several demand letters to the petitioner
asking for the payment of ₱200,000.00, but his demands
likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the petitioner, docketed
as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the
Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez
and co-respondent Marasigan. He completely denied
authorizing the loan or the check’s negotiation, and
asserted that he was not privy to the parties’ loan
agreement.
Only Marasigan filed his answer to the complaint. In the
RTC’s order dated December 22, 1997,Gutierrez was
declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of
Marasigan.4 It found that the petitioner, in issuing the pre-
signed blank checks, had the intention of issuing a
negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his
approval. While under Section 14 of the Negotiable
Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the
RTC ruled that he deliberately violated petitioner’s specific
instructions and took advantage of the trust reposed in him
by the latter.
Nonetheless, the RTC declared Marasigan as a holder in
due course and accordingly dismissed the petitioner’s
complaint for declaration of nullity of the loan. It ordered the
petitioner to pay Marasigan the face value of the check with
a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals
(CA), insisting that Marasigan is not a holder in due course.
He contended that when Marasigan received the check, he
knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually
between Marasigan and Gutierrez with his check being
used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling,
although premised on different factual findings. After careful
analysis, the CA agreed with the petitioner that Marasigan
is not a holder in due course as he did not receive the
check in good faith.
The CA also concluded that the check had been strictly
filled out by Gutierrez in accordance with the petitioner’s
authority. It held that the loan may not be nullified since it is
grounded on an obligation arising from law and ruled that
the petitioner is still liable to pay Marasigan the sum of
₱200,000.00.
After the CA denied the subsequent motion for
reconsideration that followed, the petitioner filed the present
petition for review on certiorari under Rule 45 of the
Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between
him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter;
(2) under Article 1878 of the Civil Code, a special power of
attorney is necessary for an individual to make a loan or
borrow money in behalf of another; (3) the loan transaction
was between Gutierrez and Marasigan, with his check
being used only as a security; (4) the check had not been
completely and strictly filled out in accordance with his
authority since the condition that the subject check can only
be used provided there is prior approval from him, was not
complied with; (5) even if the check was strictly filled up as
instructed by the petitioner, Marasigan is still not entitled to
claim the check’s value as he was not a holder in due
course; and (6) by reason of the bad faith in the dealings
between the respondents, he is entitled to claim for
damages.
The Issues
Reduced to its basics, the case presents to us the following
issues:
1. Whether the contract of loan in the amount of
₱200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be
nullified for being void;
2. Whether there is basis to hold the petitioner
liable for the payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely
filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition
are essentially factual in nature. The main point of inquiry of
whether the contract of loan may be nullified, hinges on the
very existence of the contract of loan – a question that, as
presented, is essentially, one of fact. Whether the petitioner
authorized the borrowing; whether Gutierrez completely
filled out the subject check strictly under the petitioner’s
authority; and whether Marasigan is a holder in due course
are also questions of fact, that, as a general rule, are
beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of
an appeal by certiorari, as a petition for review under Rule
45 is limited only to questions of law, is not an absolute rule
that admits of no exceptions. One notable exception is
when the findings off act of both the trial court and the CA
are conflicting, making their review necessary. 5 In the
present case, the tribunals below arrived at two conflicting
factual findings, albeit with the same conclusion, i.e.,
dismissal of the complaint for nullity of the loan.
Accordingly, we will examine the parties’ evidence
presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the
ground that he never authorized the borrowing of money.
He points to Article 1878, paragraph 7 of the Civil Code,
which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that
absent such authority in writing, he should not be held liable
for the face value of the check because he was not a party
or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires
a Specific Form
Article 1868 of the Civil Code defines a contract of agency
as a contract whereby a person "binds himself to render
some service or to do something in representation or on
behalf of another, with the consent or authority of the latter."
Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
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repudiate the agency, knowing that another person is acting
on his behalf without authority.
As a general rule, a contract of agency may be
oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or
any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly
requires a special power of authority before an agent can
loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the
following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent
and indispensable for the preservation of the things which
are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing.
As long as the mandate is express, such authority may be
either oral or written. We unequivocably declared in Lim Pin
v. Liao Tian, et al., 7 that the requirement under Article 1878
of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be
duly established by competent and convincing evidence
other than the self serving assertion of the party claiming
that such authority was verbally given, thus:
The requirements of a special power of attorney in Article
1878 of the Civil Code and of a special authority in Rule
138 of the Rules of Court refer to the nature of the
authorization and not its form. The requirements are met if
there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906,
this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written, the one
vital thing being that it shall be express. And more recently,
We stated that, if the special authority is not written, then it
must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the
litigation of their clients, a special authority. And while the
same does not state that the special authority be in writing
the Court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the
self-serving assertion of counsel himself that such authority
was verbally given him.(Home Insurance Company vs.
United States lines Company, et al., 21 SCRA 863; 866:
Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis
supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of
the Petitioner Should be Nullified for Being Void; Petitioner
is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have
any authority to borrow money in behalf of the
petitioner.1âwphi1 Records do not show that the petitioner
executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that
he never authorized Gutierrez (or anyone for that matter),
whether verbally or in writing, to borrow money in his
behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special
Power of Attorney in writing authorizing him to borrow using
your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11,
1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-
signing the blank checks and releasing them to Gutierrez
suffice to establish that the petitioner had authorized
Gutierrez to fill them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not
enter into a contract of loan in behalf of the petitioner. As
held in Yasuma v. Heirs of De Villa,9 involving a loan
contracted by de Villa secured by real estate mortgages in
the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is
no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where
corporate officers as agents of the corporation need a
special power of attorney. In the case at bar, no special
power of attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on
its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de
Villa. There was no basis to hold the corporation liable
since there was no authority, express, implied or apparent,
given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness
of de Villa (or of his estate after his death). (citations
omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v.
Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to
establish that respondent had authorized Lilian to obtain a
loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of
his wife. While petitioner claims that Lilian was authorized
by respondent, the statement of account marked as Exhibit
"A" states that the amount was received by Lilian "in behalf
of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name
alone, without indicating therein that she was acting for and
in behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order to bind
the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind
the agent only. It is not enough merely that the agent was in
fact authorized to make the mortgage, if he has not acted in
the name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or
special authority to act for and in behalf of the petitioner, the
loan agreement Gutierrez entered into with Marasigan is
null and void. Thus, the petitioner is not bound by the
parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-
signed checks to Gutierrez is not legally sufficient because
the authority to enter into a loan can never be presumed.
The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter
of fact. The person alleging it has the burden of proof to
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show, not only the fact of agency, but also its nature and
extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia
Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges,
be licitly taken as delivery of the checks to the complainant
Alicia P. Andan at Caloocan City to fix the venue there. He
did not take delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to beno contract
of agency between Yambao and Andan so as to bind the
latter for the acts of the former. Alicia P. Andan declared in
that sworn testimony before the investigating fiscal that
Yambao is but her "messenger" or "part-time employee."
