Cases - Negotiable Instruments (Week 4)

Table of Contents
CASE #99 Pineda vs de la Rama 121 SCRA 671 (1983).................................................................................2

CASE #100 Lee vs CA 375 SCRA 5579 (2002)................................................................................................7
CASE #101 Yang vs CA 409 SCRA 159 (2003).............................................................................................26
CASE #102 Bayani vs People 436 SCRA 113 (2004)....................................................................................37
CASE #103 Ang Tiong vs Ting 22 SCRA 713 (1968).....................................................................................47
CASE #104 Ang vs Associated Bank 532 SCRA 244 (2007).........................................................................51
CASE #105 Salas vs CA...............................................................................................................................73
CASE #106 Agro Conglomerates vs CA 348 SCRA 450 (2000)....................................................................81
CASE #107 Clark vs Seliner 42 Phil 384 (1921)...........................................................................................88
CASE #108 Atrium Management Corp vs CA GR No. 109496 (2001).........................................................92
CASE #109 De Ocampo vs Gatchalian 3 SCRA 596 (1961)..........................................................................98
CASE #110 Prudencio vs CA 143 SCRA 7 (1966).......................................................................................108
CASE #111 Montinola vs PNB 88 Phil 178 (1951).....................................................................................117
CASE #112 Gonzales vs Rizal Commercial Banking Corp GR No. 156294 (2006)......................................132
CASE #113 BPI vs CA 326 SCRA 641 (2000)..............................................................................................138
CASE #114 Dela Victoria vs Burgos 245 SCRA 374 (1995)........................................................................149
CASE #115 Stelco Manufacturing Corp vs CA 210 SCRA 51......................................................................156
CASE #99 Pineda vs de la Rama 121 SCRA 671 (1983)
G.R. No. L-31831 April 28, 1983
JESUS PINEDA, Petitioner, vs. JOSE V. DELA RAMA and COURT OF

APPEALS, Respondents.
Rosauro Alvarez for petitioner.chanrobles virtual law library
Arturo Zialcita for respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals

which declared petitioner Jesus Pineda liable on his promissory note for
P9,300.00 and directed him to pay attorney's fees of P400.00 to private
respondent, Jose V. dela Rama.chanroblesvirtualawlibrary chanrobles virtual
law library
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Dela Rama is a practising lawyer whose services were retained by Pineda for
the purpose of making representations with the chairman and general
manager of the National Rice and Corn Administration (NARIC) to stop or
delay the institution of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay deposited at his ricemill in
Concepcion, Tarlac. The NARIC general manager was allegedly an intimate
friend of Dela Rama.chanroblesvirtualawlibrary chanrobles virtual law library
According to Dela Rama, petitioner Pineda has used up all his funds to buy a
big hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of
his complaint for collection. In addition to filling the suit to collect the loan
evidenced by the matured promissory note, Dela Rama also sued to collect
P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in
the case being investigated by NARIC.chanroblesvirtualawlibrary chanrobles
virtual law library
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of
petitioner Pineda. The court believed the evidence of Pineda that he signed
the promissory note for P9,300.00 only because Dela Rama had told him
that this amount had already been advanced to grease the palms of the
'Chairman and General Manager of NARIC in order to save Pineda from
criminal prosecution.chanroblesvirtualawlibrarychanrobles virtual law library
The court stated:chanrobles virtual law library
xxx xxx xxxchanrobles virtual law library
... The Court, after hearing the testimonies of the witness and examining the
exhibits in question, finds that Exhibit A proves that the defendant himself
did not receive the amount stated therein, because according to said exhibit
that amount was advanced by the plaintiff in connection with the defendant's
case, entirely contradicting the testimony of the plaintiff himself, who stated
in open Court that he gave the amount in cash in two installments to the
defendant. The Court is more inclined to believe the contents of Exhibit A,
than the testimony of the plaintiff. On this particular matter, the defendant
has established that the plaintiff made him believe that he was giving money
to the authorities of the NARIC to grease their palms to suspend the
prosecution of the defendant, but the defendant, upon inquiry, found out
that none of the authorities has received that amount, and there was no
case that was ever contemplated to be filed against him. It clearly follows,
therefore, that the amount involved in this Exhibit A was imaginary. It was
given to the defendant, not to somebody else. The purpose for which the
amount was intended was illegal.chanroblesvirtualawlibrarychanrobles
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However, the Court believes that plaintiff was able to get from the defendant
the amount of P3,000.00 on October 7, as shown by the check issued by the
defendant, Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as
per plaintiff's wishes to show that defendant was indebted for P3,000.00
when, as a matter of fact, such amount was produced in order to grease the
palms of the NARIC officials for withholding an imaginary criminal case. Such
amount was never given to such officials nor was there any contemplated
case against the defendant. The purpose for which such amount was
intended was indeed illegal.
The trial court rendered judgment as follows: chanrobles virtual law library
WHEREFORE, the Court finds by a preponderance of evidence that the

amount of P9,300.00 evidenced by Exhibit A was not received by the
defendant, nor given to any party for the defendant's benefit.Consequently,
the plaintiff has no right to recover said amount. The amount of P3,000.00
was given by the defendant to grease the palms of the NARIC officials. The
purpose was illegal, null and void. Besides, it was not given at all, nor was it
true that there was a contemplated case against the defendant. Such
amount should be returned to the defendant. The services rendered by the
plaintiff to the defendant is worth only P400.00, taking into consideration
that the plaintiff received an air-conditioner and six sacks of rice. The court
orders that the plaintiff should return to the defendant the amount of
P3,000.00, minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that
Pineda, being a person of more than average intelligence, astute in business,
and wise in the ways of men would not "sign any document or paper with his
name unless he was fully aware of the contents and important thereof,
knowing as he must have known that the language and practices of business
and of trade and commerce call to account every careless or thoughtless
word or deed."chanrobles virtual law library
The appellate court stated: chanrobles virtual law library
No rule is more fundamental and by men of honor and goodwill more dearly
cherished, than that which declares that obligations arising from contracts
have the force of law between the contracting parties and should be
complied with in good faith. Corollary to and in furtherance of this principle,
Section 24 of the Negotiable instruments Law (Act No. 2031) explicitly
provides that every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration, and every person whose signature
appears thereon to have become a party thereto for value.
We find this petition meritorious.chanroblesvirtualawlibrary chanrobles

virtual law library
The Court of Appeals relied on the efficacy of the promissory note for its
decision, citing Section 24 of the Negotiable Instruments Law which
reads: chanrobles virtual law library
SECTION 24. Presumption of consideration.-Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.
The Court of Appeals' reliance on the above provision is misplaced. The

presumption that a negotiable instrument is issued for a valuable
consideration is only puma facie. It can be rebutted by proof to the contrary.
(Bank of the Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil.
5).chanroblesvirtualawlibrary chanrobles virtual law library
According to Dela Rama, he loaned the P9,300.00 to Pineda in two
installments on two occasions five days apart - first loan for P5,000.00 and
second loan for P4,300.00, both given in cash. He also alleged that
previously he loaned P3,000.00 but Pineda paid this other loan two days
afterward.chanroblesvirtualawlibrary chanrobles virtual law library
These allegations of Dela Rama are belied by the promissory note itself. The
second sentence of the note reads - "This represents the cash advances
made by him in connection with my case for which he is my attorney-in-
law." chanrobles virtual law library
The terms of the note sustain the version of Pineda that he signed the
P9,300.00 promissory note because he believed Dela Rama's story that
these amounts had already been advanced by Dela Rama and given as gifts
for NARIC officials.chanroblesvirtualawlibrary chanrobles virtual law library
Dela Rama himself admits that Pineda engaged his services to delay by one
month the filing of the NARIC case against Pineda while the latter was trying
to work out an amicable settlement. There is no question that Dela Rama
was indeed a close friend of then NARIC Administrator Jose Rodriquez having
worked with him in the Philippine consulate at Hongkong and that Dela
Rama made what he calls "proper representations" with Rodriguez and with
other NARIC officials in connection with the investigation of the criminal
charges against Pineda.chanroblesvirtualawlibrarychanrobles virtual law
library
We agree with the trial court which believed Pineda. It is indeed unusual for
a lawyer to lend money to his client whom he had known for only three
months, with no security for the loan and on interest. Dela Rama testified
that he did not even know what Pineda was going to do with the money he
borrowed from him. The petitioner had just purchased a hacienda in Mindoro
for P210,000.00, owned sugar and rice lands in Tarlac of around 800
hectares, and had P60,000.00 deposits in three banks when he executed the
note. It is more logical to believe that Pineda would not borrow P5,000.00
and P4,300.00 five days apart from a man whom he calls a "fixer" and whom
he had known for only three months.chanroblesvirtualawlibrary chanrobles
virtual law library
There is no dispute that an air-conditioning unit valued at P1,250.00 was

purchased by Pineda's son and given to Dela Rama although the latter
claims he paid P1,250.00 for the unit when he received it. Pineda, however,
alleged that he gave the air-conditioning unit because Dela Rama told him
that Dr. Rodriguez was asking for one air-conditioning machine of 1.5
horsepower for the latter's NARIC office. Pineda further testified that six
cavans of first class rice also intended for the NARIC Chairman and General
Manager, together with the airconditioning unit, never reached Dr. Rodriguez
but were kept by the lawyer.chanroblesvirtualawlibrary chanrobles virtual
law library
Considering the foregoing, we agree with the trial court that the promissory
note was executed for an illegal consideration. Articles 1409 and 1412 of the
Civil Code in part, provide: chanrobles virtual law library
Art. 1409. The following contracts are inexistent and void from the
beginning: chanrobles virtual law library
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order and public policy; chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
Art. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be
observed: chanrobles virtual law library
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's
undertaking.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of

no moment. The consideration for the promissory note - to influence public
officers in the performance of their duties - is contrary to law and public
policy. The promissory note is void ab initio and no cause of action for the
collection cases can arise from it.chanroblesvirtualawlibrary chanrobles
virtual law library
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The

complaint and the counterclaim in Civil Case No. 45762 are both
DISMISSED.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
CASE #100 Lee vs CA 375 SCRA 5579 (2002)
[G.R. No. 117913. February 1, 2002.]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,

RICHARD VELASCO and ALFONSO CO, Petitioners, v. COURT OF
APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.
[G.R. No. 117914. February 1, 2002.]
MICO METALS CORPORATION, Petitioner, v. COURT OF APPEALS and

PHILIPPINE BANK OF COMMUNICATIONS, Respondents.
DECISION
DE LEON, JR., J.:
Before us is the joint and consolidated petition for review of the Decision 1
dated June 15, 1994 of the Court of Appeals in CA-G.R. CV No. 27480
entitled, "Philippine Bank of Communications v. Mico Metals Corporation,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co," which reversed the decision of the Regional Trial Court (RTC) of
Manila, Branch 55 dismissing the complaint for a sum of money filed by
private respondent Philippine Bank of Communications against herein
petitioners, Mico Metals Corporation (MICO, for brevity), Charles Lee, Chua
Siok Suy, 2 Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co. 3 The
dispositive portion of the said Decision of the Court of Appeals,
reads:chanrob1es virtua1 1aw 1ibrary
WHEREFORE, the decision of the Regional Trial Court is hereby reversed and
in lieu thereof, a new one is entered:chanrob1es virtual 1aw library
a) Ordering the defendants-appellees jointly and severally to pay plaintiff

PBCom the sum of Five million four hundred fifty-one thousand six hundred
sixty-three pesos and ninety centavos (P5,451,663.90) representing
defendants-appellees unpaid obligations arising from ordinary loans granted
by the plaintiff plus legal interest until fully paid.
b) Ordering defendants-appellees jointly and severally to pay PBCom the
sum of Four hundred sixty-one thousand six hundred pesos and sixty-six
centavos (P461,600.66) representing defendants-appellees unpaid
obligations arising from their letters of credit and trust receipt transactions
with plaintiff PBCom plus legal interest until fully paid.
c) Ordering defendants-appellees jointly and severally to pay PBCom the

sum of P50,000.00 as attorney’s fees.
No pronouncement as to costs.
The facts of the case are as follows:chanrob1es virtual 1aw library
On March 2, 1979, Charles Lee, as President of MICO wrote private

respondent Philippine Bank of Communications (PBCom) requesting for a
grant of a discounting loan/credit line in the sum of Three Million Pesos
(P3,000,000.00) for the purpose of carrying out MICO’s line of business as
well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit
line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of
opening letters of credit and trust receipts.
In connection with the requests for discounting loan/credit lines, PBCom was
furnished by MICO the following resolution which was adopted unanimously
by MICO’s Board of Directors:chanrob1es virtual 1aw library
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and
General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly
authorized and empowered for and in behalf of this Corporation to apply for,
negotiate and secure the approval of commercial loans and other banking
facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and
domestic letters of credit, negotiate out-of-town checks, etc. from the
Philippine Bank of Communications, 216 Juan Luna, Manila in such sums as
they shall deem advantageous, the principal of all of which shall not exceed
the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine
Currency, plus any interests that may be agreed upon with said Bank in such
loans and other credit lines of the same kind and such further terms and
conditions as may, upon granting of said loans and other banking facilities,
be imposed by the Bank; and to make, execute, sign and deliver any
contracts of mortgage, pledge or sale of one, some or all of the properties of
the Company, or any other agreements or documents of whatever nature or
kind, including the signing, indorsing, cashing, negotiation and execution of
promissory notes, checks, money orders or other negotiable instruments,
which may be necessary and proper in connection with said loans and other
banking facilities, or with their amendments, renewals and extensions of
payment of the whole or any part thereof. 4
On March 26, 1979, MICO availed of the first loan of One Million Pesos
(P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the
same to be renewed, the last renewal of which was made on May 21, 1982
under Promissory Note BNA No. 26218. 5
Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO

from PBCom which was likewise later on renewed, the last renewal of which
was made on May 21, 1982 under Promissory Note BNA No. 26219. 6 To
complete MICO’s availment of Three Million Pesos (P3,000,000.00)
discounting loan/credit line with PBCom, MICO availed of another loan from
PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979.
As in previous loans, this was rolled over or renewed, the last renewal of
which was made on May 25, 1982 under Promissory Note BNA No. 26253. 7
As security for the loans, MICO through its Vice-President and General
Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate
Mortgage over its properties situated in Pasig, Metro Manila covered by
Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap
and Richard Velasco, in their personal capacities executed a Surety
Agreements 8 in favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts, and other obligations of every kind and nature, for
which MICO may be held accountable by PBCom. It was provided, however,
that the liability of the sureties shall not at any one time exceed the principal
amount of Three Million Pesos (P3,000,000.00) plus interest, costs, losses,
charges and expenses including attorney’s fees incurred by PBCom in
connection therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of