There was no special fiduciary relationship that permeated
their dealings. For a contract of agency to exist, the consent
of both parties is essential, the principal consents that the
other party, the agent, shall act on his behalf, and the agent
consents so to act. It must exist as a fact. The law makes
no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence,
but also its nature and extent. This is more imperative when
it is considered that the transaction dealt with involves
checks, which are not legal tender, and the creditor may
validly refuse the same as payment of obligation.(at p. 630).
(emphasis supplied)
The records show that Marasigan merely relied on the
words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the petitioner
whether he had authorized the borrowing of money or
release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected Between Marasigan
And Petitioner, as The Latter’s Consent Was Not Obtained.
Another significant point that the lower courts failed to
consider is that a contract of loan, like any other contract, is
subject to the rules governing the requisites and validity of
contracts in general.13 Article 1318 of the Civil
Code14 enumerates the essential requisites for a valid
contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the
contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that
the contract lacked the essential element of consent. We
agree with the petitioner. As we explained above, Gutierrez
did not have the petitioner’s written/verbal authority to enter
into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such agreement
cannot bind the petitioner whose consent was not obtained
and who was not privy to the loan agreement. Hence, only
Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to
Gutierrez, one of which fell into the hands of Marasigan.
This act, however, does not constitute sufficient authority to
borrow money in his behalf and neither should it be
construed as petitioner’s grant of consent to the parties’
loan agreement. Without any evidence to prove Gutierrez’
authority, the petitioner’s signature in the check cannot be
taken, even remotely, as sufficient authorization, much less,
consent to the contract of loan. Without the consent given
by one party in a purported contract, such contract could
not have been perfected; there simply was no contract to
speak of.15
With the loan issue out of the way, we now proceed to
determine whether the petitioner can be made liable under
the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision
found in Section 14 of the Negotiable Instruments Law (NIL)
which states:
Sec. 14. Blanks; when may be filled.- Where the instrument
is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete
it by filling up the blanks therein. And a signature on a blank
paper delivered by the person making the signature in order
that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as
such for any amount. In order, however, that any such
instrument when completed may be enforced against any
person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the authority
given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a
reasonable time.
This provision applies to an incomplete but delivered
instrument. Under this rule, if the maker or drawer delivers
a pre-signed blank paper to another person for the purpose
of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a
person other than the drawer or maker and from such
possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency
to fill up the blanks.16
In order however that one who is not a holder in due course
can enforce the instrument against a party prior to the
instrument’s completion, two requisites must exist: (1) that
the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had
not been filled up strictly in accordance with the authority
given and within a reasonable time, the maker can set this
up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and
that the same was not in excess of authority.17
In the present case, the petitioner contends that there is no
legal basis to hold him liable both under the contract and
loan and under the check because: first, the subject check
was not completely filled out strictly under the authority he
has given and second, Marasigan was not a holder in due
course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in
due course, thus:
Sec. 52 — A holder in due course is a holder who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
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(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.(emphasis
supplied)
Section 52(c) of the NIL states that a holder in due course
is one who takes the instrument "in good faith and for
value." It also provides in Section 52(d) that in order that
one may be a holder in due course, it is necessary that at
the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
Acquisition in good faith means taking without knowledge or
notice of equities of any sort which could beset up against a
prior holder of the instrument.18 It means that he does not
have any knowledge of fact which would render it dishonest
for him to take a negotiable paper. The absence of the
defense, when the instrument was taken, is the essential
element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such
facts that his action in taking the instrument amounted to
bad faith," it is not necessary to prove that the defendant
knew the exact fraud that was practiced upon the plaintiff by
the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong
about his assignor's acquisition of title, although he did not
have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the
particulars or even the nature of the fraud, since all that is
required is knowledge of such facts that his action in taking
the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty
Loan department provided an easy way for thieves to
dispose of their plunder. It was a case of "no questions
asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may
be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right
to shut their eyes deliberately to obvious facts. (emphasis
supplied).
In the present case, Marasigan’s knowledge that the
petitioner is not a party or a privy to the contract of loan,
and correspondingly had no obligation or liability to him,
renders him dishonest, hence, in bad faith. The following
exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell
us what you talked about?
A: Since I celebrated my birthday in that place where Nap
and I live together with the other crew, there were several
visitors that included Danny Espiritu. So a week after my
birthday, Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap niya si…
hinahanap niya si Nap, dahil pinagtataguan na siya at
sinabi na niya na kailangan I-settle na niya yung utang ni
Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na
bago pa mauwi sa kung saan ang tsekeng tumalbog… (He
told me that we have to fix it up before it…) mauwi pa kung asserted that he never authorized nor approved the filling
saan… up of the blank checks, thus:
xxxx ATTY. DE VERA: Did you authorize anyone including Nap
Q: What was your reply, if any? Gutierrez to write the date, May 23, 1994?
A: I actually asked him. Kanino ba ang tseke na sinasabi WITNESS: No, sir.
mo? Q: Did you authorize anyone including Nap Gutierrez to put
(Whose check is it that you are referring to or talking the word cash? In the check?
about?) A: No, sir.
Q: What was his answer? Q: Did you authorize anyone including Nap Gutierrez to
A: It was Alvin’s check. write the figure ₱200,000 in this check?
Q: What was your reply, if any? A: No, sir.
A: I told him do you know that it is not really Alvin who Q: And lastly, did you authorize anyone including Nap
borrowed money from you or what you want to appear… Gutierrez to write the words ₱200,000 only xx in this check?
xxxx A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Q: What was his reply? Notably, Gutierrez was only authorized to use the check for
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko business expenses; thus, he exceeded the authority when
at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27, he used the check to pay the loan he supposedly
2000; pp.65-71; emphasis supplied)21 contracted for the construction of petitioner's house. This is
Since he knew that the underlying obligation was not a clear violation of the petitioner's instruction to use the
actually for the petitioner, the rule that a possessor of the checks for the expenses of Slam Dunk. It cannot therefore
instrument is prima facie a holder in due course is be validly concluded that the check was completed strictly
inapplicable. As correctly noted by the CA, his inaction and in accordance with the authority given by the petitioner.
failure to verify, despite knowledge of that the petitioner was Considering that Marasigan is not a holder in due course,
not a party to the loan, may be construed as gross the petitioner can validly set up the personal defense that
negligence amounting to bad faith. the blanks were not filled up in accordance with the
Yet, it does not follow that simply because he is not a authority he gave. Consequently, Marasigan has no right to
holder in due course, Marasigan is already totally barred enforce payment against the petitioner and the latter cannot
from recovery. The NIL does not provide that a holder who be obliged to pay the face value of the check.
is not a holder in due course may not in any case recover WHEREFORE, in view of the foregoing, judgment is hereby
on the instrument.22 The only disadvantage of a holder who rendered GRANTING the petitioner Alvin Patrimonio's
is not in due course is that the negotiable instrument is petition for review on certiorari. The appealed Decision
subject to defenses as if it were non-negotiable. 23 Among dated September 24, 2008 and the Resolution dated April
such defenses is the filling up blank not within the authority. 30, 2009 of the Court of Appeals are consequently
On this point, the petitioner argues that the subject check ANNULLED AND SET ASIDE. Costs against the
was not filled up strictly on the basis of the authority he respondents.
gave. He points to his instruction not to use the check SO ORDERED.
without his prior approval and argues that the check was
filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority
Given by The Petitioner
Our own examination of the records tells us that Gutierrez
has exceeded the authority to fill up the blanks and use the
check.1âwphi1 To repeat, petitioner gave Gutierrez pre-
signed checks to be used in their business provided that he
could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited
to the use of the checks for the operation of their business,
and on the condition that the petitioner’s prior approval be
first secured.
While under the law, Gutierrez had a prima facie authority
to complete the check, such prima facie authority does not
extend to its use (i.e., subsequent transfer or
negotiation)once the check is completed. In other words,
only the authority to complete the check is presumed.
Further, the law used the term "prima facie" to underscore
the fact that the authority which the law accords to a holder
is a presumption juris tantumonly; hence, subject to subject
to contrary proof. Thus, evidence that there was no
authority or that the authority granted has been exceeded
may be presented by the maker in order to avoid liability
under the instrument.
In the present case, no evidence is on record that Gutierrez
ever secured prior approval from the petitioner to fill up the
blank or to use the check. In his testimony, petitioner

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Classified as Confidential. Please do not forward this to unintended users. Otherwise, request necessary permission.
G.R. No. 107508 April 25, 1996 indemnify Philippine Bank of
PHILIPPINE NATIONAL BANK, petitioner, Communications for whatever amount
vs. PBCom pays to plaintiff;
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT 3.) On Philippine National Bank's fourth-
BANK, PHILIPPINE BANK OF COMMUNICATIONS, and party complaint, F. Abante Marketing is
F. ABANTE MARKETING, respondents. ordered to reimburse and indemnify PNB
  for whatever amount PNB pays to
KAPUNAN, J.:p PBCom;
This is a petition for review on certiorari under Rule 45 of 4.) On attorney's fees, Philippine Bank of
the Rules of Court assailing the decision dated April 29, Communications is ordered to pay Capitol
1992 of respondent Court of Appeals in CA-G.R. CV No. City Development Bank attorney's fees in
24776 and its resolution dated September 16, 1992, the amount of Ten Thousand (P10,000.00)
denying petitioner Philippine National Bank's motion for Pesos; but PBCom is entitled to
reconsideration of said decision. reimbursement/indemnity from PNB; and
The facts of the case are as follows. Philippine National Bank to be, in turn
A check with serial number 7-3666-223-3, dated August 7, reimbursed or indemnified by F. Abante
1981 in the amount of P97,650.00 was issued by the Marketing for the same amount;
Ministry of Education and Culture (now Department of 5.) The Counterclaims of PBCom and
Education, Culture and Sports [DECS]) payable to F. PNB are hereby dismissed;
Abante Marketing. This check was drawn against Philippine 6.) No pronouncement as to costs.
National Bank (herein petitioner). SO ORDERED.1
On August 11, 1981, F. Abante Marketing, a client of An appeal was interposed before the respondent Court of
Capitol City Development Bank (Capitol), deposited the Appeals which rendered its decision on April 29, 1992, the
questioned check in its savings account with said bank. In decretal portion of which reads:
turn, Capitol deposited the same in its account with the WHEREFORE, the judgment appealed
Philippine Bank of Communications (PBCom) which, in from is modified by exempting PBCom
turn, sent the check to petitioner for clearing. from liability to plaintiff-appellee for
Petitioner cleared the check as good and, thereafter, attorney's fees and ordering PNB to honor
PBCom credited Capitol's account for the amount stated in the check for P97,650.00, with interest as
the check. However, on October 19, 1981, petitioner declared by the trial court, and pay
returned the check to PBCom and debited PBCom's plaintiff-appellee attorney's fees of
account for the amount covered by the check, the reason P10,000.00. After the check shall have
being that there was a "material alteration" of the check been honored by PNB, PBCom shall re-
number. credit plaintiff-appellee's account with it
PBCom, as collecting agent of Capitol, then proceeded to with the amount. No pronouncement as to
debit the latter's account for the same amount, and costs.
subsequently, sent the check back to petitioner. Petitioner, SO ORDERED.2
however, returned the check to PBCom. A motion for reconsideration of the decision was denied by
On the other hand, Capitol could not, in turn, debit F. the respondent Court in its resolution dated September 16,
Abante Marketing's account since the latter had already 1992 for lack of merit.3
withdrawn the amount of the check as of October 15, 1981. Hence, petitioner filed the instant petition which raises the
Capitol sought clarification from PBCom and demanded the following issues:
re-crediting of the amount. PBCom followed suit by I
requesting an explanation and re-crediting from petitioner. WHETHER OR NOT AN ALTERATION
Since the demands of Capitol were not heeded, it filed a OF THE SERIAL NUMBER OF A CHECK
civil suit with the Regional Trial Court of Manila against IS A MATERIAL ALTERATION UNDER
PBCom which, in turn, filed a third-party complaint against THE NEGOTIABLE INSTRUMENTS LAW.
petitioner for reimbursement/indemnity with respect to the II
claims of Capitol. Petitioner, on its part, filed a fourth-party WHETHER OR NOT A CERTIFICATION
complaint against F. Abante Marketing. HEREIN ISSUED BY THE MINISTRY OF
On October 3, 1989; the Regional Trial Court rendered its EDUCATION CAN BE GIVEN WEIGHT IN
decision the dispositive portion of which reads: EVIDENCE.
WHEREFORE, judgment is hereby III
rendered as follows: WHETHER OR NOT A DRAWEE BANK
1.) On plaintiffs complaint, defendant WHO FAILED TO RETURN A. CHECK
Philippine Bank of Communications is WITHIN THE TWENTY FOUR (24) HOUR
ordered to re-credit or reimburse plaintiff CLEARING PERIOD MAY RECOVER
Capitol City Development Bank the THE VALUE OF THE CHECK FROM THE
amount of P97,650.00, plus interest of 12 COLLECTING BANK.
percent thereto from October 19, 1981 IV
until the amount is fully paid; WHETHER OR NOT IN THE ABSENCE
2.) On Philippine Bank of Communications OF MALICE OR ILL WILL PETITIONER
third-party complaint third-party defendant PNB MAY BE HELD LIABLE FOR
PNB is ordered to reimburse and ATTORNEY'S FEES.4

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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."