MICO, wrote PBCom and applied for an additional loan in the sum of Four
Million Pesos (P4,000,000.00). The loan was intended for the expansion and
modernization of the company’s machineries. Upon approval of the said
application for loan, MICO availed of the additional loan of Four Million Pesos
(P4,000,000.00) as evidenced by Promissory Note TA No. 094. 9
As per agreement, the proceeds of all the loan availments were credited to
MICO’s current checking account with PBCom. To induce the PBCom to
increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as
petitioners-sureties), executed another surety agreement 10 in favor of
PBCom on July 28, 1980, whereby they jointly and severally guaranteed the
prompt payment on due dates or at maturity of overdrafts, promissory
notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and
all other obligations of any kind and nature for which MICO may be held
accountable by PBCom. It was provided, however, that their liability shall not
at any one time exceed the sum of Seven Million Five Hundred Thousand
Pesos (P7,500,000.00) including interest, costs, charges, expenses and
attorney’s fees incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification

issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was
duly authorized by the Board of Directors to negotiate on behalf of MICO for
loans and other credit availments from PBCom. Indicated in the certification
was the following resolution unanimously approved by the Board of
Directors:chanrob1es virtual 1aw library
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he

is hereby authorized and empowered, on behalf of MICO METALS
CORPORATION from time to time, to borrow money and obtain other credit
facilities, with or without security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under such terms and conditions
as he may determine, with full power and authority to execute, sign and
deliver such contracts, instruments and papers in connection therewith,
including real estate and chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew and/or extend and/or roll-
over and/or reavail of the credit facilities granted thereunder, either for
lesser or for greater amount(s), the intention being that such credit facilities
and all securities of whatever kind given as collaterals therefor shall be a
continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and

directed to rely on the authority given hereunder, the same to continue in
full force and effect until written notice of its revocation shall be received by
said Bank. 11
On July 2, 1981, MICO filed with PBCom an application for a domestic letter
of credit in the sum of Three Hundred Forty-Eight Thousand Pesos
(P348,000.00). 12 The corresponding irrevocable letter of credit was
approved and opened under LC No. L-16060. 13 Thereafter, the domestic
letter of credit was negotiated and accepted by MICO as evidenced by the
corresponding bank draft issued for the purpose. 14 After the supplier of the
merchandise was paid, a trust receipt upon MICO’s own initiative, was
executed in favor of PBCom. 15
On September 14, 1981, MICO applied for another domestic letter of credit
with PBCom in the sum of Two Hundred Ninety Thousand Pesos
(P290,000.00). 16 The corresponding irrevocable letter of credit was issued
on September 22, 1981 under LC No. L-16334. 17 After the beneficiary of
the said letter of credit was paid by PBCom for the price of the merchandise,
the goods were delivered to MICO which executed a corresponding trust
receipt 18 in favor of PBCom.
On November 10, 1981, MICO applied for authority to open a foreign letter
of credit in favor of Ta Jih Enterprises Co., Ltd., 19 and thus, the
corresponding letter of credit 20 was then issued by PBCom with a cable
sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said
beneficiary may draw funds from the account of PBCom in its correspondent
bank’s New York Office. 21 PBCom also informed its corresponding bank in
Taiwan, the Irving Trust Company, of the approved letter of credit. The
correspondent bank acknowledged PBCom’s advice through a confirmation
letter 22 and by debiting from PBCom’s account with the said correspondent
bank the sum of Eleven Thousand Nine Hundred Sixty US Dollars
($11,960.00). 23 As in past transactions, MICO executed in favor of PBCom
a corresponding trust receipt. 24
On January 4, 1982, MICO applied, for authority to open a foreign letter of

credit in the sum of One Thousand Nine Hundred US Dollars,($1,900.00),
with PBCom. 25 Upon approval, the corresponding letter of credit
denominated as LC No. 62293 26 was issued whereupon PBCom advised its
correspondent bank and MICO 27 of the same. Negotiation and proper
acceptance of the letter of credit were then made by MICO. Again, a
corresponding trust receipt 28 was executed by MICO in favor of PBCom.
In all the transactions involving foreign letters of credit, PBCom turned over
to MICO the necessary documents such as the bills .of lading and
commercial invoices to enable the latter to withdraw the goods from the port
of Manila.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of
Three Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by
Promissory Note BA No. 7458. 29
Upon maturity of all credit availments obtained by MICO from PBCom, the
latter made a demand for payment. 30 For failure of petitioner MICO to pay
the obligations incurred despite repeated demands, private respondent
PBCom extrajudicially foreclosed MICO’s real estate mortgage and sold the
said mortgaged properties in a public auction sale held on November 23,
1982. Private respondent PBCom which emerged as the highest bidder in the
auction sale, applied the proceeds of the purchase price at public auction of
Three Million Pesos (P3,000,000.00) to the expenses of the foreclosure,
interest and charges and part of the principal of the loans, leaving an unpaid
balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-
Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and
interest charges. Aside from the unpaid balance of Five Million Four Hundred
Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos
(P5,441,663.90), MICO likewise had another standing obligation in the sum
of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos
(P461,600.06) representing its trust receipts liabilities to
private Respondent. PBCom then demanded the settlement of the aforesaid
obligations from herein petitioners-sureties who, however, refused to
acknowledge their obligations to PBCom under the surety agreements.
Hence, PBCom filed a complaint with prayer for writ of preliminary
attachment before the Regional Trial Court of Manila, which was raffled to
Branch 55, alleging that MICO was no longer in operation and had no
properties to answer for its obligations. PBCom further alleged that
petitioner Charles Lee has disposed or concealed his properties with intent to
defraud his creditors. Except for MICO and Charles Lee, the sheriff of the
RTC failed to serve the summons on herein petitioners-sureties since they
were all reportedly abroad at the time. An alias summons was later issued
but the sheriff was not able to serve the same to petitioners Alfonso Co and
Chua Siok Suy who was already sickly at the time and reportedly in Taiwan
where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations

of the complaint filed by respondent PBCom, and alleged that: a) MICO was
not granted the alleged loans and neither did it receive the proceeds of the
aforesaid loans; b) Chua Siok Suy was never granted any valid Board
Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in
granting the alleged loans and in releasing the proceeds thereof; d)
petitioners were never advised of the alleged grant of loans and the
subsequent releases therefor, if any; e) since no loan was ever released to
or received by MICO, the corresponding real estate mortgage and the surety
agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and
dismissed the complaint filed by PBCom. The trial court likewise declared the
real estate mortgage and its foreclosure null and void. In ruling for herein
petitioners, the trial court said that PBCom failed to adequately prove that
the proceeds of the loans were ever delivered to MICO. The trial court
pointed out, among others, that while PBCom claimed that the proceeds of
the Four Million Pesos (P4,000,000.00) loan covered by promissory note TA
094 were deposited to the current account of petitioner MICO, PBCom failed
to produce the ledger account showing such deposit. The trial court added
that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred
Ninety Thousand Pesos (P290,000.00), no proof has been adduced as to the
existence of the goods covered and paid by the said amounts. Hence,
inasmuch as no consideration ever passed from PBCom to MICO, all the
documents involved therein, such as the promissory notes, real estate
mortgage including the surety agreements were all void or nonexistent for
lack of cause or consideration. The trial court said that the lack of proof as
regards the existence of the merchandise covered by the letters of credit
bolstered the claim of herein petitioners that no purchases of the goods were
really made and that the letters of credit transactions were simply resorted
to by the PBCom and Chua Siok Suy to accommodate the latter in his
financial requirements.
The Court of Appeals reversed the ruling of the trial court, saying that the
latter committed an erroneous application and appreciation of the rules
governing the burden of proof. Citing Section 24 of the Negotiable
Instruments Law which provides that "Every negotiable instrument is
deemed prima facie to have been issued for valuable consideration and
thereto for value", the Court of Appeals said that while the subject
promissory notes and letters of credit issued by the PBCom made no
mention of delivery of cash, it is presumed that said negotiable instruments
were issued for valuable consideration. The Court of Appeals also cited the
case of Gatmaitan v. Court of Appeals 31 which holds that "there is a
presumption that an instrument sets out the true agreement of the parties
thereto and that it was executed for valuable consideration." The appellate
court noted and found that a notarized Certification was issued by MICO’s
corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized
by the Board of Directors of MICO to borrow money and obtain credit
facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged decision of

the Court of Appeals but this was denied in a Resolution dated November 7,
1994 issued by its Former Second Division. Petitioners-sureties then filed a
petition for review on certiorari with this Court, docketed as G.R. No.
117913, assailing the decision of the Court of Appeals. MICO likewise filed a
separate petition for review on certiorari, docketed as G.R. No. 117914, with
this Court assailing the same decision rendered by the Court of Appeals.
Upon motion filed by petitioners, the two (2) petitions were consolidated on
January 11, 1995. 32
Petitioners contend that there was no proof that the proceeds of the loans or
the goods under the trust receipts were ever delivered to and received by
MICO. But the record shows otherwise. Petitioners-sureties further contend
that assuming that there was delivery by PBCom of the proceeds of the
loans and the goods, the contracts were executed by an unauthorized
person, more specifically Chua Siok Suy who acted fraudulently and in
collusion with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar are: a) whether
or not the proceeds of the loans and letters of credit transactions were ever
delivered to MICO, and b) whether or not the individual petitioners, as
sureties, may be held liable under the two (2) Surety Agreements executed
on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his case
by preponderance of evidence. 33 Preponderance of evidence means
evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. Petitioners contend that the alleged
promissory notes, trust receipts and surety agreements attached to the
complaint filed by PBCom did not ripen into valid and binding contracts
inasmuch as there is no evidence of the delivery of money or loan proceeds
to MICO or to any of the petitioners-sureties. Petitioners claim that under
normal banking practice, borrowers are required to accomplish promissory
notes in blank even before the grant of the loans applied for and such
documents become valid written contracts only when the loans are actually
released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof upon an
issue may be aided in establishing his claim or defense by the operation of a
presumption, or, expressed differently, by the probative value which the law
attaches to a specific state of facts. A presumption may operate against his
adversary who has not introduced proof to rebut the presumption. The effect
of a legal presumption upon a burden of proof is to create the necessity of
presenting evidence to meet the legal presumption or the prima facie case
created thereby, and which if no proof to the contrary is presented and
offered, will prevail. The burden of proof remains where it is, but by the
presumption the one who has that burden is relieved for the time being from
introducing evidence in support of his averment, because the presumption
stands in the place of evidence unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following presumptions,
among others, are satisfactory if uncontradicted: a) That there was a
sufficient consideration for a contract and b) That a negotiable instrument
was given or indorsed for sufficient consideration. As observed by the Court
of Appeals, a similar presumption is found in Section 24 of the Negotiable
Instruments Law which provides that every negotiable instrument is deemed
prima facie to have been issued for valuable consideration and every person
whose signature appears thereon to have become a party for value.
Negotiable instruments which are meant to be substitutes for money, must
conform to the following requisites to be considered as such a) it must be in
writing; b) it must be signed by the maker or drawer; c) it must contain an
unconditional promise or order to pay a sum certain in money; d) it must be
payable on demand or at a fixed or determinable future time; e) it must be
payable to order or bearer; and f) where it is a bill of exchange, the drawee
must be named or otherwise indicated with reasonable certainty. Negotiable
instruments include promissory notes, bills of exchange and checks. Letters
of credit and trust receipts are, however, not negotiable instruments. But
drafts issued in connection with letters of credit are negotiable instruments.
Private respondent PBCom presented the following documentary evidence to

prove petitioners’ credit availments and liabilities:chanrob1es virtual 1aw
library
1) Promissory Note No. BNA-26218 dated May 21, 1982 in the sum of
P1,000,000.00 executed by MICO in favor of PBCom.
P377,000.00 executed by MICO in favor of PBCom.
5) Promissory Note No. TA - 094 dated July 29, 1980 in the sum of
P4,000.000.00 executed by MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated July 2, 1981 issued in favor
of Perez Battery Center for account of Mico Metals Corp.
7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez

Battery Center, beneficiary of irrevocable Letter of Credit No. No. L-16060
and accepted by MICO Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to private
respondent PBCom showing that proceeds of the irrevocable letter of credit
No. L-16060 was received by Mr. Moises Rosete, representative of Perez
Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom

covering the merchandise purchased under Letter of Credit No. 16060.
10) Irrevocable letter of credit No. L-16334 dated September 22, 1981
issued in favor of Perez Battery Center for account of MICO Metals Corp.
11) Draft dated September 22, 1981 in the sum of P290,000.00 issued by
Perez Battery Center and accepted by MICO.
12) Letter dated September 17, 1981 from Perez Battery addressed to
PBCom showing that the proceeds of credit no. L-16344 was received by Mr.
Moises Rosete, a representative of Perez Battery Center.
13) Trust Receipt dated September 22, 1981 executed by MICO in favor of
PBCom covering the merchandise under Letter of Credit No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for
US$11,960.00 issued by PBCom in favor of TA JIH Enterprises Co. Ltd.,
through its correspondent bank, Irving Trust Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 1981 executed by MICO in favor of
PBCom showing that possession of the merchandise covered by Irrevocable
Letter of Credit no. 61873 was released by PBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed by its president, Charles
Lee, showing that MICO sought credit line from PBCom in the form of loans,
letters of credit and trust receipt in the sum of P7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its president, Charles
Lee, showing that MICO requested for additional financial assistance in the
sum of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee
and Mariano Sio singly or jointly to act and sign for and in behalf of MICO
relative to the obtention of credit facilities from PBCom.
19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO
in favor of PBCom over MICO’s real properties covered by TCT Nos. 11248
and 11250 located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979 executed by
herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco
and Chua Siok Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980 executed by
herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco
and Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO’s
corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a board
resolution authorizing Chua Siok Suy to sign, for and in behalf of MICO, all
the necessary documents including contracts, loan instruments and
mortgages relative to the obtention of various credit facilities from PBCom.
The above-cited documents presented have not merely created a prima facie
case but have actually proved the solidary obligation of MICO and the
petitioners, as sureties of MICO, in favor of respondent PBCom. While the
presumption found under the Negotiable Instruments Law may not
necessarily be applicable to trust receipts and letters of credit, the
presumption that the drafts drawn in connection with the letters of credit
have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of
Court there is also a presumption that sufficient consideration was given in a
contract. Hence, petitioners should have presented credible evidence to
rebut that presumption as well as the evidence presented by private
respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed by
the beneficiary/suppliers in connection with the corresponding letters of
credit proved that said suppliers were paid by PBCom for the account of
MICO. On the other hand, aside from their bare denials petitioners did not
present sufficient and competent evidence to rebut the evidence of private
respondent PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its allegation that the loan
transactions, real estate mortgage, letters of credit and trust receipts were
issued allegedly without any consideration.
Petitioners-sureties, for their part, presented the By-Laws 34 of Mico Metals

Corporation (MICO) to prove that only the president of MICO is authorized to
borrow money, arrange letters of credit, execute trust receipts, and
promissory notes and consequently, that the loan transactions, letters of
credit, promissory notes and trust receipts, most of which were executed by
Chua Siok Suy in representation of MICO were not allegedly authorized and
hence, are not binding upon MICO. A perusal of the By-Laws of MICO,
however, shows that the power to borrow money for the company and issue
mortgages, lands, deeds of trust and negotiable instruments or securities,
secured by mortgages or pledges of property belonging to the company is
not confined solely to the president of the corporation. The Board of
Directors of MICO can also borrow money, arrange letters of credit, execute
trust receipts and promissory notes on behalf of the corporation. 35
Significantly, this power of the Board of Directors according to the by-laws of
MICO, may be delegated to any of its standing committee, officer or agent.
36 Hence, PBCom had every right to rely on the Certification issued by
MICO’s corporate secretary, P.B. Barrera, that Chua Siok Suy was duly
authorized by its Board of Directors to borrow money and obtain credit
facilities in behalf of MICO from PBCom.
Petitioners-sureties also presented a letter of their counsel dated October 9,

1982, addressed to private respondent PBCom purportedly to show that
PBCom knew that Chua Siok Suy allegedly used the credit and good names
of the petitioner-sureties for his benefit, and that petitioner-sureties were
made to sign blank documents and were furnished copies of the same. The
letter, however, is in fact merely a reply of petitioners-sureties’ counsel to
PBCom’s demand for payment of MICO’s obligations, and appears to be an
inconsequential piece of self-serving evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the decision

of the trial court which stated that there was no proof that the proceeds of
the loans were ever delivered to MICO. Although the private respondent’s
witness, Mr. Gardiola, testified that the proceeds of the loans were deposited
in MICO’s current account with PBCom, his testimony was allegedly not
supported by any bank record, note or memorandum. A careful scrutiny of
the record including the transcript of stenographic notes reveals, however,
that although private respondent PBCom was willing to produce the
corresponding account ledger showing that the proceeds of the loans were
credited to MICO’s current account with PBCom, MICO in fact vigorously
objected to the presentation of said document. That point is shown in the
testimony of PBCom’s witness, Gardiola, thus:chanrob1es virtual 1aw library
Q: Now, all of these promissory note Exhibits "I" and "T’ which as you have
said previously (sic) availed originally by defendant Mico Metals Corp.
sometime in 1979, my question now is, do you know what happened to the
proceeds of the original availment?
A: Well, it was credited to the current account of Mico Metals Corp.
Q: Why did it was credited to the proceeds to the account of Mico Metals
Corp? (sic)
A: Well, that is our understanding.
ATTY. DURAN:chanrob1es virtual 1aw library
Your honor, may we be given a chance to object, the best evidence is the
so-called current account...
COURT:chanrob1es virtual 1aw library
Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
The ledger or record of the current account of Mico Metals Corp.
A: Yes, Your Honor.
ATTY. ACEJAS:chanrob1es virtual 1aw library
Your Honor, these are a confidential record, and they might not be disclosed
without the consent of the person concerned. (sic)
ATTY. SANTOS:chanrob1es virtual 1aw library
Well, you are the one who is asking that.
ATTY. DURAN:chanrob1es virtual 1aw library
Your Honor, I’m precisely want to show for the ... (sic)
But the amount covered by the current account of defendant Mico Metals
Corp. is the subject matter of this case.
x x x
Q: Are those availments were release? (sic)