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(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,
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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
(SGD.) MINRADO C. BATONGHINOG
Cashier I
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, would bring the case within the exception
the change of its serial number not being substantial to its and justify the grant of the award
negotiability. (Refractories Corporation of the
Anent the third issue — whether or not the drawee bank Philippines v. Intermediate Appellate
may still recover the value of the check from the collecting Court, 176 SCRA 539 [176 SCRA 539]).
bank even if it failed to return the check within the twenty- WHEREFORE, premises considered, except for the
four (24) hour clearing period because the check was deletion of the award of attorney's fees, the decision of the
tampered — suffice it to state that since there is no material Court of Appeals is hereby AFFIRMED.
alteration in the check, petitioner has no right to dishonor it SO ORDERED.
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

Classified as Confidential. Please do not forward this to unintended users. Otherwise, request necessary permission.
[ GR No. 170912, Apr 19, 2010 ]
ROBERT DINO v. MARIA LUISA JUDAL-LOOT +
DECISION
632 Phil. 402
CARPIO, J.:
The Case
This is a petition for review[1] of the 16 August 2005
Decision[2] and 30 November 2005 Resolution [3] of the Court
of Appeals in CA-G.R. CV No. 57994. The Court of Appeals
affirmed the decision of the Regional Trial Court, 7 th Judicial
Region, Branch 56, Mandaue City (trial court), with the
deletion of the award of interest, moral damages, attorney's
fees and litigation expenses. The trial court ruled that
respondents Maria Luisa Judal-Loot and Vicente Loot are
holders in due course of Metrobank Check No. C-MA
142119406 CA and ordered petitioner Robert Dino as
drawer, together with co-defendant Fe Lobitana as indorser,
to solidarily pay respondents the face value of the check,
among others.
The Facts
Sometime in December 1992, a syndicate, one of whose
members posed as an owner of several parcels of land
situated in Canjulao, Lapu-lapu City, approached petitioner
and induced him to lend the group P3,000,000.00 to be
secured by a real estate mortgage on the properties. A
member of the group, particularly a woman pretending to be
a certain Vivencia Ompok Consing, even offered to execute
a Deed of Absolute Sale covering the properties, instead of
the usual mortgage contract.[4] Enticed and convinced by
the syndicate's offer, petitioner issued three Metrobank
checks totaling P3,000,000.00, one of which is Check No.
C-MA-142119406-CA postdated 13 February 1993 in the
amount of P1,000,000.00 payable to Vivencia Ompok
Consing and/or Fe Lobitana.[5]
Upon scrutinizing the documents involving the properties,
petitioner discovered that the documents covered rights
over government properties. Realizing he had been
deceived, petitioner advised Metrobank to stop payment of
his checks. However, only the payment of Check No. C-
MA- 142119406-CA was ordered stopped. The other two
checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-
MA- 142119406-CA to respondents in exchange for cash in
the sum of P948,000.00, which respondents borrowed from
Metrobank and charged against their credit line. Before
respondents accepted the check, they first inquired from the
drawee bank, Metrobank, Cebu-Mabolo Branch which is
also their depositary bank, if the subject check was
sufficiently funded, to which Metrobank answered in the
positive. However, when respondents deposited the check
with Metrobank, Cebu-Mabolo Branch, the same was
dishonored by the drawee bank for reason "PAYMENT
STOPPED."
Respondents filed a collection suit[6] against petitioner and
Lobitana before the trial court. In their Complaint,
respondents alleged, among other things, that they are
holders in due course and for value of Metrobank Check
No. C-MA-142119406-CA and that they had no prior
information concerning the transaction between defendants.
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In his Answer, petitioner denied respondents' allegations
that "on the face of the subject check, no condition or
limitation was imposed" and that respondents are holders in
due course and for value of the check. For her part,
Lobitana denied the allegations in the complaint and
basically claimed that the transaction leading to the
issuance of the subject check is a sale of a parcel of land
by Vivencia Ompok Consing to petitioner and that she was
made a payee of the check only to facilitate its discounting
The trial court ruled in favor of respondents and declared
them due course holders of the subject check, since there
was no privity between respondents and defendants. The
dispositive portion of the 14 March 1996 Decision of the trial
court reads:
In summation, this Court rules for the Plaintiff and against
the Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the amount
of P1,000,000.00 representing the face value of subject
Metrobank check;
2.) to pay to Plaintiff herein, jointly and severally, the sum of
P101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral damages
in the amount of P100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum of
P200,000.00 for attorney's fees; and
5.) to pay to Plaintiff, jointly and severally, litigation
expenses in the sum of P10,000.00 and costs of the suit.
SO ORDERED.[7]
Only petitioner filed an appeal. Lobitana did not appeal the
trial court's judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial court's finding that
respondents are holders in due course of Metrobank Check
No. C-MA- 142119406-CA. The Court of Appeals pointed
out that petitioner's own admission that respondents were
never parties to the transaction among petitioner, Lobitana,
Concordio Toring, Cecilia Villacarlos, and Consing, proved
respondents' lack of knowledge of any infirmity in the
instrument or defect in the title of the person negotiating it.
Moreover, respondents verified from Metrobank whether
the check was sufficiently funded before they accepted it.
Therefore, respondents must be excluded from the ambit of
petitioner's stop payment order.
The Court of Appeals modified the trial court's decision by
deleting the award of interest, moral damages, attorney's
fees and litigation expenses. The Court of Appeals opined
that petitioner "was only exercising (although incorrectly),
what he perceived to be his right to stop the payment of the
check which he rediscounted." The Court of Appeals ruled
that petitioner acted in good faith in ordering the stoppage
of payment of the subject check and thus, he must not be
made liable for those amounts.
In its 16 August 2005 Decision, the Court of Appeals
affirmed the trial court's decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible
error in the decision of the lower court, WE hereby
DISMISS the appeal and AFFIRM the decision of the court
a quo with modifications that the award of interest, moral
damages, attorney's fees and litigation expenses be
deleted.
No pronouncement as to costs.
SO ORDERED.[8]
In its 30 November 2005 Resolution, the Court of Appeals
denied petitioner's motion for reconsideration.
In denying the petitioner's motion for reconsideration, the
Court of Appeals noted that petitioner raised the defense
that the check is a crossed check for the first time on
appeal (particularly in the motion for reconsideration). The
Court of Appeals rejected such defense considering that to
entertain the same would be offensive to the basic rules of
fair play, justice, and due process.
Hence, this petition.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
THE RESPONDENTS WERE HOLDERS IN DUE
COURSE. THE FACT THAT METROBANK CHECK NO.
142119406 IS A CROSSED CHECK CONSTITUTES
SUFFICIENT WARNING TO THE RESPONDENTS TO
EXERCISE EXTRAORDINARY DILIGENCE TO
DETERMINE THE TITLE OF THE INDORSER.