A: Yes, Your Honor, to the defendant corporation.
Q: By what means?
A: By the credit to their current account.
We object to that, your Honor, because the disclose is the secrecy of the
bank deposit. (sic)
x x x
Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three
(3) promissory notes were credited to the accounts of Mico Metals
Corporation, now do you know what kind of current account was that which
you are referring to?
Objection your Honor, that is the disclose of the deposit of defendant Mico
Metals Corporation and it cannot disclosed without the authority of the
depositor. (sic) 37
That proceeds of the loans which were originally availed of in 1979 were
delivered to MICO is bolstered by the fact that" more than a year later,
specifically on July 14, 1980, MICO through its president, petitioner-surety
Charles Lee, requested for an additional loan of Four Million Pesos
(P4,000,000.00) from PBCom. The fact that MICO was requesting for an
additional loan implied that it has already availed of earlier loans from
PBCom.
Petitioners allege that PBCom presented no evidence that it remitted

payments to cover the domestic and foreign letters of credit. Petitioners
placed much reliance on the erroneous decision of the trial court which
stated that private respondent PBCom allegedly failed to prove that it
actually made payments under the letters of credit since the bank drafts
presented as evidence show that they were made in favor of the Bank of
Taiwan and First Commercial Bank.
Petitioners’ allegations are untenable.
Modern letters of credit are usually not made between natural persons. They
involve bank to bank transactions. Historically, the letter of credit was
developed to facilitate the sale of goods between, distant and unfamiliar
buyers and sellers. It was an arrangement under which a bank, whose credit
was acceptable to the seller, would at the instance of the buyer agree to pay
drafts drawn on it by the seller, provided that certain documents are
presented such as bills of lading accompanied the corresponding drafts.
Expansion in the use of letters of credit was a natural development in
commercial banking. 38 Parties to a commercial letter of credit include (a)
the buyer or the importer, (b) the seller, also referred to as beneficiary, (c)
the opening bank which is usually the buyer’s bank which actually issues the
letter of credit, (d) the notifying bank which is the correspondent bank of the
opening bank through, which it advises the beneficiary of the letter of credit,
(e) negotiating bank which is usually any bank in the city of the beneficiary.
The services of the notifying bank must always be utilized if the letter of
credit is to be advised to the beneficiary through cable, (f) the paying bank
which buys or discounts the drafts contemplated by the letter of credit, if
such draft is to be drawn on the opening bank or on another designated
bank not in the city of the beneficiary. As a rule, whenever the facilities of
the opening bank are used, the beneficiary is supposed to present his drafts
to the notifying bank for negotiation and (g) the confirming bank which,
upon the request of the beneficiary, confirms the letter of credit issued by
the opening bank.
From the foregoing, it is clear that letters of credit, being usually bank to
bank transactions, involve more than just one bank. Consequently, there is
nothing unusual in the fact that the drafts presented in evidence by
respondent bank were not made payable to PBCom. As explained by
respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih
Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign
letter of credit. Having paid the supplier, the Bank of Taiwan then presented
the bank draft for reimbursement by PBCom’s correspondent bank in
Taiwan, the Irving Trust Company — which explains the reason why on its
face, the draft was made payable to the Bank of Taiwan. Irving Trust
Company accepted and endorsed the draft to PBCom. The draft was later
transmitted to PBCom to support the latter’s claim for payment from MICO.
MICO accepted the draft upon presentment and negotiated it to PBCom.
Petitioners further aver that MICO never requested that legal possession of
the merchandise be transferred to PBCom by way of trust receipts.
Petitioners insist that assuming that MICO transferred possession of the
merchandise to PBCom by way of trust receipts, the same would be illegal
since PBCom, being a banking institution, is not authorized by law to engage
in the business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who
may not be able to acquire credit except through utilization, as collateral of
the merchandise imported or purchased. 39 A trust receipt, therefor, is a
document of security pursuant to which a bank acquires a "security interest"
in the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the
trust receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature which is in
the covering trust receipt which secures an indebtedness.
Petitioners’ averments with regard to the second issue are no less

incredulous. Petitioners’ contend that the letters of credit, surety agreements
and loan transactions did not ripen into valid and binding contracts since no
part of the proceeds of the loan transactions were delivered to MICO or to
any of the petitioners-sureties. Petitioners-sureties allege that Chua Siok
Suy was the beneficiary of the proceeds of the loans and that the latter
made them sign the surety agreements in blank. Thus, they maintain that
they should not be held accountable for any liability that might arise
therefrom.
It has not escaped our notice that it was petitioner-surety Charles Lee, as
president of MICO Metals Corporation, who first requested for a discounting
loan of Three Million Pesos (P3,000,000.00) from PBCom as evidenced by his
letter dated March 2, 1979. 40 On the same day, Charles Lee, as President
of MICO, requested for a Letter of Credit and Trust Receipt line in the sum of
Three Million Pesos (P3,000,000.00). 41 Still, on the same day, Charles Lee
again as President of MICO, wrote another letter to PBCOM requesting for a
financing line in the sum of One Million Five Hundred Thousand Pesos
(P1,500,000.00) to be used exclusively as marginal deposit for the opening
of MICO’s foreign and local letters of credit with PBCom. 42 More than a year
later, it was also Charles Lee, again in his capacity as president of MICO,
who asked for an additional loan in the sum of Four Million Pesos
(P4,000,000.00). The claim therefore of petitioners that it was Chua Siok
Suy, in connivance with the respondent PBCom, who applied for and
obtained the loan transactions and letters of credit strains credulity
considering that even the Deed of the Real Estate Mortgage in favor of
PBCom was executed by petitioner-surety Mariano Sio in his capacity as
general manager of MICO 43 to secure the loan accommodations obtained
by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety

agreements in blank by Chua Siok Suy. Petitioner Alfonso Yap, the corporate
treasurer, for his part testified that he signed booklets of checks, surety
agreements and promissory notes in blank; that he signed the documents in
blank despite his misgivings since Chua Siok Suy assured him that the
transaction can easily be taken cared of since Chua Siok Suy personally
knew the Chairman of the Board of PBCom; that he was not receiving salary
as treasurer of Mico Metals and since Chua Siok Suy had a direct hand in the
management of Malayan Sales Corporation, of which Yap is an employee, he
(Yap) signed the documents in blank as consideration for his continued
employment in Malayan Sales Corporation. Petitioner Antonio Co testified
that he worked as office manager for MICO from 1978-1982. As office
manager, he was the one in charge of transacting business like purchasing,
selling and paying the salary of the employees. He was also in charge of the
handling of documents pertaining to surety agreements, trust receipts and
promissory notes; 44 that when he first joined MICO Metals Corporation, he
was able to read the by-laws of the corporation and he came to know that
only the chairman and the president can borrow money in behalf of the
corporation; that Chua Siok Suy once called him up and told him to secure
an invoice so that a credit line can be opened in the bank with a local letter
of credit; that when the invoice was secured, he (Co) brought it together
with the application for a credit line to Chua Siok Suy, and that he
questioned the authority of Chua Siok Suy pointing out that he (Co) is not
empowered to sign the document inasmuch as only the Latter, as president,
was authorized to do so. However, Chua Siok Suy allegedly just said that he
had already talked with the Chairman of the Board of PBCom; and that Chua
Siok Suy reportedly said that he needed the money to’ finance a project that
he had with the Taipei government. Co also testified that he knew of the
application for domestic letter of credit in the sum of Three Hundred Forty-
Eight Thousand Pesos (P348,000.00); and that a certain Moises Rosete was
authorized to claim the check covering the Three Hundred Forty-Eight
Thousand Pesos (P348,000.00) from PBCom; and that after claiming the
check Rosete brought it to Perez Battery Center for indorsement after which
the same was deposited to the personal account of Chua Siok Suy. 45
We consider as incredible and unacceptable the claim of petitioners-sureties

that the Board of Directors of MICO was so careless about the business
affairs of MICO as well as about their own personal reputation and money
that they simply relied on the say so of Chua Siok Suy on matters involving
millions of pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is
presumed that a person takes ordinary care of his concerns. Hence; the
natural presumption is that one does not sign a document without first
informing himself of its contents and consequences. Said presumption
acquires greater force in the case at bar where not only one but several
documents were executed at different times and at different places by the
petitioner sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly
authorized to negotiate for loans in behalf of MICO from PBCom. Petitioners’
allegation, however, is belied by the July 28, 1980 ,Certification issued by
the corporate secretary of PBCom, Atty. P.B. Barrera, that MICO’s Board of
Directors gave Chua Siok Suy full authority to :negotiate for loans in behalf
of MICO with PBCom. In fact, the Certification even provided that Chua Siok
Suy’s authority continues until and unless PBCom is notified in writing of the
withdrawal thereof by the said Board. Notably, petitioners failed to contest
the genuineness of the said Certification which is notarized and to show any
written proof of any alleged withdrawal of the said authority given by the
Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-sureties

individually about the terms of the loans, letters of credit and other loan
documents. The petitioners-sureties themselves happen to comprise the
Board of Directors of MICO, which gave full authority to Chua Siok Suy to
negotiate for loans in behalf of MICO. Notice to MICO’s authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued
by PBCom’s corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok
Suy had full authority to negotiate and sign the necessary documents, in
behalf of MICO, for loans from PBCom. Respondent PBCom therefore had the
right to rely on the said notarized Certification of MICO’s Corporate
Secretary.
Anent petitioners-sureties contention that they obtained no consideration

whatsoever on the surety agreements, we need only point out that the
consideration for the sureties is the very consideration for the principal
obligor, MICO, in the contracts of loan. In the case of Willex Plastic
Industries Corporation v. Court of Appeals, 46 we ruled that the
consideration necessary to support a surety obligation need not pass directly
to the surety, a consideration moving to the principal alone being sufficient.
For a guarantor or surety is bound by the same consideration that makes the
contract effective between the parties thereto. It is not necessary that a
guarantor or surety should receive any part or benefit, if such there be,
accruing to his principal.
Petitioners placed too much reliance on the rule in evidence that the burden
of proof does not shift whereas the burden of going forward with the
evidence does not pass from party to party. It is true that said rule is not
changed by the fact that the party having the burden of proof has introduced
evidence which established prima facie his assertion because such evidence
does not shift the burden of proof; it merely puts the adversary to the
necessity of producing evidence to meet the prima facie case. Where the
defendant merely denies, either generally or otherwise, the allegations of
the plaintiff’s pleadings, the burden of proof continues to rest on the plaintiff
throughout the trial and does not shift to the defendant until the plaintiff’s
evidence has been presented and duly offered. The defendant has then no
burden except to produce evidence sufficient to create a state of equipoise
between his proof and that of the plaintiff to defeat the latter, whereas the
plaintiff has the burden, as in the beginning, of establishing his case by a
preponderance of evidence. 47 But where the defendant has failed to
present and marshall evidence sufficient to create a state of equipoise
between his proof and that of the plaintiff, the prima facie case presented by
the plaintiff will prevail.
In the case at bar, respondent PBCom, as plaintiff in the trial court, has in
fact presented sufficient documentary and testimonial evidence that proved
by preponderance of evidence its subject collection case against the
defendants who are the petitioners herein. In view of all the foregoing, the
Court of Appeals committed no reversible error in its appealed Decision.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV

No. 27480 entitled, "Philippine Bank of Communications v. Mico Metals
Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co," is AFFIRMED in toto.chanrob1es virtua1 1aw
1ibrary
Costs against the petitioners.
SO ORDERED.
CASE #101 Yang vs CA 409 SCRA 159 (2003)
[G.R. No. 138074. August 15, 2003.]
CELY YANG, Petitioner, v. HON. COURT OF APPEALS, PHILIPPINE

COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO.,
EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, Respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision 1 of the Court of Appeals, dated

March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification
the joint decision of the Regional Trial Court (RTC) of Pasay City, Branch
117, dated July 4, 1995, in Civil Cases Nos. 5479 2 and 5492. 3 The trial
court dismissed the complaint against herein respondents Far East Bank &
Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and
Philippine Commercial International Bank (PCIB) and ruled in favor of
respondent Fernando David as to the proceeds of the two cashier’s checks,
including the earnings thereof pendente lite. Petitioner Cely Yang was
ordered to pay David moral damages of P100,000.00 and attorney’s fees
also in the amount of P100,000.00.chanrob1es virtua1 1aw 1ibrary
The facts of this case are not disputed, to wit:chanrob1es virtual 1aw library
On or before December 22, 1987, petitioner Cely Yang and private

respondent Prem Chandiramani entered into an agreement whereby the
latter was to give Yang a PCIB manager’s check in the amount of P4.2
million in exchange for two (2) of Yang’s manager’s checks, each in the
amount of P2.087 million, both payable to the order of private respondent
Fernando David. Yang and Chandiramani agreed that the difference of
P26,000.00 in the exchange would be their profit to be divided equally
between them.
Yang and Chandiramani also further agreed that the former would secure
from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB
FCDU Account No. 4195-01165-2, which Chandiramani would exchange for
another dollar draft in the same amount to be issued by Hang Seng Bank
Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the

following:chanrob1es virtual 1aw library
a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of

P2,087,000.00, dated December 22, 1987, payable to the order of Fernando
David;
b) FEBTC Cashier’s Check No. 287078, in the amount of P2,087,000.00,

dated December 22, 1987, likewise payable to the order of Fernando David;
and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the
amount of US$200,000.00, dated December 22, 1987, payable to PCIB
FCDU Account No. 4195-01165-2.
At about one o’clock in the afternoon of the same day, Yang gave the
aforementioned cashier’s checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo
Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s
checks and dollar draft to Chandiramani who, in turn, would deliver to
Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang Seng
Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the
two cashier’s checks and the dollar draft bought by petitioner. Ranigo
reported the alleged loss of the checks and the dollar draft to Liong at half
past four in the afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.
It transpired, however, that the checks and the dollar draft were not lost, for
Chandiramani was able to get hold of said instruments, without delivering
the exchange consideration consisting of the PCIB manager’s check and the
Hang Seng Bank dollar draft.
At three o’clock in the afternoon or some two (2) hours after Chandiramani
and Ranigo were to meet in Makati City, Chandiramani delivered to
respondent Fernando David at China Banking Corporation branch in San
Fernando City, Pampanga, the following: (a) FEBTC Cashier’s Check No.
287078, dated December 22, 1987, in the sum of P2.087 million; and (b)
Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987,
also in the amount of P2.087 million. In exchange, Chandiramani got
US$360,000.00 from David, which Chandiramani deposited in the savings
account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas,
who held FCDU Account No. 124 with the United Coconut Planters Bank
branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited
FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the
Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No.
4195-01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the

instruments she believed to be lost. Both banks complied with her request,
but upon the representation of PCIB, FEBTC subsequently lifted the stop
payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of
PCIB FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a Complaint 4 for

injunction and damages against Equitable, Chandiramani, and David, with
prayer for a temporary restraining order, with the Regional Trial Court of
Pasay City. The Complaint was docketed as Civil Case No. 5479. The
Complaint was subsequently amended to include a prayer for Equitable to
return to Yang the amount of P2.087 million, with interest thereon until fully
paid. 5
On January 12, 1988, Yang filed a separate case for injunction and damages,
with prayer for a writ of preliminary injunction against FEBTC, PCIB,
Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case
No. 5492. This complaint was later amended to include a prayer that
defendants therein return to Yang the amount of P2.087 million, the value of
FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid. 6
On February 9, 1988, upon the filing of a bond by Yang, the trial court
issued a writ of preliminary injunction in Civil Case No. 5479. A writ of
preliminary injunction was subsequently issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of the cases

against him and for reconsideration of the Orders granting the writ of
preliminary injunction, but these motions were denied. David then elevated
the matter to the Court of Appeals in a special civil action
for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the
appellate court.
As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two
cases were consolidated. The trial court then conducted pre-trial and trial of
the two cases, but the proceedings had to be suspended after a fire gutted
the Pasay City Hall and destroyed the records of the courts.
After the records were reconstituted, the proceedings resumed and the
parties agreed that the money in dispute be invested in Treasury Bills to be
awarded in favor of the prevailing side. It was also agreed by the parties to
limit the issues at the trial to the following:chanrob1es virtual 1aw library
1. Who, between David and Yang, is legally entitled to the proceeds of

Equitable Banking Corporation (EBC) Cashier’s Check No. CCPS 14-009467
in the sum of P2,087,000.00 dated December 22, 1987, and Far East Bank
and Trust Company (FEBTC) Cashier’s Check No. 287078 in the sum of
P2,087,000.00 dated December 22, 1987, together with the earnings
derived therefrom pendente lite?
2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having
allowed the encashment of FEBTC Dollar Draft No. 4771, in the sum of
US$200,000.00 plus interest thereon despite the stop payment order of Cely
Yang? 7
On July 4, 1995, the trial court handed down its decision in Civil Cases Nos.
5479 and 5492, to wit:chanrob1es virtual 1aw library
WHEREFORE, the Court renders judgment in favor of defendant Fernando

David against the plaintiff Cely Yang and declaring the former entitled to the
proceeds of the two (2) cashier’s checks, together with the earnings derived
therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando
David moral damages in the amount of P100,000.00; attorney’s fees in the
amount of P100,000.00 and to pay the costs. The complaint against Far East
Bank and Trust Company (FEBTC), Philippine Commercial International Bank
(PCIB) and Equitable Banking Corporation (EBC) is dismissed. The decision is
without prejudice to whatever action plaintiff Cely Yang will file against
defendant Prem Chandiramani for reimbursement of the amounts received
by him from defendant Fernando David.
SO ORDERED. 8
In finding for David, the trial court ratiocinated:chanrob1es virtual 1aw

library
The evidence shows that defendant David was a holder in due course for the
reason that the cashier’s checks were complete on their face when they were
negotiated to him. They were not yet overdue when he became the holder
thereof and he had no notice that said checks were previously dishonored;
he took the cashier’s checks in good faith and for value. He parted some
$200,000.00 for the two (2) cashier’s checks which were given to defendant
Chandiramani; he had also no notice of any infirmity in the cashier’s checks
or defect in the title of the drawer. As a matter of fact, he asked the
manager of the China Banking Corporation to inquire as to the genuineness
of the cashier’s checks (tsn, February 5, 1988, p. 21, September 20, 1991,
pp. 13–14). Another proof that defendant David is a holder in due course is
the fact that the stop payment order on [the] FEBTC cashier’s check was
lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24–
25). The apparent reason for lifting the stop payment order was because of
the fact that FEBTC realized that the checks were not actually lost but indeed
reached the payee defendant David. 9
Yang then moved for reconsideration of the RTC judgment, but the trial
court denied her motion in its Order of September 20, 1995.
In the belief that the trial court misunderstood the concept of a holder in due
course and misapprehended the factual milieu, Yang seasonably filed an
appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.
On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in
this wise:chanrob1es virtual 1aw library
WHEREFORE, this court AFFIRMS the judgment of the lower court with
modification and hereby orders the plaintiff-appellant to pay defendant-
appellant PCIB the amount of Twenty-Five Thousand Pesos (P25,000.00).
SO ORDERED. 10
In affirming the trial court’s judgment with respect to herein respondent

David, the appellate court found that:chanrob1es virtual 1aw library
In this case, defendant-appellee had taken the necessary precautions to

verify, through his bank, China Banking Corporation, the genuineness of
whether (sic) the cashier’s checks he received from Chandiramani. As no
stop payment order was made yet (at) the time of the inquiry, defendant-
appellee had no notice of what had transpired earlier between the plaintiff-
appellant and Chandiramani. All he knew was that the checks were issued to
Chandiramani with whom he was he had (sic) a transaction. Further on,
David received the checks in question in due course because Chandiramani,
who at the time the checks were delivered to David, was acting as Yang’s
agent.
David had no notice, real or constructive, cogent for him to make further
inquiry as to any infirmity in the instrument(s) and defect of title of the
holder. To mandate that each holder inquire about every aspect on how the
instrument came about will unduly impede commercial transactions,
Although negotiable instruments do not constitute legal tender, they often
take the place of money as a means of payment.
The mere fact that David and Chandiramani knew one another for a long
time is not sufficient to establish that they connived with each other to
defraud Yang. There was no concrete proof presented by Yang to support
her theory. 11
The appellate court awarded P25,000.00 in attorney’s fees to PCIB as it

found the action filed by Yang against said bank to be "clearly unfounded
and baseless." Since PCIB was compelled to litigate to protect itself, then it
was entitled under Article 2208 12 of the Civil Code to attorney’s fees and
litigation expenses.
Hence, the instant recourse wherein petitioner submits the following issues
for resolution:chanrob1es virtual 1aw library
a WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY

PETITIONER;
b WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI

AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE
RESPONDENTS TO SWINDLE PETITIONER;
c WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00

OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE
LOOT;
d WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE

ENTITLED TO DAMAGES AND ATTORNEY’S FEES. 13
At the outset, we must stress that this is a petition for review under Rule 45
of the 1997 Rules of Civil Procedure. It is basic that in petitions for review
under Rule 45, the jurisdiction of this Court is limited to reviewing questions
of law, questions of fact are not entertained absent a showing that the
factual findings complained of are totally devoid of support in the record or
are glaringly erroneous. 14 Given the facts in the instant case, despite
petitioner’s formulation, we find that the following are the pertinent issues to
be resolved:chanrob1es virtual 1aw library
a) Whether the Court of Appeals erred in holding herein respondent

Fernando David to be a holder in due course; and
b) Whether the appellate court committed a reversible error in awarding

damages and attorney’s fees to David and PCIB.
On the first issue, petitioner Yang contends that private respondent

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

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

due course. However, this presumption arises only in favor of a person who
is a holder as defined in Section 191 of the Negotiable Instruments Law, 15
meaning a "payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof."cralaw virtua1aw library
In the present case, it is not disputed that David was the payee of the
checks in question. The weight of authority sustains the view that a payee
may be a holder in due course. 16 Hence, the presumption that he is a
prima facie holder in due course applies in his favor. However, said
presumption may be rebutted. Hence, what is vital to the resolution of this
issue is whether David took possession of the checks under the conditions
provided for in Section 52 17 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in David’s case, otherwise
he cannot be deemed a holder in due course.
We find that the petitioner’s challenge to David’s status as a holder in due

course hinges on two arguments: (1) the lack of proof to show that David
tendered any valuable consideration for the disputed checks; and (2) David’s
failure to inquire from Chandiramani as to how the latter acquired
possession of the checks, thus resulting in David’s intentional ignorance
tantamount to bad faith. In sum, petitioner posits that the last two requisites
of Section 52 are missing, thereby preventing David from being considered a
holder in due course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.
First, with respect to consideration, Section 24 18 of the Negotiable

Instruments Law creates a presumption that every party to an instrument
acquired the same for a consideration 19 or for value. 20 Thus, the law itself
creates a presumption in David’s favor that he gave valuable consideration
for the checks in question. In alleging otherwise, the petitioner has the onus
to prove that David got hold of the checks absent said consideration. In
other words, the petitioner must present convincing evidence to overthrow
the presumption. Our scrutiny of the records, however, shows that the
petitioner failed to discharge her burden of proof. The petitioner’s averment
that David did not give valuable consideration when he took possession of
the checks is unsupported, devoid of any concrete proof to sustain it. Note
that both the trial court and the appellate court found that David did not
receive the checks gratis, but instead gave Chandiramani US$360,000.00 as
consideration for the said instruments. Factual findings of the Court of
Appeals are conclusive on the parties and not reviewable by this Court; they
carry great weight when the factual findings of the trial court are affirmed by
the appellate court. 21
Second, petitioner fails to point any circumstance which should have put
David on inquiry as to the why and wherefore of the possession of the
checks by Chandiramani. David was not privy to the transaction between
petitioner and Chandiramani. Instead, Chandiramani and David had a
separate dealing in which it was precisely Chandiramani’s duty to deliver the
checks to David as payee. The evidence shows that Chandiramani performed
said task to the letter. Petitioner admits that David took the step of asking
the manager of his bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after being assured
that there was nothing wrong with said checks. At that time, David was not
aware of any "stop payment" order. Under these circumstances, David thus
had no obligation to ascertain from Chandiramani what the nature of the
latter’s title to the checks was, if any, or the nature of his possession. Thus,
we cannot hold him guilty of gross neglect amounting to legal absence of
good faith, absent any showing that there was something amiss about
Chandiramani’s acquisition or possession of the checks. David did not close
his eyes deliberately to the nature or the particulars of a fraud allegedly
committed by Chandiramani upon the petitioner, absent any knowledge on
his part that the action in taking the instruments amounted to bad faith. 22
Belatedly, and we say belatedly since petitioner did not raise this matter in
the proceedings below, petitioner now claims that David should have been
put on alert as the instruments in question were crossed checks. Pursuant to
Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should at
least have inquired as to whether he was acquiring said checks for the
purpose for which they were issued, according to petitioner’s submission.
Petitioner’s reliance on the Bataan Cigar case, however, is misplaced. The

facts in the present case are not on all fours with Bataan Cigar. In the latter
case, the crossed checks were negotiated and sold at a discount by the
payee, while in the instant case, the payee did not negotiate further the
checks in question but promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect to crossed checks,

although the Code of Commerce 23 makes reference to such instruments.
Nonetheless, this Court has taken judicial cognizance of the practice that a
check with two parallel lines in the upper left hand corner means that it
could only be deposited and not converted into cash. 24 The effects of
crossing a check, thus, relates to the mode of payment, meaning that the
drawer had intended the check for deposit only by the rightful person, i.e.,
the payee named therein. In Bataan Cigar, the rediscounting of the check by
the payee knowingly violated the avowed intention of crossing the check.
Thus, in accepting the cross checks and paying cash for them, despite the
warning of the crossing, the subsequent holder could not be considered in
good faith and thus, not a holder in due course. Our ruling in Bataan Cigar
reiterates that in De Ocampo & Co. v. Gatchalian.25cralaw:red
The factual circumstances in De Ocampo and in Bataan Cigar are not present
in this case. For here, there is no dispute that the crossed checks were
delivered and duly deposited by David, the payee named therein, in his bank
account. In other words, the purpose behind the crossing of the checks was
satisfied by the payee.
Proceeding to the issue of damages, petitioner merely argues that

respondents David and PCIB are not entitled to damages, attorney’s fees,
and costs of suit as both acted in bad faith towards her, as shown by her
version of the facts which gave rise to the instant case.
Respondent David counters that he was maliciously and unceremoniously

dragged into this suit for reasons which have nothing to do with him at all,
but which arose from petitioner’s failure to receive her share of the profit
promised her by Chandiramani. Moreover, in filing this suit which has lasted
for over a decade now, the petitioner deprived David of the rightful
enjoyment of the two checks, to which he is entitled, under the law,
compelled him to hire the services of counsel to vindicate his rights, and
subjected him to social humiliation and besmirched reputation, thus harming
his standing as a person of good repute in the business community of
Pampanga. David thus contends that it is but proper that moral damages,
attorney’s fees, and costs of suit be awarded him.
For its part, respondent PCIB stresses that it was established by both the
trial court and the appellate court that it was needlessly dragged into this
case. Hence, no error was committed by the appellate court in declaring
PCIB entitled to attorney’s fees as it was compelled to litigate to protect
itself.
We have thoroughly perused the records of this case and find no reason to
disagree with the finding of the trial court, as affirmed by the appellate
court, that:chanrob1es virtual 1aw library
[D]efendant David is entitled to [the] award of moral damages as he has

been needlessly and unceremoniously dragged into this case which should
have been brought only between the plaintiff and defendant Chandiramani.
26
A careful reading of the findings of facts made by both the trial court and
appellate court clearly shows that the petitioner, in including David as a
party in these proceedings, is barking up the wrong tree. It is apparent from
the factual findings that David had no dealings with the petitioner and was
not privy to the agreement of the latter with Chandiramani. Moreover, any
loss which the petitioner incurred was apparently due to the acts or
omissions of Chandiramani, and hence, her recourse should have been
against him and not against David. By needlessly dragging David into this
case all because he and Chandiramani knew each other, the petitioner not
only unduly delayed David from obtaining the value of the checks, but also
caused him anxiety and injured his business reputation while waiting for its
outcome. Recall that under Article 2217 27 of the Civil Code, moral damages
include mental anguish, serious anxiety, besmirched reputation, wounded
feelings, social humiliation, and similar injury. Hence, we find the award of
moral damages to be in order.
The appellate court likewise found that like David, PCIB was dragged into
this case on unfounded and baseless grounds. Both were thus compelled to
litigate to protect their interests, which makes an award of attorney’s fees
justified under Article 2208 (2) 28 of the Civil Code. Hence, we rule that the
award of attorney’s fees to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. The assailed decision of the

Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is
AFFIRMED. Costs against the petitioner.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
CASE #102 Bayani vs People 436 SCRA 113 (2004)
[G.R. NO. 154947 : August 11, 2004]
LEODEGARIO BAYANI, Petitioner, v. PEOPLE OF THE

PHILIPPINES, Respondent.
DECISION
CALLEJO, SR., J.:
This is a Petition for Review on Certiorari of the Decision1 of the Court of

Appeals in CA-G.R. CR No. 22861 affirming on appeal the Decision 2 of the
Regional Trial Court of Lucena City, Branch 59, in Criminal Case No. 93-135
convicting the accused therein, now the petitioner, for violation of Batas
Pambansa (B.P.) Blg. 22.
On February 9, 1993, Leodegario Bayani was charged with violation of B.P.

Blg. 22 in an Information which reads:
That on or about the 20th day of August 1992, in the Municipality of
Candelaria, Province of Quezon, Philippines, and within the jurisdiction of
this Honorable Court, the above-named accused did then and there willfully,
unlawfully and feloniously issue and make out Check No. 054936 dated
August 29, 1992, in the amount of FIFTY-FIVE THOUSAND PESOS
(P55,000.00) Philippine Currency, drawn against the PSBank, Candelaria
Branch, Candelaria, Quezon, payable to "Cash" and give the said check to
one Dolores Evangelista in exchange for cash although the said accused
knew fully well at the time of issuance of said check that he did not have
sufficient funds in or credit with the drawee bank for payment of said check
in full upon presentment; that upon presentation of said check to the bank
for payment, the same was dishonored and refused payment for the reason
that the drawer thereof, the herein accused, had no sufficient fund therein,
and that despite due notice, said accused failed to deposit the necessary
amount to cover said check or to pay in full the amount of said check, to the
damage and prejudice of said Dolores Evangelista in the aforesaid amount.
Contrary to law.3
The Case for the Prosecution
At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store
of Dolores Evangelista in Candelaria, Quezon, and asked the latter to
rediscount Philippine Savings Bank (PSBank) Check No. 054936 in the
amount of P55,000.00. The check was drawn by Leodegario Bayani against
his account with the PSBank and postdated August 29, 1992. 4 Rubia told
Evangelista that Bayani asked her to rediscount the check for him because
he needed the money.5 Considering that Rubia and Bayani were long-time
customers at the store and she knew Bayani to be a good man, Evangelista
agreed to rediscount the check.6 After Rubia endorsed the check, Evangelista
gave her the amount of P55,000.00.7 However, when Evangelista deposited
the check in her account with the Far East Bank & Trust Company on
September 11, 1992, it was dishonored by the drawee bank for the reason
that on September 1, 1992, Bayani closed his account with the PSBank. 8 The
reason for the dishonor of the check was stamped at its dorsal portion. As of
August 27, 1992, the balance of Bayani's account with the bank
was P2,414.96.9 Evangelista then informed Rubia of the dishonor of the
check and demanded the return of her P55,000.00. Rubia replied that she
was only requested by Bayani to have the check rediscounted and advised
Evangelista to see him. When Evangelista talked to Bayani, she was told that
Rubia borrowed the check from him.10
Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a

conference in the office of Atty. Emmanuel Velasco, Evangelista's lawyer.
Later, in the Office of the Barangay Captain Nestor Baera, Evangelista
showed Bayani a photocopy of the dishonored check and demanded
payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other,
pointed to each other and denied liability thereon. Aniceta told Rubia that
she should be the one to pay since the P55,000.00 was with her, but the
latter insisted that the said amount was in payment of the pieces of jewelry
Aniceta purchased from her.11 Upon Atty. Velasco's prodding, Evangelista
suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubio
pointed to the other as the one solely liable for the amount of the
check.12 Rubia reminded Aniceta that she was given the check as payment of
the pieces of jewelry Aniceta bought from her.
The Case for the Petitioner
Bayani testified that he was the proprietor of a funeral parlor in Candelaria,

Quezon. He maintained an account with the PSBank in Candelaria, Quezon,
and was issued a checkbook which was kept by his wife, Aniceta Bayani.
Sometime in 1992, he changed his residence. In the process, his wife lost
four (4) blank checks, one of which was Check No. 054936 13 which formed
part of the checks in the checkbook issued to him by the PSBank. 14 He did
not report the loss to the police authorities. He reported such loss to the
bank after Evangelista demanded the refund of the P55,000.00 from his
wife.15 He then closed his account with the bank on September 11, 1992, but
was informed that he had closed his account much earlier. He denied ever
receiving the amount of P55,000.00 from Rubia.16
Bayani further testified that his wife discovered the loss of the checks when
he brought his wife to the office of Atty. Emmanuel Velasco. 17 He did not see
Evangelista in the office of the lawyer, and was only later informed by his
wife that she had a conference with Evangelista. His wife narrated that
according to Evangelista, Rubia had rediscounted a check he issued, which
turned out to be the check she (Aniceta) had lost. He was also told that
Evangelista had demanded the refund of the amount of the check. 18 He later
tried to contact Rubia but failed. He finally testified that he could not recall
having affixed his signature on the check.19
Aniceta Bayani corroborated the testimony of her husband. She testified that
she was invited to go to the office of Atty. Velasco where she, Rubia and
Evangelista had a conference. It was only then that she met Evangelista.
Rubia admitted that she rediscounted the complainant's check with
Evangelista. When Evangelista asked her to pay the amount of the check,
she asked that the check be shown to her, but Evangelista refused to do so.
She further testified that her husband was not with her and was in their
office at the time.
At the conclusion of the trial, the court rendered judgment finding Bayani
guilty beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22. The
decretal portion of the decision reads:
WHEREFORE, premises considered, the Court finds the accused Leodegario
Bayani guilty beyond reasonable doubt of violation of Section 1, Batas
Pambansa Bilang 22 and hereby sentences him to suffer an imprisonment of
ONE (1) YEAR, or to pay a fine of ONE HUNDRED TEN THOUSAND PESOS
(P110,000.00), to pay to complaining witness Dolores Evangelista the sum
of FIFTY-FIVE THOUSAND PESOS (P55,000.00), the value of the check and
to pay the costs.
SO ORDERED.20
On appeal, the petitioner averred that the prosecution failed to adduce

evidence that he affixed his signature on the check, or received from Rubia
the amount of P55,000.00, thus negating his guilt of the crime charged.
The petitioner asserts that even Teresita Macabulag, the bank manager of
PSB who authenticated his specimen signatures on the signature card he
submitted upon opening his account with the bank, failed to testify that the
signature on the check was his genuine signature.
On January 30, 2002, the Court of Appeals rendered judgment 21 affirming

the decision of the RTC with modification as to the penalty imposed on the
petitioner.
The petitioner asserts in the petition at bar that -
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH
MODIFICATION THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR
ALLEGED VIOLATION OF BATAS PAMBANSA BLG. 22 NOTWITHSTANDING
THAT THE PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK
WAS ISSUED FOR A VALUABLE CONSIDERATION. 22