II. THE COURT OF APPEALS ERRED IN DENYING
PETITIONER'S MOTION FOR RECONSIDERATION
UPON THE GROUND THAT THE ARGUMENTS RELIED
UPON HAVE ONLY BEEN RAISED FOR THE FIRST
TIME. EQUITY DEMANDS THAT THE COURT OF
APPEALS SHOULD HAVE MADE AN EXCEPTION TO
PREVENT THE COMMISSION OF MANIFEST WRONG
AND INJUSTICE UPON THE PETITIONER.[9]
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense
that Metrobank Check No. C-MA-142119406-CA is a
crossed check for the first time in his motion for
reconsideration before the Court of Appeals. Respondents
insist that issues not raised during the trial cannot be raised
for the first time on appeal as it would be offensive to the
elementary rules of fair play, justice and due process.
Respondents further assert that a change of theory on
appeal is improper.
In his Answer, petitioner specifically denied, among others,
(1) Paragraph 4 of the Complaint, concerning the allegation
that on the face of the subject check, no condition or
limitation was imposed, and (2) Paragraph 8 of the
Complaint, regarding the allegation that respondents were
holders in due course and for value of the subject check. In
his "Special Affirmative Defenses," petitioner claimed that
"for want or lack of the prestation," he could validly stop the
payment of his check, and that by rediscounting petitioner's
Classified as Confidential. Please do not forward this to unintended users. Otherwise, request necessary permission.
check, respondents "took the risk of what might happen on
the check." Essentially, petitioner maintained that
respondents are not holders in due course of the subject
check, and as such, respondents could not recover any
liability on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or
raise during the trial that Metrobank Check No. C-MA-
142119406-CA is a crossed check. It must be stressed,
however, that petitioner consistently argues that
respondents are not holders in due course of the subject
check, which is one of the possible effects of crossing a
check. The act of crossing a check serves as a warning to
the holder that the check has been issued for a definite
purpose so that the holder thereof must inquire if he has
received the check pursuant to that purpose; otherwise, he
is not a holder in due course.[10] Contrary to respondents'
view, petitioner never changed his theory, that respondents
are not holders in due course of the subject check, as
would violate fundamental rules of justice, fair play, and due
process. Besides, the subject check was presented and
admitted as evidence during the trial and respondents did
not and in fact cannot deny that it is a crossed check.
In any event, the Court is clothed with ample authority to
entertain issues or matters not raised in the lower courts in
the interest of substantial justice. [11] In Casa Filipina Realty
v. Office of the President,[12] the Court held:
[T]he trend in modern-day procedure is to accord the courts
broad discretionary power such that the appellate court may
consider matters bearing on the issues submitted for
resolution which the parties failed to raise or which the
lower court ignored. Since rules of procedure are mere
tools designed to facilitate the attainment of justice, their
strict and rigid application which would result in
technicalities that tend to frustrate rather than promote
substantial justice, must always be avoided. Technicality
should not be allowed to stand in the way of equitably and
completely resolving the rights and obligations of the
parties.[13]
Having disposed of the procedural issue, the Court shall
now proceed to the merits of the case. The main issue is
whether respondents are holders in due course of
Metrobank Check No. C-MA 142119406 CA as to entitle
them to collect the face value of the check from its drawer
or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a
holder in due course, thus: A holder in due course is a
holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it has been previously dishonored, if
such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title
of the person negotiating it.
In the case of a crossed check, as in this case, the following
principles must additionally be considered: A crossed check
(a) may not be encashed but only deposited in the bank; (b)
may be negotiated only once -- to one who has an account
with a bank; and (c) warns the holder that it has been
issued for a definite purpose so that the holder thereof must
inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.[14]
Based on the foregoing, respondents had the duty to
ascertain the indorser's, in this case Lobitana's, title to the
check or the nature of her possession. This respondents
failed to do. Respondents' verification from Metrobank on
the funding of the check does not amount to determination
of Lobitana's title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to
legal absence of good faith, [15] contrary to Section 52(c) of
the Negotiable Instruments Law. Hence, respondents are
not deemed holders in due course of the subject check. [16]
State Investment House v. Intermediate Appellate
Court [17] squarely applies to this case. There, New Sikatuna
Wood Industries, Inc. sold at a discount to State Investment
House three post-dated crossed checks, issued by Anita
Peña Chua naming as payee New Sikatuna Wood
Industries, Inc. The Court found State Investment House
not a holder in due course of the checks. The Court also
expounded on the effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing
two parallel lines diagonally on the left top portion of the
check. The crossing may be special wherein between the
two parallel lines is written the name of a bank or a
business institution, in which case the drawee should pay
only with the intervention of that bank or company, or
crossing may be general wherein between two parallel
diagonal lines are written the words "and Co." or none at all
as in the case at bar, in which case the drawee should not
encash the same but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode
of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to
be sufficient must be made (a) by the holder, or by some
person authorized to receive payment on his behalf x x x As
to who the holder or authorized person will be depends on
the instructions stated on the face of the check.
The three subject checks in the case at bar had been
crossed generally and issued payable to New Sikatuna
Wood Industries, Inc. which could only mean that the
drawer had intended the same for deposit only by the
rightful person, i.e., the payee named therein. Apparently, it
was not the payee who presented the same for payment
and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did
not become liable. Consequently, no right of recourse is
available to petitioner against the drawer of the subject
checks, private respondent wife, considering that petitioner
is not the proper party authorized to make presentment of
the checks in question.
In this case, there is no question that the payees of the
check, Lobitana or Consing, were not the ones who
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presented the check for payment. Lobitana negotiated and
indorsed the check to respondents in exchange for
P948,000.00. It was respondents who presented the
subject check for payment; however, the check was
dishonored for reason "PAYMENT STOPPED." In other
words, it was not the payee who presented the check for
payment; and thus, there was no proper presentment. As a
result, liability did not attach to the drawer. Accordingly, no
right of recourse is available to respondents against the
drawer of the check, petitioner herein, since respondents
are not the proper party authorized to make presentment of
the subject check.
However, the fact that respondents are not holders in due
course does not automatically mean that they cannot
recover on the check.[18] The Negotiable Instruments Law
does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The
only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it
were non-negotiable.[19] Among such defenses is the
absence or failure of consideration,[20] which petitioner
sufficiently established in this case. Petitioner issued the
subject check supposedly for a loan in favor of Consing's
group, who turned out to be a syndicate defrauding gullible
individuals. Since there is in fact no valid loan to speak of,
there is no consideration for the issuance of the check.
Consequently, petitioner cannot be obliged to pay the face
value of the check.
Respondents can collect from the immediate indorser, [21] in
this case Lobitana. Significantly, Lobitana did not appeal
the trial court's decision, finding her solidarily liable to pay,
among others, the face value of the subject check.
Therefore, the trial court's judgment has long become final
and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET
ASIDE the 16 August 2005 Decision and 30 November
2005 Resolution of the Court of Appeals in CA-G.R. CV No.
57994.