The petitioner contends that the prosecution failed to prove all the essential
elements of the crime of violation of Section 1, B.P. Blg. 22. He asserts that
the prosecution failed to prove that he issued the check. He avers that even
assuming that he issued the check, the prosecution failed to prove that it
was issued for valuable consideration, and that he received the amount
of P55,000.00 from Rubia. Hence, in light of the ruling of this Court in Magno
v. Court of Appeals,23 he is entitled to an acquittal on such grounds.
The petitioner further contends that Evangelista's testimony, that Rubia told
her that it was the petitioner who asked her to have the check rediscounted,
is hearsay and, as such, even if he did not object thereto is inadmissible in
evidence against him. He avers that the prosecution failed to present Rubia
as a witness, depriving him of his right to cross-examine her. He contends
that any declaration made by Rubia to Evangelista is inadmissible in
evidence against him.
The petition is denied.
We agree with the submission of the petitioner that Evangelista's testimony,

that Rubia told her that the petitioner requested that the subject check be
rediscounted, is hearsay. Evangelista had no personal knowledge of such
request of the petitioner to Rubia. Neither is the information relayed by
Rubia to Evangelista as to the petitioner's request admissible in evidence
against the latter, because the prosecution failed to present Rubia as a
witness, thus, depriving the petitioner of his right of cross-examination.
However, the evidence belies the petitioner's assertion that the prosecution
failed to adduce evidence that he issued the subject check. Evangelista
testified that when she talked to the petitioner upon Rubia's suggestion, the
petitioner admitted that he gave the check to Rubia, but claimed that the
latter "borrowed" the check from him.
Q When this check in question was returned to you because of the closed
account, what did you do, if you did anything?chanroblesvirtualawlibrary
A I talked to Alicia Rubia, Sir.
Q And what did Alicia Rubia tell you in connection with the check in
question?chanroblesvirtualawlibrary
A Alicia Rubia told me that she was just requested by Leodegario Bayani,
Sir.
Q And what else did she tell you?chanroblesvirtualawlibrary
A She advised me to go to Leodegario Bayani, Sir.
Q Did you go to Leodegario Bayani as per instruction of Alicia Rubia?
chanroblesvirtualawlibrary
A Yes, Sir.
Q And what did Leodegario Bayani tell you in connection with this check?
chanroblesvirtualawlibrary
A He told me that Alicia Rubia borrowed the check from him, Sir. 24
Evangelista testified that she showed to the petitioner and his wife, Aniceta,
a photocopy of the subject check in the office of Atty. Velasco, where they
admitted to her that they owned the check:
ATTY. ALZAGA (TO WITNESS)
Q When you shown (sic) the check to Leodegario Bayani and his wife in the
law office of Atty. Velasco, what did they tell you?chanroblesvirtualawlibrary
ATTY. VELASCO:
Misleading. The question is misleading because according to the question,
Your Honor, he had shown the check but that was not the testimony. The
testimony was the xerox copy of the check was the one shown.
ATTY. ALZAGA
"The xerox copy of the check."
COURT
As modified, answer the question.
WITNESS
A They told me they owned the check but they were pointing to each other
as to who will pay the amount, Sir.25
The petitioner cannot escape criminal liability by denying that he received

the amount of P55,000.00 from Rubia after he issued the check to her. As
we ruled in Lozano v. Martinez:26
The gravamen of the offense punished by BP 22 is the act of making and
issuing a worthless check or a check that is dishonored upon its presentation
for payment. It is not the non-payment of an obligation which the law
punishes. The law is not intended or designed to coerce a debtor to pay his
debt. The thrust of the law is to prohibit, under pain of penal sanctions, the
making of worthless checks and putting them in circulation. Because of its

deleterious effects on the public interest, the practice is proscribed by the
law. The law punishes the act not as an offense against property, but an
offense against public order.27
The evidence on record shows that Evangelista rediscounted the check and
gave P55,000.00 to Rubia after the latter endorsed the same. As such,
Evangelista is a holder of the check in due course. 28 Under Section 28 of the
Negotiable Instruments Law (NIL), absence or failure of consideration is a
matter of defense only as against any person not a holder in due course,
thus:
SECTION 28. Effect of want of consideration.' Absence or failure of
consideration is a matter of defense as against any person not a holder in
due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of

consideration, viz:
SECTION 24. Presumption of consideration.' Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration; and
thereto for value.
Such presumption cannot be overcome by the petitioner's bare denial of

receipt of the amount of P55,000.00 from Rubia.
The petitioner cannot, likewise, seek refuge in the ruling of this Court
in Magno v. Court of Appeals29 because the facts and issues raised therein
are substantially different from those extant in this case. Indeed, the Court
ruled in the said case that:
It is intriguing to realize that Mrs. Teng did not want the petitioner to know
that it was she who "accommodated" petitioner's request for Joey Gomez, to
source out the needed funds for the "warranty deposit." Thus, it unfolds the
kind of transaction that is shrouded with mystery, gimmickry and doubtful
legality. It is in simple language, a scheme whereby Mrs. Teng as the
supplier of the equipment in the name of her corporation, Mancor, would be
able to "sell or lease" its goods as in this case, and at the same time,
privately financing those who desperately need petty accommodations as
this one. This modus operandi has in so many instances victimized
unsuspecting businessmen, who likewise need protection from the law, by
availing of the deceptively called "warranty deposit" not realizing that they
also fall prey to leasing equipment under the guise of lease-purchase
agreement when it is a scheme designed to skim off business clients. 30
Equally futile is the petitioner's contention that the prosecution failed to

prove the crime charged. For the accused to be guilty of violation of Section
1 of B.P. Blg. 22, the prosecution is mandated to prove the essential
elements thereof, to wit:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for
value.
3. That the person who makes or draws and issues the check knows at the
time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to
stop payment.31
In this case, the prosecution adduced documentary evidence that when the
petitioner issued the subject check on or about August 20, 1992, the balance
of his account with the drawee bank was only P2,414.96. During the
conference in the office of Atty. Emmanuel Velasco, Evangelista showed to
the petitioner and his wife a photocopy of the subject check, with the
notation at its dorsal portion that it was dishonored for the reason "account
closed." Despite Evangelista's demands, the petitioner refused to pay the
amount of the check and, with his wife, pointed to Rubia as the one liable for
the amount. The collective evidence of the prosecution points to the fact that
at the time the petitioner drew and issued the check, he knew that the
residue of the funds in his account with the drawee bank was insufficient to
pay the amount of the check.
IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE.

The decision of the Court of Appeals is AFFIRMED.
No costs.
SO ORDERED.
CASE #103 Ang Tiong vs Ting 22 SCRA 713 (1968)
[G.R. No. L-26767. February 22, 1968.]
ANG TIONG, Plaintiff-Appellee, v. LORENZO TING, doing business

under the name & style of PRUNES PRESERVES MFG., & FELIPE
ANG, Defendants, FELIPE ANG, Defendant-Appellant.
Chipeco & Alcaraz, Jr. for Plaintiff-Appellee.
Ang, Atienza & Tabora, for Defendant-Appellant.
SYLLABUS
1. NEGOTIABLE INSTRUMENTS LAW; CHECKS; GENERAL INDORSER,

DEFINED. — A bank check is indisputably a negotiable instrument and
should be governed solely by the Negotiable Instruments Law (see secs. 1
and 15). Section 63 of the Negotiable Instruments Law makes "a person
placing his signature upon an instrument otherwise than as maker, drawer
or acceptor" a general indorser "unless he clearly indicates by appropriate
words his intention to be bound in some other capacity." Section 66 of the
same law ordains that "every indorser who indorses without qualification,
warrants to all subsequent holders in due course" (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a good
title to it; (c) that all prior parties have capacity to contract; and (d) that the
instrument is at the time of his indorsement valid and subsisting. In addition
"he engages that on due presentment, it shall be accepted or paid or both,
as the case may be, and if it be dishonored, he will pay the amount thereof
to the holder."cralaw virtua1aw library
2. ID.; ID.; LIABILITIES OF AN ACCOMMODATION PARTY. — Section 29 of

the Negotiable Instruments Law by clear mandate makes the accomodation
party "liable on the instrument to a holder for value, notwithstanding that
such holder at the time of taking the instrument knew him to be only an
accommodation party." It is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the
instrument. It is not correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the instrument, he knew
that the indorser was only an accommodation party.
DECISION
CASTRO, J.:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications

check K-81618, for the sum of P4,000, payable to "cash or bearer." With
Felipe Ang’s signature (indorsement in blank) at the back thereof, the
instrument was received by the plaintiff Ang Tiong who thereafter presented
it to the drawee bank for payment. The bank dishonored it. The plaintiff then
made written demands on both Lorenzo Ting and Felipe Ang that they make
good the amount represented by the check. These demands went unheeded;
so he filed in the municipal court of Manila an action for collection of the sum
of P4,000, plus P500 attorney’s fees. On March 6, 1962 the municipal court
adjudged for the plaintiff against the two defendants.
Only Felipe Ang appealed to the Court of First Instance of Manila (civil case
50018), which rendered judgment on July 31, 1962, amended by an order
dated August 9, 1962, directing him to pay to the plaintiff "the sum of
P4,000, with interest at the legal rate from the date of the filing of the
complaint, a further sum of P400 as attorney’s fees, and costs."cralaw
virtua1aw library
Felipe Ang then elevated the case to the Court of Appeals, which certified it
to this Court because the issues raised are purely of law.
The appellant imputes to the court a quo three errors, namely, (1) that it
refused to apply article 2071 of the new Civil Code to the case at bar; (2)
that it adjudged him a general indorser under the Negotiable Instruments
Law (Act 2031); and (3) that it held that he "cannot obtain his release from
the contract of suretyship or obtain security to protect himself against any
proceedings on the part of the creditor and against the danger of insolvency
of the principal debtor," because he is "jointly and severally liable on the
instrument."cralaw virtua1aw library
This appeal is absolutely without merit.
1. The genuineness and due execution of the instrument are not

controverted. That the appellee is a holder thereof for value is admitted.
Having arisen from a bank check which is indisputably a negotiable

instrument, the present case is, therefore, in so far as the indorsee is
concerned vis-a-vis the indorser, governed solely by the Negotiable
Instruments Law (see secs. 1 and 185). Article 2071 of the new Civil Code,
invoked by the appellant, the pertinent portion of which states, "The
guarantor, even before having paid, may proceed against the principal
debtor: (1) when he is sued for the payment; . . . the action of the
guarantor is to obtain release from the guaranty, to demand a security that
shall protect him from any proceedings by the creditor . . .," is here
completely irrelevant and can have no application whatsoever.
We are in agreement with the trial judge that nothing in the check in
question indicates that the appellant is not a general indorser within the
purview of section 63 of the Negotiable Instruments Law which makes "a
person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor" a general indorser, — "unless he clearly indicates by
appropriate words his intention to be bound in some other capacity," which
he did not do. And section 66 ordains that "every indorser who indorses
without qualifications, warrants to all subsequent holders in due course" (a)
that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; (c) that all prior parties have capacity to
contract; and (d) that the instrument is at the time of his indorsement valid
and subsisting. In addition, "he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, and that if it be dishonored,
he will pay the amount thereof to the holder." 1
2. Even on the assumption that the appellant is a mere accommodation

party, as he professes to be, he is nevertheless, by the clear mandate of
section 29 of the Negotiable Instruments Law, yet "liable on the instrument
to a holder for value, notwithstanding that such holder at the time of taking
the instrument knew him to be only an accommodation party." To
paraphrase, the accommodation party is liable to a holder for value as if the
contract was not for accommodation. It is not a valid defense that the
accommodation party did not receive any valuable consideration when he
executed the instrument. Nor is it correct to say that the holder for value is
not a holder in due course merely because at the time he acquired the
instrument he knew that the indorser was only an accommodation party. 2
3. That the appellant, again assuming him to be an accommodation indorser,

may obtain security from the maker to protect himself against the danger of
insolvency of the latter, cannot in any manner affect his liability to the
appellee, as the said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party. So that the fact that the
appellant stands only as a surety in relation to the maker, granting this to be
true for the sake of argument, is immaterial to the claim of the appellee, and
does not a whit diminish nor defeat the rights of the latter who is a holder
for value. The liability of the appellant remains primary and unconditional.
To sanction the appellant’s theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability on
his indorsement by the convenient expedient of interposing the defense that
he is a mere accommodation indorser.
Accordingly, the judgment a quo is affirmed in toto, at appellant’s cost.

CASE #104 Ang vs Associated Bank 532 SCRA 244 (2007)
[G.R. NO. 146511 : September 5, 2007]
TOMAS ANG, Petitioner, v. ASSOCIATED BANK AND ANTONIO ANG

ENG LIONG, Respondents.
DECISION
AZCUNA, J.:
This Petition for Certiorari under Rule 45 of the Rules on Civil Procedure

seeks to review the October 9, 2000 Decision1 and December 26, 2000
Resolution2 of the Court of Appeals in CA-G.R. CV No. 53413 which reversed
and set aside the January 5, 1996 Decision3 of the Regional Trial Court,
Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the
complaint filed by respondents for collection of a sum of money.
On August 28, 1990, respondent Associated Bank (formerly Associated

Banking Corporation and now known as United Overseas Bank Philippines)
filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas
Ang for the two (2) promissory notes that they executed as principal debtor
and co-maker, respectively.
In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978,

the defendants obtained a loan of P50,000, evidenced by a promissory note
bearing PN-No. DVO-78-382, and P30,000, evidenced by a promissory note
bearing PN-No. DVO-78-390. As agreed, the loan would be payable, jointly
and severally, on January 31, 1979 and December 8, 1978, respectively. In
addition, subsequent amendments5 to the promissory notes as well as the
disclosure statements6 stipulated that the loan would earn 14% interest rate
per annum, 2% service charge per annum, 1% penalty charge per month
from due date until fully paid, and attorney's fees equivalent to 20% of the
outstanding obligation.
Despite repeated demands for payment, the latest of which were on

September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and
Tomas Ang, respectively, respondent Bank claimed that the defendants
failed and refused to settle their obligation, resulting in a total indebtedness
of P539,638.96 as of July 31, 1990, broken down as follows:
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding Balance P50,000.00 P30,000.00

Add Past due charges for 4,199 days Past due charges for 4,253 days
(from 01-31-79 to 07-31-90) (from 12-8-78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75
In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan
amounting to P80,000. He pleaded though that the bank "be ordered to
submit a more reasonable computation" considering that there had been "no
correct and reasonable statement of account" sent to him by the bank,
which was allegedly collecting excessive interest, penalty charges, and
attorney's fees despite knowledge that his business was destroyed by fire,
hence, he had no source of income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and
Cross-claim.8 He interposed the affirmative defenses that: the bank is not
the real party in interest as it is not the holder of the promissory notes,
much less a holder for value or a holder in due course; the bank knew that
he did not receive any valuable consideration for affixing his signatures on
the notes but merely lent his name as an accommodation party; he accepted
the promissory notes in blank, with only the printed provisions and the
signature of Antonio Ang Eng Liong appearing therein; it was the bank which
completed the notes upon the orders, instructions, or representations of his
co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary
to the authority given by him to his co-defendant who represented that he
would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-
390 was procured through fraudulent means when his co-defendant claimed
that his first loan did not push through; the promissory notes did not
indicate in what capacity he was intended to be bound; the bank granted his
co-defendant successive extensions of time within which to pay, without his
(Tomas Ang) knowledge and consent; the bank imposed new and additional
stipulations on interest, penalties, services charges and attorney's fees more
onerous than the terms of the notes, without his knowledge and consent, in
the absence of legal and factual basis and in violation of the Usury Law; the
bank caused the inclusion in the promissory notes of stipulations such as
waiver of presentment for payment and notice of dishonor which are against
public policy; and the notes had been impaired since they were never
presented for payment and demands were made only several years after
they fell due when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the bank's
acts or omissions, it should be held liable for the amount of P50,000 for
attorney's fees and expenses of litigation. Furthermore, on his cross-claim
against Antonio Ang Eng Liong, he averred that he should be reimbursed by
his co-defendant any and all sums that he may be adjudged liable to pay,
plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and
attorney's fees, respectively.
In its Reply,9 respondent Bank countered that it is the real party in interest

and is the holder of the notes since the Associated Banking Corporation and
Associated Citizens Bank are its predecessors-in-interest. The fact that
Tomas Ang never received any moneys in consideration of the two (2) loans
and that such was known to the bank are immaterial because, as an
accommodation maker, he is considered as a solidary debtor who is
primarily liable for the payment of the promissory notes. Citing Section 29 of
the Negotiable Instruments Law (NIL), the bank posited that absence or
failure of consideration is not a matter of defense; neither is the fact that the
holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were

completely filled up at the time of their delivery. Assuming that such was not
the case, Sec. 14 of the NIL provides that the bank has the prima
facieauthority to complete the blank form. Moreover, it is presumed that one
who has signed as a maker acted with care and had signed the document
with full knowledge of its content. The bank noted that Tomas Ang is a
prominent businessman in Davao City who has been engaged in the auto
parts business for several years, hence, certainly he is not so naÃ¯ve as to
sign the notes without knowing or bothering to verify the amounts of the
loans covered by them. Further, he is already in estoppel since despite
receipt of several demand letters there was not a single protest raised by
him that he signed for only one note in the amount of P30,000.
It was denied by the bank that there were extensions of time for payment
accorded to Antonio Ang Eng Liong. Granting that such were the case, it said
that the same would not relieve Tomas Ang from liability as he would still be
liable for the whole obligation less the share of his co-debtor who received
the extended term.
The bank also asserted that there were no additional or new stipulations
imposed other than those agreed upon. The penalty charge, service charge,
and attorney's fees were reflected in the amendments to the promissory
notes and disclosure statements. Reference to the Usury Law was misplaced
as usury is legally non-existent; at present, interest can be charged
depending on the agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for payment
and notice of dishonor were expressly waived by Tomas Ang and that such
waiver is not against public policy pursuant to Sections 82 (c) and 109 of the
NIL. In fact, there is even no necessity therefor since being a solidary debtor
he is absolutely required to pay and primarily liable on both promissory
notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order
directing the parties to submit their respective pre-trial guide. 10 When
Antonio Ang Eng Liong failed to submit his brief, the bank filed an ex-
parte motion to declare him in default.11 Per Order of November 23, 1990,
the court granted the motion and set the ex-parte hearing for the
presentation of the bank's evidence.12 Despite Tomas Ang's motion13 to
modify the Order so as to exclude or cancel the ex-parte hearing based on
then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the
Revised Rules on Civil Procedure), the hearing nonetheless proceeded. 14
Eventually, a decision15 was rendered by the trial court on February 21,