SO ORDERED.
G.R. No. L-11526            January 2, 1917
B. A. GREEN, ET AL., plaintiffs-appellees,
vs.
M. LOPEZ, ET AL., defendants-appellants.
Delgado & Delgado for appellants.
Crossfield & O'Brien for appellees.
CARSON, J.:
This is an appeal from a judgment for the face value of a
negotiable note, in favor of the plaintiffs who purchased the
note, and against the makers, with a declaration of the
subsidiary liability of the payee, from whom the note was
purchased and by whom it was indorsed to the plaintiffs.
The complaint alleged that the note was indorsed by the
payee to the plaintiffs "for value received," and this
allegation was conclusively established by the evidence
adduced at the trial. We are of opinion that this allegation
was substantially equivalent to a formal allegation that the
indorsement was made for a valuable consideration, and
that the truth of this allegation having been established by
the introduction of competent evidence establishing the fact
that the indorsement was made for a valuable
consideration, the purchasers were clearly entitled to
judgment for the face value of the note.
By the decisive weight of authority in this country,
where negotiable paper has been put in circulation,
and there is no infirmity or defense between the
antecedent parties thereto, a purchaser of such
security is entitled to recover thereon, as against
the maker, the whole amount, irrespective of what
he may have paid therefor. (146 U. S., 327. 1)
It follows that any allegation which sets forth the existence
of a valuable consideration for the transfer by indorsement
is sufficient, notwithstanding the failure to allege expressly
the amount which was in fact paid by the indorser.
What has been said disposes of the various contentions of
appellants based upon the failure of the court below to
sustain a demurrer to the complaint because of the lack of
an allegation setting forth specifically the nature and
amount of the consideration paid by the plaintiffs to the
payee of the note, by whom it was indoresed in their favor.
The real defense relied upon in the court below by the
makers of the note was that the plaintiffs were not bona
fide  holders of the note by indorsement, in that they had
knowledge of the existence of certain equitable defenses
which the maker were entitled to set us against the payee
of the note, before they acquired it by indorsement from the
payee.
But there was nothing on the face of the note to put the
purchasers on notice of the existence of such equitable
defenses. It was entirely regular in form and came into their
possession in the usual course of business. Under these
circumstances the burden of proof was manifestly upon the
makers of the note to establish the fact of knowledge of
these equitable defenses before they could be permitted to
rely upon such defenses as against the purchasers.
The only evidence tending to establish such knowledge was
the testimony of Lopez, one of the maker of the note, that a
person unknown to him and representing himself to be an
employee of Green, one of the plaintiffs, came to him, and
made inquiries as to the validity and genuineness of the
note, stating that his principal desired this information
because he was contemplating its purchase; and that he
then and there explained the nature of his equitable
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defenses ad against the payee, and repudiated any
obligation to meet the note.
There is no evidence of record upon which to base a finding
that these alleged disclosures were in truth and in fact
made to an employee of either of the plaintiffs other than
the testimony of Lopez to the effect that these alleged
disclosures were made to a person unknown to him, who
represented himself to be an employee of one of the
plaintiffs; and the testimony of Green, one of the plaintiffs
who stated that before purchasing the note he sent an
employed to call upon the makers of the note to inquire
whether it was a good note which would be paid at maturity,
and that upon his return this employee stated that he had
been informed by the makers of the note that it was a good
note duly executed by them and that it would be paid when
due. We do not stop to consider whether this evidence is
sufficient to establish the fact that the person to whom the
maker of the note claims to have disclosed the alleged
equitable defenses was in truth and in fact the employee
sent by the plaintiffs to the makers of the note for the
purpose of inquiring as to is validity, because we are
satisfied that, admitting that the person with whom Lopez
claims to have had the interview was an employee of one or
both of the purchasers, we do not think that the evidence
sustains an affirmative finding that the plaintiffs had
knowledge of the alleged equitable defenses when they
purchased the note. One of the purchasers of the note is a
broker, engaged in business in the city of Manila, and the
other is an attorney, licensed to practice in the courts of
these Islands, and it would require stronger and more
convincing evidence than the interested testimony of one of
the makers of the note to satisfy us, as against their
testimony to the contrary, that these gentlemen were so
imprudent as to discount negotiable paper, in the ordinary
course of business, after having received formal notice of
the existence of equitable defenses against the payee; and
our opinion in this regard is strengthened by the undoubted
fact that they took the precaution before purchasing the
note to send an agent to make inquiries as to its validity.
We are forced to conclude with the trial judge that the
testimony of the maker of the note as to the disclosures
made to the purchasers' agent must be rejected, either on
the ground that it is wholly false, or upon the ground that he
failed to make himself understood in the course of his
alleged interview with the plaintiffs' agent, with the result in
either event that knowledge of the existence of equitable
defenses was not brought home to the purchasers of the
note. Equitable defenses of this nature can in no event
defeat the right of the holders of a negotiable note by
indorsement and for valuable consideration until and unless
knowledged of the existence of such equitable defenses is
brought home to them, or until it appears that the holders
had such knowledged of the existence of defects in the
instrument as to charge them with bad faith in acquiring it
under all the attendant circumstances. (Confer numerous
cases cited in notes, 7 Cyc., p. 945.)
The judgment entered in the court below should be
affirmed, with the costs of this instance against the
appellants. So ordered.
Torres, Moreland, Trent and Araullo, JJ., concur.

G.R. No. 105188 January 23, 1998
MYRON C. PAPA, Administrator of the Testate Estate of
Angela M. Butte, petitioner,
vs.
A.U. VALENCIA and CO. INC., FELIX PEÑARROYO,
SPS. ARSENIO B. REYES & AMANDA SANTOS, and
DELFIN JAO, respondents.
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the
Rules of Court, petitioner Myron C. Papa seeks to reverse
and set aside 1) the Decision dated 27 January 1992 of the
Court of Appeals which affirmed with modification the
decision of the trial court; and 2) the Resolution dated 22
April 1992 of the same court, which denied petitioner's
motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U.
Valencia and Co., Inc. (hereinafter referred to as
respondent Valencia, for brevity) and Felix Peñarroyo
(hereinafter called respondent Peñarroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for
specific performance against herein petitioner Myron C.
Papa, in his capacity as administrator of the Testate Estate
of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner
Myron C. Papa, acting as attorney-in-fact of Angela M.
Butte, sold to respondent Peñarroyo, through respondent
Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La
Loma, Quezon City, and covered by Transfer Certificate of
Title No. 28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property, together
with several other parcels of land likewise owned by Angela
M. Butte, had been mortgaged by her to the Associated
Banking Corporation (now Associated Citizens Bank); that
after the alleged sale, but before the title to the subject
property had been released, Angela M. Butte passed away;
that despite representations made by herein respondents to
the bank to release the title to the property sold to
respondent Peñarroyo, the bank refused to release it unless
and until all the mortgaged properties of the late Angela M.