1991. For his supposed bad faith and obstinate refusal despite several
demands from the bank, Antonio Ang Eng Liong was ordered to pay the
principal amount of P80,000 plus 14% interest per annum and 2% service
charge per annum. The overdue penalty charge and attorney's fees were,
however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng

Liong and in favor of plaintiff, ordering the former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal obligation with 14%

interest per annum from June 27, 1983 with 2% service charge and 6%
overdue penalty charges per annum until fully paid;
2) P11,663.89 as accrued service charge; andcralawlibrary
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with
14% interest from June 27, 1983 with 2% service charge and 6% overdue
penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorney's fees; andcralawlibrary
5) the amount of P620.00 as litigation expenses and to pay the costs.
SO ORDERED.16
The decision became final and executory as no appeal was taken therefrom.
Upon the bank's ex-parte motion, the court accordingly issued a writ of
execution on April 5, 1991.17
Thereafter, on June 3, 1991, the court set the pre-trial conference between
the bank and Tomas Ang,18 who, in turn, filed a Motion to Dismiss19 on the
ground of lack of jurisdiction over the case in view of the alleged finality of
the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the
old Rules sanctions only one judgment in case of several defendants, one of
whom is declared in default. Moreover, in his Supplemental Motion to
Dismiss,20 Tomas Ang maintained that he is released from his obligation as a
solidary guarantor and accommodation party because, by the bank's actions,
he is now precluded from asserting his cross-claim against Antonio Ang Eng
Liong, upon whom a final and executory judgment had already been issued.
The court denied the motion as well as the motion for reconsideration
thereon.21 Tomas Ang subsequently filed a Petition for Certiorari and
prohibition before this Court, which, however, resolved to refer the same to
the Court of Appeals.22 In accordance with the prayer of Tomas Ang, the
appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP
No. 26332, which annulled and set aside the portion of the Order dated
November 23, 1990 setting the ex-parte presentation of the bank's evidence
against Antonio Ang Eng Liong, the Decision dated February 21, 1991
rendered against him based on such evidence, and the Writ of Execution
issued on April 5, 1991.23
Trial then ensued between the bank and Tomas Ang. Upon the latter's
motion during the pre-trial conference, Antonio Ang Eng Liong was again
declared in default for his failure to answer the cross-claim within the
reglementary period.24
When Tomas Ang was about to present evidence in his behalf, he filed a
Motion for Production of Documents,25 reasoning:
xxx
2. That corroborative to, and/or preparatory or incident to his testimony[,]

there is [a] need for him to examine original records in the custody and
possession of plaintiff, viz:
A. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3,

1978[;]
b. original of Disclosure Statement in reference to PN # DVO-78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-78-390;
e. Statement or Record of Account with the Associated Banking Corporation

or its successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank
records, withdrawal slips, notices, other papers and relevant dates relative
to the overdraft of Antonio Eng Liong in CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos.

DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by Antonio Ang Eng

Liong relative to his loan application vis - Ã -vis PN. Nos. DVO-78-382 and
DVO-78-390 such as financial statements, income tax returns, etc. as
required by the Central Bank or bank rules and regulations.
3. That the above matters are very material to the defenses of defendant
Tomas Ang, viz:
- the bank is not a holder in due course when it accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known to the
bank.
- That the PAYEE not being a holder in due course and knowing that
defendant Tomas Ang is merely an accommodation party, the latter may
raise against such payee or holder or successor-in-interest (of the notes)
PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT,
DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the
Civil Code, NEGLIGENCE in delaying collection despite Eng Liong's
OVERDRAFT in C.A. No. 470, etc.26
In its Order dated May 16, 1994,27 the court denied the motion stating that
the promissory notes and the disclosure statements have already been
shown to and inspected by Tomas Ang during the trial, as in fact he has
already copies of the same; the Statements or Records of Account of Antonio
Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since,
pursuant to the previous ruling of the court, he is being sued for the notes
and not for the overdraft which is personal to Antonio Ang Eng Liong; and
besides its non-existence in the bank's records, there would be legal
obstacle for the production and inspection of the income tax return of
Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied,
Tomas Ang filed a Petition for Certiorari and prohibition with application for
preliminary injunction and restraining order before the Court of Appeals
docketed as CA G.R. SP No. 34840.28 On August 17, 1994, however, the
Court of Appeals denied the issuance of a Temporary Restraining Order. 29
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to
have waived his right to present evidence for failure to appear during the
pendency of his petition before the Court of Appeals, the trial court decided
to continue with the hearing of the case.30
After the trial, Tomas Ang offered in evidence several documents, which
included a copy of the Trust Agreement between the Republic of the
Philippines and the Asset Privatization Trust, as certified by the notary
public, and news clippings from the Manila Bulletin dated May 18, 1994 and
May 30, 1994.31 All the documentary exhibits were admitted for failure of the
bank to submit its comment to the formal offer. 32 Thereafter, Tomas Ang
elected to withdraw his petition in CA G.R. SP No. 34840 before the Court of
Appeals, which was then granted.33
On January 5, 1996, the trial court rendered judgment against the bank,
dismissing the complaint for lack of cause of action. 34 It held that:
Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February
1987 for the defense shows that: the Associated Bank as of June 30, 1986 is
one of DBP's or Development Bank of the [Philippines'] non-performing
accounts for transfer; on February 27, 1987 through Deeds of Transfer
executed by and between the Philippine National Bank and Development
Bank of the Philippines and the National Government, both financial
institutions assigned, transferred and conveyed their non-performing assets
to the National Government; the National Government in turn and as
TRUSTOR, transferred, conveyed and assigned by way of trust unto the
Asset Privatization Trust said non-performing assets, [which] took title to
and possession of, [to] conserve, provisionally manage and dispose[,] of
said assets identified for privatization or disposition; one of the powers and
duties of the APT with respect to trust properties consisting of receivables is
to handle the administration, collection and enforcement of the receivables;
to bring suit to enforce payment of the obligations or any installment thereof
or to settle or compromise any of such obligations, or any other claim or
demand which the government may have against any person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994,
Exh. "9-A", "9-B", "9-C", and "9-D", show that the Monetary Board of the
Bangko Sentral ng Pilipinas approved the rehabilitation plan of the
Associated Bank. One main feature of the rehabilitation plan included the
financial assistance for the bank by the Philippine Deposit Insurance
Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945
billion subject to a buy-back arrangement over a 10 year period. The PDIC
had approved of the rehab scheme, which included the purchase of AB's bad
loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-
year period plus a yield comparable to the prevailing market rates x x x.
Based then on the evidence presented by the defendant Tomas Ang, it would
readily appear that at the time this suit for Sum of Money was filed which
was on August [28], 1990, the notes were held by the Asset Privatization
Trust by virtue of the Deeds of Transfer and Trust Agreement, which was
empowered to bring suit to enforce payment of the obligations.
Consequently, defendant Tomas Ang has sufficiently established that plaintiff
at the time this suit was filed was not the holder of the notes to warrant the
dismissal of the complaint.35
Respondent Bank then elevated the case to the Court of Appeals. In the
appellant's brief captioned, "ASSOCIATED BANK, Plaintiff-Appellant v.
ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG,
Defendant-Appellee," the following errors were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG

ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-
APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER'S
DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S
COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE
COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL
NOTICE.36
The bank stressed that it has established the causes of action outlined in its
Complaint by a preponderance of evidence. As regards the Deed of Transfer
and Trust Agreement, it contended that the same were never authenticated
by any witness in the course of the trial; the Agreement, which was not even
legible, did not mention the promissory notes subject of the Complaint; the
bank is not a party to the Agreement, which showed that it was between the
Government of the Philippines, acting through the Committee on
Privatization represented by the Secretary of Finance as trustor and the
Asset Privatization Trust, which was created by virtue of Proclamation No.
50; and the Agreement did not reflect the signatures of the contracting
parties. Lastly, the bank averred that the news items appearing in the Manila
Bulletin could not be the subject of judicial notice since they were completely
hearsay in character.37
On October 9, 2000, the Court of Appeals reversed and set aside the trial
court's ruling. The dispositive portion of the Decision 38 reads:
WHEREFORE, premises considered, the Decision of the Regional Trial Court

of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED
AND SET ASIDE and another one entered ordering defendant-appellee
Tomas Ang to pay plaintiff-appellant Associated Bank the following:
1. P50,000.00 representing the principal amount of the loan under PN-No.

DVO-78-382 plus 14% interest thereon per annum computed from January
31, 1979 until the full amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan under PN-No.

DVO-78-390 plus 14% interest thereon per annum computed from
December 8, 1978 until the full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal
basis. Defendant-appellee's counterclaim is likewise DISMISSED for lack of
legal and factual bases.
No pronouncement as to costs.
SO ORDERED.39
The appellate court disregarded the bank's first assigned error for being
"irrelevant in the final determination of the case" and found its second
assigned error as "not meritorious." Instead, it posed for resolution the issue
of whether the trial court erred in dismissing the complaint for collection of
sum of money for lack of cause of action as the bank was said to be not the
"holder" of the notes at the time the collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank is a
"holder" under Sec. 191 of the NIL. It concluded that despite the execution
of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust
cannot be declared as the "holder" of the subject promissory notes for the
reason that it is neither the payee or indorsee of the notes in possession
thereof nor is it the bearer of said notes. The Court of Appeals observed that
the bank, as the payee, did not indorse the notes to the Asset Privatization
Trust despite the execution of the Deeds of Transfer and Trust Agreement
and that the notes continued to remain with the bank until the institution of
the collection suit.
With the bank as the "holder" of the promissory notes, the Court of Appeals
held that Tomas Ang is accountable therefor in his capacity as an
accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in
spite of the latter's knowledge, at the time of taking the notes, that he is
only an accommodation party. Moreover, as a co-maker who agreed to be
jointly and severally liable on the promissory notes, Tomas Ang cannot
validly set up the defense that he did not receive any consideration therefor
as the fact that the loan was granted to the principal debtor already
constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of
Tomas Ang in business rendered it implausible that he would just sign the
promissory notes as a co-maker without even checking the real amount of
the debt to be incurred, or that he merely acted on the belief that the first
loan application was cancelled. According to the appellate court, it is
apparent that he was negligent in falling for the alibi of Antonio Ang Eng
Liong and such fact would not serve to exonerate him from his responsibility
under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service,
penalty and overdue charges as well as attorney's fees on the ground that
the promissory notes made no mention of such charges/fees.
In his motion for reconsideration,40 Tomas Ang raised for the first time the
assigned errors as follows:
xxx
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang

has recently discovered that upon the filing of the complaint on August 28,
1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank
fraudulently failed to specify the amount of compounded interest at 14% per
annum, service charges at 2% per annum and overdue penalty charges at
12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although
the total sum involved as of that time was P647,566.75 including 20%
attorney's fees. In fact, the stated interest in the body of the complaint
alone amount to P328,373.39 (which is
actually compounded and capitalized) in both causes of action and the total
service and overdue penalties and charges and attorney's fees further
amount to P239,193.36 in both causes of action, as of July 31, 1990, the
time of filing of the complaint. Significantly, appellant fraudulently misled
the Court, describing the 14% imposition as interest, when in fact the
same was capitalized as principal by appellant bank every month to earn
more interest, as stated in the notes. In view thereof, the trial court never
acquired jurisdiction over the case and the same may not be now corrected
by the filing of deficiency fees because the causes of action had already
prescribed and more importantly, the jurisdiction of the Municipal Trial Court
had been increased to P100,000.00 in principal claims last March 20, 1999,
pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31,
Book I of the 1987 Administrative Code. In other words, as of today,
jurisdiction over the subject falls within the exclusive jurisdiction of the MTC,
particularly if the bank foregoes capitalization of the stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO

APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL
COURT WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG
(BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND
EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Ang's right of
subrogation against Ang Eng Liong, expressed in his cross-claim, is now
SEVERAL TIMES foreclosed because of the fault or negligence of appellant
bank since 1979 up to its insistence of an ex-parte trial, and now when it
failed to serve notice of appeal and appellant's brief upon him. Accordingly,
appellee Tomas Ang should be released from his suretyship obligation
pursuant to Art. 2080 of the Civil Code. The above is related to the issues
above-stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of error
for the benefit of appellant bank which defrauded the judiciary by the
payment of deficient docket fees.41
Finding no cogent or compelling reason to disturb the Decision, the Court of
Appeals denied the motion in its Resolution dated December 26, 2000. 42
Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas

Ang as accommodation maker or surety because of the failure of [private]
respondent bank to serve its notice of appeal upon the principal debtor,
respondent Eng Liong?cra lawlibrary
2. Did the trial court have jurisdiction over the case at all?cra lawlibrary
3. Did the Court of Appeals [commit] error in assigning its own error and
raising its own issue?cra lawlibrary
4. Are petitioner's other real and personal defenses such as successive

extensions coupled with fraudulent collusion to hide Eng Liong's default, the
payee's grant of additional burdens, coupled with the insolvency of the
principal debtor, and the defense of incomplete but delivered instrument,
meritorious?43
Petitioner allegedly learned after the promulgation of the Court of Appeals'

decision that, pursuant to the parties' agreement on the compounding of
interest with the principal amount (per month in case of default), the
interest on the promissory notes as of July 31, 1990 should have been
only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98)
and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41) while the
principal debt as of said date should increase to P647,566.75 (instead
of P539,638.96). He submits that the bank carefully and shrewdly hid the
fact by describing the amounts as interest instead of being part of either the
principal or penalty in order to pay a lesser amount of docket fees. According
to him, the total fees that should have been paid at the time of the filing of
the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a
shortage of 71%. Petitioner contends that the bank may not now pay the
deficiency because the last demand letter sent to him was dated September
9, 1986, or more than twenty years have elapsed such that prescription had
already set in. Consequently, the bank's claim must be dismissed as the trial
court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have assigned its
own error and raised it as an issue of the case, contending that no question
should be entertained on appeal unless it has been advanced in the court
below or is within the issues made by the parties in the pleadings. At any
rate, he opines that the appellate court's decision that the bank is the real
party in interest because it is the payee named in the note or the holder
thereof is too simplistic since: (1) the power and control of Asset
Privatization Trust over the bank are clear from the explicit terms of the duly
certified trust documents and deeds of transfer and are confirmed by the
newspaper clippings; (2) even under P.D. No. 902-A or the General Banking
Act, where a corporation or a bank is under receivership, conservation or
rehabilitation, it is only the representative (liquidator, receiver, trustee or
conservator) who may properly act for said entity, and, in this case, the
bank was held by Asset Privatization Trust as trustee; and (3) it is not
entirely accurate to say that the payee who has not indorsed the notes in all
cases is the real party in interest because the rights of the payee may be
subject of an assignment of incorporeal rights under Articles 1624 and 1625
of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of
appeal and appellant's brief only on him, it rendered the judgment of the
trial court final and executory with respect to Antonio Ang Eng Liong, which,
in effect, released him (Antonio Ang Eng Liong) from any and all liability
under the promissory notes and, thereby, foreclosed petitioner's cross-
claims. By such act, the bank, even if it be the "holder" of the promissory
notes, allegedly discharged a simple contract for the payment of money
(Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like
petitioner from being subrogated in the shoes of his principal (Article 2080,
Civil Code), and impaired the notes, producing the effect of payment (Article
1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to raise, if

it deems proper under the circumstances obtaining, error/s not assigned on
an appealed case. In Mendoza v. Bautista,44 this Court recognized the broad
discretionary power of an appellate court to waive the lack of proper
assignment of errors and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought

before the lower tribunal for its consideration. Higher courts are precluded
from entertaining matters neither alleged in the pleadings nor raised during
the proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to exceptions.

Indeed, our rules recognize the broad discretionary power of an appellate
court to waive the lack of proper assignment of errors and to consider errors
not assigned. Section 8 of Rule 51 of the Rules of Court provides:
SEC. 8. Questions that may be decided. - No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment appealed
from or the proceedings therein will be considered, unless stated in the
assignment of errors, or closely related to or dependent on an assigned error
and properly argued in the brief, save as the court may pass upon plain
errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings

even if they are not assigned as errors in the appeal in these instances: (a)
grounds not assigned as errors but affecting jurisdiction over the subject
matter; (b) matters not assigned as errors on appeal but are evidently plain
or clerical errors within contemplation of law; (c) matters not assigned as
errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interests of
justice or to avoid dispensing piecemeal justice; (d) matters not specifically
assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed
to raise or which the lower court ignored; (e) matters not assigned as errors
on appeal but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of a question
properly assigned is dependent. (Citations omitted)45
To the Court's mind, even if the Court of Appeals regarded petitioner's two
assigned errors as "irrelevant" and "not meritorious," the issue of whether
the trial court erred in dismissing the complaint for collection of sum of
money for lack of cause of action (on the ground that the bank was not the
"holder" of the notes at the time of the filing of the action) is in
reality closely related to and determinant of the resolution of whether the
lower court correctly ruled in not holding Antonio Ang Eng Liong and
petitioner Tomas Ang liable to the bank on their unpaid loans despite
documentary exhibits allegedly proving their obligations and in dismissing
the complaint based on newspaper clippings. Hence, no error could be
ascribed to the Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest at the
time of the institution of the complaint, is it the bank or the Asset
Privatization Trust?cra lawlibrary
To answer the query, a brief history on the creation of the Asset Privatization
Trust is proper.
Taking into account the imperative need of formally launching a program for
the rationalization of the government corporate sector, then President
Corazon C. Aquino issued Proclamation No. 5046 on December 8, 1986. As
one of the twin cornerstones of the program was to establish the
privatization of a good number of government corporations, the
proclamation created the Asset Privatization Trust, which would, for the
benefit of the National Government, take title to and possession of,
conserve, provisionally manage and dispose of transferred assets that were
identified for privatization or disposition.47
In accordance with the provisions of Section 23 48 of the proclamation, then

President Aquino subsequently issued Administrative Order No. 14 on
February 3, 1987, which approved the identification of and transfer to the
National Government of certain assets (consisting of loans, equity
investments, accrued interest receivables, acquired assets and other assets)
and liabilities (consisting of deposits, borrowings, other liabilities and
contingent guarantees) of the Development Bank of the Philippines (DBP)
and the Philippine National Bank (PNB). The transfer of assets was
implemented through a Deed of Transfer executed on February 27, 1987
between the National Government, on one hand, and the DBP and PNB, on
the other. In turn, the National Government designated the Asset
Privatization Trust to act as its trustee through a Trust Agreement, whereby
the non-performing accounts of DBP and PNB, including, among others, the
DBP's equity with respondent Bank, were entrusted to the Asset Privatization
Trust.49 As provided for in the Agreement, among the powers and duties of
the Asset Privatization Trust with respect to the trust properties consisting of
receivables was to handle their administration and collection by bringing suit
to enforce payment of the obligations or any installment thereof or settling
or compromising any of such obligations or any other claim or demand which
the Government may have against any person or persons, and to do all acts,
institute all proceedings, and to exercise all other rights, powers, and
privileges of ownership that an absolute owner of the properties would
otherwise have the right to do.50
Incidentally, the existence of the Asset Privatization Trust would have

expired five (5) years from the date of issuance of Proclamation No.
50.51 However, its original term was extended from December 8, 1991 up to
August 31, 1992,52 and again from December 31, 1993 until June 30,
1995,53 and then from July 1, 1995 up to December 31, 1999,54 and further
from January 1, 2000 until December 31, 2000.55 Thenceforth, the
Privatization and Management Office was established and took over, among
others, the powers, duties and functions of the Asset Privatization Trust
under the proclamation.56
Based on the above backdrop, respondent Bank does not appear to be the
real party in interest when it instituted the collection suit on August 28, 1990
against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the
complaint was filed in the trial court, it was the Asset Privatization Trust
which had the authority to enforce its claims against both debtors. In fact,
during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank,
openly admitted that it was under the trusteeship of the Asset Privatization
Trust.57 The Asset Privatization Trust, which should have been represented
by the Office of the Government Corporate Counsel, had the authority to file
and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily

subscribe to petitioner's insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as in the
evidence presented during the trial and up to the time this case reached the
Court, that the issue had been rendered moot with the occurrence of a
supervening event - the "buy-back" of the bank by its former owner,
Leonardo Ty, sometime in October 1993. By such re-acquisition from the
Asset Privatization Trust when the case was still pending in the lower court,
the bank reclaimed its real and actual interest over the unpaid promissory
notes; hence, it could rightfully qualify as a "holder" 58 thereof under the NIL.
Notably, Section 29 of the NIL defines an accommodation party as a person

"who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person." As gleaned from the text, an accommodation party is
one who meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his
name or credit to some other person.59 An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but assumes
liability to the other party/ies thereto.60 The accommodation party is liable
on the instrument to a holder for value even though the holder, at the time
of taking the instrument, knew him or her to be merely an accommodation
party, as if the contract was not for accommodation.61
As petitioner acknowledged it to be, the relation between an accommodation

party and the accommodated party is one of principal and surety - the
accommodation party being the surety.62 As such, he is deemed an original
promisor and debtor from the beginning;63 he is considered in law as the
same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter since their liabilities are interwoven as to be
inseparable.64 Although a contract of suretyship is in essence accessory or
collateral to a valid principal obligation, the surety's liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with
the principal.65 As an equivalent of a regular party to the undertaking, a
surety becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligations nor does
he receive any benefit therefrom.66
Contrary to petitioner's adamant stand, however, Article 2080 67 of the Civil
Code does not apply in a contract of suretyship.68 Art. 2047 of the Civil Code
states that if a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be
observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and
solidary obligations) shall govern the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA69 is illuminating:
Petitioner also argues that the dismissal of the complaint against Naybe, the
principal debtor, and against Pantanosas, his co-maker, constituted a release
of his obligation, especially because the dismissal of the case against
Pantanosas was upon the motion of private respondent itself. He cites as
basis for his argument, Article 2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor, they cannot be subrogated
to the rights, mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a

solidary co-maker and not as a guarantor. This is patent even from the first
sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and
SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS
at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY
THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with
interest x x x at the rate of SIXTEEN (16) per cent per annum until fully
paid."
A solidary or joint and several obligation is one in which each debtor is liable
for the entire obligation, and each creditor is entitled to demand the whole
obligation. On the other hand, Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do
so.
If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case
the contract is called a suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the
liability of a guarantor is different from that of a solidary debtor. Thus,
Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under
the provisions of the second paragraph does not become a solidary co-
debtor to all intents and purposes. There is a difference between a solidary
co-debtor, and a fiador in solidum (surety). The later, outside of the liability
he assumes to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and benefits which
pertain to him by reason of rights of the fiansa; while a solidary co-debtor
has no other rights than those bestowed upon him in Section 4, Chapter 3,
title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint
and several obligations. Under Art. 1207 thereof, when there are two or
more debtors in one and the same obligation, the presumption is that
obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarily liability only when the
obligation expressly so states, when the law so provides or when the nature
of the obligation so requires.
Because the promissory note involved in this case expressly states that the
three signatories therein are jointly and severally liable, any one, some or all
of them may be proceeded against for the entire obligation. The choice is left
to the solidary creditor to determine against whom he will enforce collection.
(Citations omitted)70
In the instant case, petitioner agreed to be "jointly and severally" liable

under the two promissory notes that he co-signed with Antonio Ang Eng
Liong as the principal debtor. This being so, it is completely immaterial if the
bank would opt to proceed only against petitioner or Antonio Ang Eng Liong
or both of them since the law confers upon the creditor the prerogative to
choose whether to enforce the entire obligation against any one, some or
all of the debtors. Nonetheless, petitioner, as an accommodation party, may
seek reimbursement from Antonio Ang Eng Liong, being the party
accommodated.71
It is plainly mistaken for petitioner to say that just because the bank failed
to serve the notice of appeal and appellant's brief to Antonio Ang Eng Liong,
the trial court's judgment, in effect, became final and executory as against
the latter and, thereby, bars his (petitioner's) cross-claims against
him: First, although no notice of appeal and appellant's brief were served to
Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his
name appeared in the caption of both the notice and the brief as one of the
defendants-appellees;72 Second, despite including in the caption of the
appellee's brief his co-debtor as one of the defendants-appellees, petitioner
did not also serve him a copy thereof; 73 Third, in the caption of the Court of
Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the
defendants-appellees;74 and Fourth, it was only in his motion for
reconsideration from the adverse judgment of the Court of Appeals that
petitioner belatedly chose to serve notice to the counsel of his co-defendant-
appellee.75
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his
"special appearance" through counsel, that the Court of Appeals, much less
this Court, already lacked jurisdiction over his person or over the subject
matter relating to him because he was not a party in CA-G.R. CV No. 53413.
Stress must be laid of the fact that he had twice put himself in default - one,
in not filing a pre-trial brief and another, in not filing his answer to
petitioner's cross-claims. As a matter of course, Antonio Ang Eng Liong,
being a party declared in default, already waived his right to take part in the
trial proceedings and had to contend with the judgment rendered by the
court based on the evidence presented by the bank and petitioner.
Moreover, even without considering these default judgments, Antonio Ang
Eng Liong even categorically admitted having secured a loan
totaling P80,000. In his Answer to the complaint, he did not deny such
liability but merely pleaded that the bank "be ordered to submit a more
reasonable computation" instead of collecting excessive interest, penalty
charges, and attorney's fees. For failing to tender an issue and in not
denying the material allegations stated in the complaint, a judgment on the
pleadings76 would have also been proper since not a single issue was
generated by the Answer he filed.
As the promissory notes were not discharged or impaired through any act or
omission of the bank, Sections 119 (d)77 and 12278 of the NIL as well as Art.
124979 of the Civil Code would necessarily find no application. Again, neither
was petitioner's right of reimbursement barred nor was the bank's right to
proceed against Antonio Ang Eng Liong expressly renounced by the omission
to serve notice of appeal and appellant's brief to a party already declared in
default.
Consequently, in issuing the two promissory notes, petitioner as

accommodating party warranted to the holder in due course that he would
pay the same according to its tenor.80 It is no defense to state on his part
that he did not receive any value therefor81 because the phrase "without
receiving value therefor" used in Sec. 29 of the NIL means "without
receiving value by virtue of the instrument" and not as it is apparently
supposed to mean, "without receiving payment for lending his
name."82 Stated differently, when a third person advances the face value of
the note to the accommodated party at the time of its creation, the
consideration for the note as regards its maker is the money advanced to
the accommodated party. It is enough that value was given for the note at
the time of its creation.83 As in the instant case, a sum of money was
received by virtue of the notes, hence, it is immaterial so far as the bank is
concerned whether one of the signers, particularly petitioner, has or has not
received anything in payment of the use of his name. 84
Under the law, upon the maturity of the note, a surety may pay the debt,
demand the collateral security, if there be any, and dispose of it to his
benefit, or, if applicable, subrogate himself in the place of the creditor with
the right to enforce the guaranty against the other signers of the note for
the reimbursement of what he is entitled to recover from
them.85 Regrettably, none of these were prudently done by petitioner. When
he was first notified by the bank sometime in 1982 regarding his
accountabilities under the promissory notes, he lackadaisically relied on
Antonio Ang Eng Liong, who represented that he would take care of the
matter, instead of directly communicating with the bank for its
settlement.86 Thus, petitioner cannot now claim that he was prejudiced by
the supposed "extension of time" given by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not

only primary but also unconditional to a holder for value, even if the
accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far
as a holder for value is concerned, he is a solidary co-debtor. 87 In Clark v.
Sellner,88 this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not by
any means impaired his action against the defendant. It should not be lost
sight of that the defendant's signature on the note is an assurance to the
creditor that the collateral guaranty will remain good, and that otherwise,
he, the defendant, will be personally responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly or
partially released the surety; but it must be born in mind that it is a
recognized doctrine in the matter of suretyship that with respect to the
surety, the creditor is under no obligation to display any diligence in the
enforcement of his rights as a creditor. His mere inaction indulgence,
passiveness, or delay in proceeding against the principal debtor, or the fact
that he did not enforce the guaranty or apply on the payment of such funds
as were available, constitute no defense at all for the surety, unless the
contract expressly requires diligence and promptness on the part of the
creditor, which is not the case in the present action. There is in some
decisions a tendency toward holding that the creditor's laches may discharge
the surety, meaning by laches a negligent forbearance. This theory,
however, is not generally accepted and the courts almost universally
consider it essentially inconsistent with the relation of the parties to the
note. (21 R.C.L., 1032-1034)89
Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang
Eng Liong for want of clear and convincing evidence proving the same.
Assuming it to be true, he also did not exercise diligence in demanding
security to protect himself from the danger thereof in the event that he
(petitioner) would eventually be sued by the bank. Further, whether
petitioner may or may not obtain security from Antonio Ang Eng Liong
cannot in any manner affect his liability to the bank; the said remedy is a
matter of concern exclusively between themselves as accommodation party
and accommodated party. The fact that petitioner stands only as a surety in
relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and
does not a whit diminish nor defeat the rights of the latter as a holder for
value. To sanction his theory is to give unwarranted legal recognition to the
patent absurdity of a situation where a co-maker, when sued on an
instrument by a holder in due course and for value, can escape liability by
the convenient expedient of interposing the defense that he is a merely an
accommodation party.90
In sum, as regards the other issues and errors alleged in this petition, the
Court notes that these were the very same questions of fact raised on
appeal before the Court of Appeals, although at times couched in different
terms and explained more lengthily in the petition. Suffice it to say that the
same, being factual, have been satisfactorily passed upon and considered
both by the trial and appellate courts. It is doctrinal that only errors of law
and not of fact are reviewable by this Court in Petitions for Review
on Certiorari under Rule 45 of the Rules of Court. Save for the most cogent
and compelling reason, it is not our function under the rule to examine,
evaluate or weigh the probative value of the evidence presented by the
parties all over again.91
WHEREFORE, the October 9, 2000 Decision and December 26, 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED.
The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
CASE #105 Salas vs CA
[G.R. No. 76788. January 22, 1990.]
JUANITA SALAS, Petitioner, v. HON. COURT OF APPEALS and

FILINVEST FINANCE & LEASING CORPORATION, Respondents.
Arsenio C. Villalon, Jr. for Petitioner.
Labaguis, Loyola, Angara & Associates for Private Respondent.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENT; REQUISITES; SATISFIED

IN CASE AT BAR. — The questioned promissory note shows that it is a
negotiable instrument, having complied with the requisites under the law as
follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it
contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21st day of each month starting
March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to
Violago Motor Sales Corporation, or order and as such, [e] the drawee is
named or indicated with certainty.
2. ID.; NEGOTIABLE AND NON-NEGOTIABLE INSTRUMENT,

DISTINGUISHED. — In the case of Consolidated Plywood Industries Inc. v.
IFC Leasing and Acceptance Corp., this Court had the occasion to clearly
distinguish between a negotiable and a non-negotiable instrument. Among
others, the instrument in order to be considered negotiable must contain the
so-called "words of negotiability — i.e., must be payable to ‘order’ or
‘bearer.’" Under Section 8 of the Negotiable Instruments Law, there are only
two ways by which an instrument may be made payable to order. There
must always be a specified person named in the instrument and the bill or
note is to be paid to the person designated in the instrument or to any
person to whom he has indorsed and delivered the same. Without the words
"or order" or "to the order of", the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available
against the latter.
3. ID.; NEGOTIABLE INSTRUMENTS; REQUISITES OF HOLDER IN DUE

COURSE. — A holder in due course, having taken the instrument under the
following conditions: [a] it is complete and regular upon its face; [b] it
became the holder thereof before it was overdue, and without notice that it
had previously been dishonored; [c] it took the same in good faith and for
value; and [d] when it was negotiated to Filinvest, the latter had no notice of
any infirmity in the instrument or defect in the title of VMS Corporation.
4. ID.; ID.; RIGHT OF A HOLDER IN DUE COURSE; APPLICABLE IN THE