Butte were also redeemed; that in order to protect his rights
and interests over the property, respondent Peñarroyo
caused the annotation on the title of an adverse claim as
evidenced by Entry No. P.E.-6118/T-28993, inscribed on 18
January 1997.
The complaint further alleged that it was only upon the
release of the title to the property, sometime in April 1977,
that respondents Valencia and Peñarroyo discovered that
the mortgage rights of the bank had been assigned to one
Tomas L. Parpana (now deceased), as special
administrator of the Estate of Ramon Papa, Jr., on 12 April
1977; that since then, herein petitioner had been collecting
monthly rentals in the amount of P800.00 from the tenants
of the property, knowing that said property had already
been sold to private respondents on 15 June 1973; that
despite repeated demands from said respondents,
petitioner refused and failed to deliver the title to the
property. Thereupon, respondents Valencia and Peñarroyo
filed a complaint for specific performance, praying that
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petitioner be ordered to deliver to respondent Peñarroyo the
title to the subject property (TCT 28993); to turn over to the
latter the sum of P72,000.00 as accrued rentals as of April
1982, and the monthly rental of P800.00 until the property is
delivered to respondent Peñarroyo; to pay respondents the
sum of P20,000.00 as attorney's fees; and to pay the costs
of the suit.
In his Answer, petitioner admitted that the lot had been
mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that
the complaint did not state a cause of action; that the real
property in interest was the Testate Estate of Angela M.
Butte, which should have been joined as a party defendant;
that the case amounted to a claim against the Estate of
Angela M. Butte and should have been filed in Special
Proceedings No. A-17910 before the Probate Court in
Quezon City; and that, if as alleged in the complaint, the
property had been assigned to Tomas L. Parpana, as
special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed
that he could not recall in detail the transaction which
allegedly occurred in 1973; that he did not have TCT No.
28993 in his possession; that he could not be held
personally liable as he signed the deed merely as attorney-
in-fact of said Angela M. Butte. Finally, petitioner
asseverated that as a result of the filing of the case, he was
compelled to hire the services of counsel for a fee of
P20,000.00 for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was
allowed to intervene in the case. Making common cause
with respondents Valencia and Peñarroyo, respondent Jao
alleged that the subject lot which had been sold to
respondent Peñarroyo through respondent Valencia was in
turn sold to him on 20 August 1973 for the sum of
P71,500.00, upon his paying earnest money in the amount
of P5,000.00. He, therefore, prayed that judgment be
rendered in favor of respondents, the latter in turn be
ordered to execute in his favor the appropriate deed of
conveyance covering the property in question and to turn
over to him the rentals which aforesaid respondents sought
to collect from petitioner Myron V. Papa.
Respondent Jao, likewise, averred that as a result of
petitioner's refusal to deliver the title to the property to
respondents Valencia and Peñarroyo, who in turn failed to
deliver the said title to him, he suffered mental anguish and
serious anxiety for which he sought payment of moral
damages; and, additionally, the payment of attorney's fees
and costs.
For his part, petitioner, as administrator of the Testate
Estate of Angela M. Butte, filed a third-party complaint
against herein private respondents, spouses Arsenio B.
Reyes and Amanda Santos (respondent Reyes spouses,
for short). He averred, among other's that the late Angela
M. Butte was the owner of the subject property; that due to
non-payment of real estate tax said property was sold at
public auction the City Treasurer of Quezon City to the
respondent Reyes spouses on 21 January 1980 for the sum
of P14,000.00; that the one-year period of redemption had
expired; that respondents Valencia and Peñarroyo had
sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property;
that the same aforenamed respondents had acknowledged
that the price paid by them was insufficient, and that they
were willing to add a reasonable amount or a minimum of
P55,000.00 to the price upon delivery of the property,
considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse
respondents Reyes spouses whatever amount they might
have paid for taxes and other charges, since the subject
property was still registered in the name of the late Angela
M. Butte; that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Petitioner
prayed that judgment be rendered canceling the tax sale to
respondent Reyes spouses; restoring the subject property
to him upon payment by him to said respondent Reyes
spouses of the amount of P14,000.00, plus legal interest;
and, ordering respondents Valencia and Peñarroyo to pay
him at least P55,000.00 plus everything they might have to
pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the
defense of prescription of petitioner's right to redeem the
property.
At the trial, only respondent Peñarroyo testified. All the
other parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREUPON, judgment is hereby
rendered as follows:
1) Allowing defendant to redeem from
third-party defendants and ordering the
latter to allow the former to redeem the
property in question, by paying the sum of
P14,000.00 plus legal interest of 12%
thereon from January 21, 1980;
2) Ordering defendant to execute a Deed
of Absolute Sale in favor of plaintiff Felix
Peñarroyo covering the property in
question and to deliver peaceful
possession and enjoyment of the said
property to the said plaintiff, free from any
liens and encumbrances;
Should this not be possible, for any reason
not attributable to defendant, said
defendant is ordered to pay to plaintiff
Felix Peñarroyo the sum of P45,000.00
plus legal interest of 12% from June 15,
1973;
3) Ordering plaintiff Felix Peñarroyo to
execute and deliver to intervenor a deed
of absolute sale over the same property,
upon the latter's payment to the former of
the balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix
Peñarroyo is ordered to pay intervenor the
sum of P5,000.00 plus legal interest of
12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the
amount of P5,000.00 for and as attorney's
fees and litigation expenses.
SO ORDERED.1
Petitioner appealed the aforesaid decision of the trial court
to the Court of Appeals, alleging among others that the sale
was never "consummated" as he did not encash the check
(in the amount of P40,000.00) given by respondents
Valencia and Peñarroyo in payment of the full purchase
price of the subject lot. He maintained that what said
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respondent had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above
decision. However, their appeal was dismissed because of
failure to file their appellant's brief.
On 27 January 1992, the Court of Appeals rendered a
decision, affirming with modification the trial court's
decision, thus:
WHEREFORE, the second paragraph of
the dispositive portion of the appealed
decision is MODIFIED, by ordering the
defendant-appellant to deliver to plaintiff-
appellees the owner's duplicate of TCT
No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the
lot in question or, if the owner's duplicate
certificate cannot be produced, to
authorize the Register of Deeds to cancel
it and issue a certificate of title in the name
of Felix Peñarroyo. In all other respects,
the decision appealed from is AFFIRMED.
Costs against defendant-appellant Myron
C. Papa.
SO ORDERED.2
In affirming the trial court's decision, respondent court held
that contrary to petitioner's claim that he did not encash the
aforesaid check, and therefore, the sale was not
consummated, there was no evidence at all that petitioner
did not, in fact, encash said check. On the other hand,
respondent Peñarroyo testified in court that petitioner Papa
had received the amount of P45,000.00 and issued receipts
therefor. According to respondent court, the presumption is
that the check was encashed, especially since the payment
by check was not denied by defendant-appellant (herein
petitioner) who, in his Answer, merely alleged that he "can
no longer recall the transaction which is supposed to have
happened 10 years ago."3
On petitioner's claim that he cannot be held personally
liable as he had acted merely as attorney-in-fact of the
owner, Angela M. Butte, respondent court held that such
contention is without merit. This action was not brought
against him in his personal capacity, but in his capacity as
the administrator of the Testate Estate of Angela M. Butte. 4
On petitioner's contention that the estate of Angela M. Butte
should have been joined in the action as the real party in
interest, respondent court held that pursuant to Rule 3,
Section 3 of the Rules of Court, the estate of Angela M.
Butte does not have to be joined in the action. Likewise, the
estate of Ramon Papa, Jr., is not an indispensable party
under Rule 3, Section 7 of the same Rules. For the fact is
that Ramon Papa, Jr., or his estate, was not a party to the
Deed of Absolute Sale, and it is basic law that contracts
bind only those who are parties thereto.5
Respondent court observed that the conditions under which
the mortgage rights of the bank were assigned are not
clear. In any case, any obligation which the estate of
Angela M. Butte might have to the estate of Ramon Papa,
Jr. is strictly between them. Respondents Valencia and
Peñarroyo are not bound by any such obligation.
Petitioner filed a motion for reconsideration of the above
decision, which motion was denied by respondent Court of
Appeals.
Hence, this petition wherein petitioner raises the following
issues:
 I. THE CONCLUSION OR FINDING OF
THE COURT OF APPEALS THAT THE
SALE IN QUESTION WAS
CONSUMMATED IS GROUNDED ON
SPECULATION OR CONJECTURE, AND
IS CONTRARY TO THE APPLICABLE
LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN
MODIFYING THE DECISION OF THE
TRIAL COURT, ERRED BECAUSE IT, IN
EFFECT, CANCELLED OR NULLIFIED
AN ASSIGNMENT OF THE SUBJECT
PROPERTY IN FAVOR OF THE ESTATE
OF RAMON PAPA, JR. WHICH IS NOT A
PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE
OF RAMON PAPA, JR. ARE
INDISPENSABLE PARTIES IN THIS
CASE.6
Petitioner argues that respondent Court of Appeals erred in
concluding that alleged sale of the subject property had
been consummated. He contends that such a conclusion is
based on the erroneous presumption that the check (in the
amount of P40,000.00) had been cashed, citing Art. 1249 of
the Civil Code, which provides, in part, that payment by
checks shall produce the effect of payment only when they
have been cashed or when through the fault of the creditor
they have been impaired.7 Petitioner insists that he never
cashed said check; and, such being the case, its delivery
never produced the effect of payment. Petitioner, while
admitting that he had issued receipts for the payments,
asserts that said receipts, particularly the receipt of PCIB
Check No. 761025 in the amount of P40,000.00, do not
prove payment. He avers that there must be a showing that
said check had been encashed. If, according to petitioner,
the check had been encashed, respondent Peñarroyo
should have presented PCIB Check No. 761025 duly
stamped received by the payee, or at least its microfilm
copy.
Petitioner finally avers that, in fact, the consideration for the
sale was still in the hands of respondents Valencia and
Peñarroyo, as evidenced by a letter addressed to him in
which said respondents wrote, in part:
. . . Please be informed that I had been
authorized by Dr. Ramon Papa, Jr., heir of
Mrs. Angela M. Butte to pay you the
aforementioned amount of P75,000.00 for
the release and cancellation of subject
property's mortgage. The money is with
me and if it is alright with you, I would like
to tender the payment as soon as
possible. . . .8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and
Peñarroyo had given petitioner Myron C. Papa the amounts
of Five Thousand Pesos (P5,000.00) in cash on 24 May
1973, and Forty Thousand Pesos (P40,000.00) in check on
15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said
amounts,9 and having issued receipts therefor.10 Petitioner's
assertion that he never encashed the aforesaid check is not
substantiated and is at odds with his statement in his
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answer that "he can no longer recall the transaction which
is supposed to have happened 10 years ago." After more
than ten (10) years from the payment in party by cash and
in part by check, the presumption is that the check had
been encashed. As already stated, he even waived the
presentation of oral evidence.
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. 11 It has,
likewise, been held that if no presentment is made at all, the
drawer cannot be held liable irrespective of loss or
injury12 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.13
Considering that respondents Valencia and Peñarroyo had
fulfilled their part of the contract of sale by delivering the
payment of the purchase price, said respondents, therefore,
had the right to compel petitioner to deliver to them the
owner's duplicate of TCT No. 28993 of Angela M. Butte and
the peaceful possession and enjoyment of the lot in
question.
With regard to the alleged assignment of mortgage rights,
respondent Court of Appeals has found that the conditions
under which said mortgage rights of the bank were
assigned are not clear. Indeed, a perusal of the original
records of the case would show that there is nothing there
that could shed light on the transactions leading to the said
assignment of rights; nor is there any evidence on record of
the conditions under which said mortgage rights were
assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject
property has remained in the name of the late Angela M.
Butte.14 This much is admitted by petitioner himself in his
answer to respondent's complaint as well as in the third-
party complaint that petitioner filed against respondent-
spouses Arsenio B. Reyes and Amanda
Santos.15 Assuming arquendo that the mortgage rights of
the Associated Citizens Bank had been assigned to the
estate of Ramon Papa, Jr., and granting that the assigned
mortgage rights validly exists and constitute a lien on the
property, the estate may file the appropriate action to
enforce such lien. The cause of action for specific
performance which respondents Valencia and Peñarroyo
have against petitioner is different from the cause of action
which the estate of Ramon Papa, Jr. may have to enforce
whatever rights or liens it has on the property by reason of
its being an alleged assignee of the bank's rights of
mortgage.
Finally, the estate of Angela M. Butte is not an
indispensable party. Under Section 3 of Rule 3 of the Rules
of Court, an executor or administrator may sue or be sued
without joining the party for whose benefit the action is
presented or defended, thus:
Sec. 3. Representative parties. — A
trustee of an express trust, a guardian,
executor or administrator, or a party
authorized by statute, may sue or be sued
without joining the party for whose benefit
the action is presented or defended; but
the court may, at any stage of the
proceedings, order such beneficiary to be
made a party. An agent acting in his own
name and for the benefit of an undisclosed
principal may sue or be sued without
joining the principal except when the
contract involves things belonging to the
principal.16
Neither is the estate of Ramon Papa, Jr. an indispensable
party without whom, no final determination of the action can
be had. Whatever prior and subsisting mortgage rights the
estate of Ramon Papa, Jr. has over the property may still
be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED
and the Decision of the Court of Appeals, dated 27 January
1992 is AFFIRMED.

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