CASE AT BAR. — Respondent corporation holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the instrument for
the full amount thereof. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and
VMS. Even assuming for the sake of argument that there is an iota of truth
in petitioner’s allegation that there was in fact deception made upon her in
that the vehicle she purchased was different from that actually delivered to
her, this matter cannot be passed upon in the case before us, where the
VMS was never impleaded as a party.
DECISION
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court of
Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing
Corporation v. Salas", which modified the decision of the Regional Trial Court
of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between
the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter

referred to as petitioner) bought a motor vehicle from the Violago Motor
Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a
promissory note. This note was subsequently endorsed to Filinvest Finance &
Leasing Corporation (hereinafter referred to as private respondent) which
financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly

due to a discrepancy in the engine and chassis numbers of the vehicle
delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when
the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No.
5915 for a sum of money against petitioner before the Regional Trial Court
of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held,
thus:jgc:chanrobles.com.ph
"WHEREFORE, and in view of all the foregoing, judgment is hereby rendered

ordering the defendant to pay the plaintiff the sum of P28,414.40 with
interest thereon at the rate of 14% from October 2, 1980 until the said sum
is fully paid; and the further amount of P1,000.00 as attorney’s fees.
"The counterclaim of defendant is dismissed.
"With costs against defendant." 1
Both petitioner and private respondent appealed the aforesaid decision to

the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed for a reversal of
the trial court’s decision so that she may be absolved from the obligation
under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision,
the pertinent portion of which is quoted hereunder:jgc:chanrobles.com.ph
"The allegations, statements, or admissions contained in a pleading are

conclusive as against the pleader. A party cannot subsequently take a
position contradictory of, or inconsistent with his pleadings (Cunanan v.
Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings, or
in the course of the trial or other proceedings, do not require proof and
cannot be contradicted unless previously shown to have been made through
palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana v.
Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
"When an action or defense is founded upon a written instrument, copied in

or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath, specifically denied
them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised
Rules of Court; Hibbered v. Rohde and Mc Millian, 32 Phil. 476).
"A perusal of the evidence shows that the amount of P58,138.20 stated in
the promissory note is the amount assumed by the plaintiff in financing the
purchase of defendant’s motor vehicle from the Violago Motor Sales Corp.,
the monthly amortization of which is P1,614.95 for 36 months. Considering
that the defendant was able to pay twice (as admitted by the plaintiff,
defendant’s account became delinquent only beginning May, 1980) or in the
total sum of P3,229.90, she is therefore liable to pay the remaining balance
of P54,908.30 at 14% per annum from October 2, 1980 until full payment.
"WHEREFORE, considering the foregoing, the appealed decision is hereby

modified ordering the defendant to pay the plaintiff the sum of P54,908.30
at 14% per annum from October 2, 1980 until full payment. The decision is
AFFIRMED in all other respects. With costs to defendant." 2
Petitioner’s motion for reconsideration was denied; hence, the present

recourse.chanrobles law library
In the petition before us, petitioner assigns twelve (12) errors which focus
on the alleged fraud, bad faith and misrepresentation of Violago Motor Sales
Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private
respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by
description 4 which she alleges is applicable here, no contract ever existed
between her and VMS and therefore none had been assigned in favor of
private Respondent.
She contends that it is not necessary, as opined by the appellate court, to

implead VMS as a party to the case before it can be made to answer for
damages because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch LXXII,
docketed as Civil Case No. 2916-0. She cites as authority the decision
therein where the court originally ordered petitioner to pay the remaining
balance of the motor vehicle installments in the amount of P31,644.30
representing the difference between the agreed consideration of P49,000.00
as shown in the sales invoice and petitioner’s initial downpayment of
P17,855.70 allegedly evidenced by a receipt. Said decision was however
reversed later on, with the same court ordering defendant VMS instead to
return to petitioner the sum of P17,855.70. Parenthetically, said decision is
still pending consideration by the First Civil Case Division of the Court of
Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition
and counters that the issues raised and the allegations adduced therein are
a mere rehash of those presented and already passed upon in the court
below, and that the judgment in the "breach of contract" suit cannot be
invoked as an authority as the same is still pending determination in the
appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a
negotiable instrument which will bar completely all the available defenses of
the petitioner against private Respondent.
Petitioner’s liability on the promissory note, the due execution and

genuineness of which she never denied under oath is, under the foregoing
factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of
credit as petitioner would have it appear, where the assignee merely steps
into the shoes of, is open to all defenses available against and can enforce
payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing

and Acceptance Corp., 6 this Court had the occasion to clearly distinguish
between a negotiable and a non-negotiable instrument.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
Among others, the instrument in order to be considered negotiable must

contain the so-called "words of negotiability — i.e., must be payable to
‘order’ or ‘bearer.’" Under Section 8 of the Negotiable Instruments Law,
there are only two ways by which an instrument may be made payable to
order. There must always be a specified person named in the instrument and
the bill or note is to be paid to the person designated in the instrument or to
any person to whom he has indorsed and delivered the same. Without the
words "or order" or "to the order of", the instrument is payable only to the
person designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available
against the latter. Such being the situation in the above-cited case, it was
held that therein private respondent is not a holder in due course but a mere
assignee against whom all defenses available to the assignor may be raised.
7
In the case at bar, however, the situation is different. Indubitably, the basis
of private respondent’s claim against petitioner is a promissory note which
bears all the earmarks of negotiability.
The pertinent portion of the note reads:jgc:chanrobles.com.ph
"PROMISSORY NOTE
(MONTHLY)
"P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
"For value received, I/We jointly and severally, promise to pay Violago Motor
Sales Corporation or order, at its office in San Fernando, Pampanga, the
sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 20/100
ONLY (P58,138.20) Philippine currency, which amount includes interest at
14% per annum based on the diminishing balance, the said principal sum, to
be payable, without need of notice or demand, in installments of the
amounts following and at the dates hereinafter set forth, to wit: P1,614.95
months for "36" monthly due and payable on the 21st day of each month
starting March 21, 1980 thru and inclusive of February 21, 1983. P
__________ monthly for ___________ month due and payable on the
___________ day of each months starting _____________, ___________
198 __________ thru and inclusive of _______, 198 __________ provided
that interest at 14% per annum shall be added on each unpaid installment
from maturity hereof until fully paid.
x x x
"Maker: Co-Maker:chanrob1es virtual 1aw library
(SIGNED) JUANITA SALAS _____________________________
Address:chanrob1es virtual 1aw library
______________________ _____________________________
"WITNESSES
SIGNED: LLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
"PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
"VIOLAGO MOTOR SALES CORPORATION
By: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager" 8
A careful study of the questioned promissory note shows that it is a

negotiable instrument, having complied with the requisites under the law as
follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it
contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21st day of each month starting
March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to
Violago Motor Sales Corporation, or order and as such, [e] the drawee is
named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable

to the Order of Filinvest Finance and Leasing Corporation 10 and it is an
indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a

holder in due course, having taken the instrument under the following
conditions: [a] it is complete and regular upon its face; [b] it became the
holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value;
and [d] when it was negotiated to Filinvest, the latter had no notice of any
infirmity in the instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any

defect of title of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the instrument for
the full amount thereof. 13 This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and
VMS.chanrobles.com : virtual law library
Even assuming for the sake of argument that there is an iota of truth in
petitioner’s allegation that there was in fact deception made upon her in that
the vehicle she purchased was different from that actually delivered to her,
this matter cannot be passed upon in the case before us, where the VMS
was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in

the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it

held:jgc:chanrobles.com.ph
"We can only extend our sympathies to the defendant (herein petitioner) in
this unfortunate incident. Indeed, there is nothing We can do as far as the
Violago Motor Sales Corporation is concerned since it is not a party in this
case. To even discuss the issue as to whether or not the Violago Motor Sales
Corporation is liable in the transaction in question would amount, to denial of
due process, hence, improper and unconstitutional. She should have
impleaded Violago Motor Sales." 14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED.

With costs against petitioner.chanrobles lawlibrary : rednad
SO ORDERED.
CASE #106 Agro Conglomerates vs CA 348 SCRA 450 (2000)
[G.R. No. 117660. December 18, 2000.]
AGRO CONGLOMERATES, INC. and MARIO SORIANO, Petitioners, v.

THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN
BANK, INC., Respondents.
DECISION
QUISUMBING, J.:
This is a petition for review challenging the decision 1 dated October 17,
1994 of the Court of Appeals in CA-G.R. No. 32933, which affirmed in toto
the judgment of the Manila Regional Trial Court, Branch 27, in consolidated
Cases Nos. 86-37374, 86-37388, 86-37543.chanrob1es virtua1 1aw 1ibrary
This petition springs from three complaints for sums of money filed by
respondent bank against herein petitioners. In the decision of the Court of
Appeals, petitioners were ordered to pay respondent bank, as
follows:chanrob1es virtual 1aw library
Wherefore, judgment is hereby rendered in favor of plaintiff and against

defendants, as follows:chanrob1es virtual 1aw library
1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered

jointly and severally, to pay to plaintiff the amount of P78,212.29, together
with interest and service charge thereon, at the rates of 14% and 3% per
annum, respectively, computed from November 10, 1982, until fully paid,
plus stipulated penalty on unpaid principal at the rate of 6% per annum,
computed from November 10, 1982, plus 15% as liquidated damage plus
10% of the total amount due, as attorney’s fees, plus costs;chanrob1es
virtua1 1aw 1ibrary
2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the

amount of P632,911.39, together with interest and service charge thereon at
the rate of 14% and 3% per annum, respectively, computed from January
15, 1983, until fully paid, plus stipulated penalty on unpaid principal at the
rate of 6% per annum, computed from January 15, 1983, plus liquidated
damages equivalent to 15% of the total amount due, plus attorney’s fees
equivalent to 10% of the total amount due, plus costs; and
3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the

first cause of action, the amount of P510,000.00, together with interest and
service charge thereon, at the rates of 14% and 2% per annum,
respectively, computed from March 13, 1983, until fully paid, plus a penalty
of 6% per annum, based on the outstanding principal of the loan, computed
from March 13, 1983, until fully paid; and on the second cause of action, the
amount of P494,936.71, together with interest and service charge thereon at
the rates of 14% and 2%, per annum, respectively, computed from March
30, 1983, until fully paid, plus a penalty charge of 6% per annum, based on
the unpaid principal, computed from March 30, 1983, until fully paid, plus
(on both causes of action) an amount equal to 15% of the total amounts
due, as liquidated damages, plus attorney’s fees equal to 10% of the total
amounts due, plus costs. 2
Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two
parcels of land to Wonderland Food Industries, Inc. In their Memorandum of
Agreement, 3 the parties covenanted that the purchase price of Five Million
(P5,000,000.00) Pesos would be settled by the vendee, under the following
terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in
cash upon the signing of the agreement; (2) Two Million (P2,000,000.00)
Pesos worth of common shares of stock of the Wonderland Food Industries,
Inc.; and (3) The balance of P2,000,000.00 shall be paid in four equal
installments, the first installment falling due, 180 days after the signing of
the agreement and every six months thereafter, with an interest rate of 18%
per annum, to be advanced by the vendee upon the signing of the
agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank Regent
Savings & Loan Bank (formerly Summa Savings & Loan Association),
executed an Addendum 4 to the previous Memorandum of Agreement. The
new arrangement pertained to the revision of settlement of the initial
payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of
P2,000,000.00) as follows:chanrob1es virtual 1aw library
Whereas, the parties have agreed to qualify the stipulated terms for the
payment of the said ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00) PESOS.
WHEREFORE, in consideration of the mutual covenant and agreement of the

parties, they do further covenant and agree as follows:chanrob1es virtual
1aw library
1. That the VENDEE instead of paying the amount of ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS in cash, hereby
authorizes the VENDOR to obtain a loan from Summa Savings and Loan
Association with office address at Valenzuela, Metro Manila, being
represented herein by its President, Mr. Jaime Cariño and referred to
hereafter as Financier, in the amount of ONE MILLION THREE HUNDRED
SIXTY THOUSAND (P1,360,000.00) PESOS, plus interest thereon at such
rate as the VENDEE and the Financier may agree, which amount shall cover
the ONE MILLION (P1,000,000.00) PESOS cash which was agreed to be paid
upon signing of the Memorandum of Agreement, plus 18% interest on the
balance of two million pesos stipulated upon in Item No. 1(c) of the said
agreement; provided however, that said loan shall be made for and in the
name of the VENDOR.chanrob1es virtua1 1aw 1ibrary
2. The VENDEE also agrees that the full amount of ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to the
VENDOR; however, the VENDEE hereby undertakes to pay the full amount of
the said loan to the Financier on such terms and conditions agreed upon by
the Financier and the VENDOR, it being understood that while the loan will
be secured from and in the name of the VENDOR, the VENDEE will be the
one liable to pay the entire proceeds thereof including interest and other
charges. 5
This addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory

notes, 6 payable to the respondent bank. Thereafter, the bank released the
proceeds of the loan to petitioners. However, petitioners failed to meet their
obligations as they fell due. During that time, the bank was experiencing
financial turmoil and was under the supervision of the Central Bank. Central
Bank examiner and liquidator Cordula de Jesus endorsed the subject
promissory notes to the bank’s counsel for collection. The bank gave
petitioners opportunity to settle their account by extending payment due
dates. Mario Soriano manifested his intention to re-structure the loan, yet
did not show up nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial
Court of Manila for Collection of Sums of money. The corresponding case
histories are illustrated in the table below:chanrob1es virtual 1aw library
Date of Loan Amount Payment Due Payment Extension

Date Dates
Civil Case 86-37374
August 12, 1982 P78,212.29 Nov. 10, 1982 Feb. 8, 1983
May 9, 1983
Aug. 7, 1983
Civil Case 86-37388
July 19, 1982 P632,911.39 Jan. 15, 1983 May 16, 1983
Aug. 14, 1983
Civil Case 86-37543
September 14, 1982 P510,000.00 March 13, 1983 June 11, 1983
Sept. 9, 1983
October 1, 1982 P494,936.71 March 30, 1983 June 28, 1983
Sept. 26, 1983
In their answer, petitioners interposed the defense of novation and insisted

there was a valid substitution of debtor. They alleged that the addendum
specifically states that although the promissory notes were in their names,
Wonderland shall be responsible for the payment thereof.
The trial court held that petitioners are liable, to wit:chanrob1es virtual 1aw
library
The evidences, however, disclose that Wonderland did not comply with its
obligation under said ‘Addendum’ (Exh.’S’) as the agreement to turn over
the farmland to it, did not materialize (57 tsn, May 29, 1990), and there
was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not
answerable. And since the loans obtained under the four promissory notes
(Exhs.’A’, ‘C’, ‘G’, and ‘E’) have not been paid, despite opportunities given by
plaintiff to defendants to make payments, it stands to reason that
defendants are liable to pay their obligations thereunder to plaintiff. In fact,
defendants failed to file a third-party complaint against Wonderland, which
shows the weakness of its stand that Wonderland is answerable to make
said payments. 7
Petitioners appealed to the Court of Appeals. The trial court’s decision was
affirmed by the appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:chanrob1es
virtual 1aw library
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

ADDENDUM, SIGNED BY THE PETITIONERS, RESPONDENT BANK AND
WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY
SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY
LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from
a contract of sale of a farmland between petitioners and Wonderland Food
Industries, Inc. As found by the trial court, no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of

each party is the cause or consideration for the obligation or promise by the
other. The vendee is obliged to pay the price, while the vendor must deliver
actual possession of the land. In the instant case the original plan was that
the initial payments would be paid in cash. Subsequently, the parties (with
the participation of respondent bank) executed an addendum providing
instead, that the petitioners would secure a loan in the name of Agro
Conglomerates Inc. for the total amount of the initial payments, while the
settlement of said loan would be assumed by Wonderland. Thereafter,
petitioner Soriano signed several promissory notes and received the
proceeds in behalf of petitioner-company.chanrob1es virtua1 1aw 1ibrary
By this time, we note a subsidiary contract of suretyship had taken effect

since petitioners signed the promissory notes as maker and accommodation
party for the benefit of Wonderland. Petitioners became liable as
accommodation party. An accommodation party is a person who has signed
the instrument as maker, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person and
is liable on the instrument to a holder for value, notwithstanding such holder
at the time of taking the instrument knew (the signatory) to be an
accommodation party. 8 He has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between
them has in effect become one of principal and surety, the accommodation
party being the surety. 9 Suretyship is defined as the relation which exists
where one person has undertaken an obligation and another person is also
under the obligation or other duty to the obligee, who is entitled to but one
performance, and as between the two who are bound, one rather than the
other should perform. 10 The surety’s liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is
directly and equally bound with the principal. 11 And the creditor may
proceed against any one of the solidary debtors. 12
We do not give credence to petitioners’ assertion that, as provided by the

addendum, their obligation to pay the promissory notes was novated by
"substitution" of a new debtor, Wonderland. Contrary to petitioners’
contention, the attendant facts herein do not make a case of novation.
Novation is the extinguishment of an obligation by the substitution or change

of the obligation by a subsequent one which extinguishes or modifies the
first, either by changing the object or principal conditions, or by substituting
another in place of the debtor, or by subrogating a third person in the rights
of the creditor. 13 In order that a novation can take place, the concurrence
of the following requisites 14 are indispensable:chanrob1es virtual 1aw
library
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking. There
was no novation by "substitution" of debtor because there was no prior
obligation which was substituted by a new contract. It will be noted that the
promissory notes, which bound the petitioners to pay, were executed after
the addendum. The addendum modified the contract of sale, not the
stipulations in the promissory notes which pertain to the surety contract. At
this instance, Wonderland apparently assured the payment of future debts to
be incurred by the petitioners. Consequently, only a contract of surety arose.
It was wrong for petitioners to presume a novation had taken place. The
well-settled rule is that novation is never presumed, 15 must be clearly and
unequivocally shown. 16
As it turned out, the contract of surety between Wonderland and the

petitioners was extinguished by the rescission of the contract of sale of the
farmland. With the rescission, there was confusion or merger in the persons
of the principal obligor and the surety, namely the petitioners herein. The
addendum which was dependent thereon likewise lost its efficacy.
It is true that the basic and fundamental rule in the interpretation of contract
is that, if the terms thereof are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning shall control. However, in
order to judge the intention of the parties, their contemporaneous and
subsequent acts should be considered. 17
The contract of sale between Wonderland and petitioners did not materialize.
But it was admitted that petitioners received the proceeds of the promissory
notes obtained from respondent bank.chanrob1es virtua1 1aw 1ibrary
Sec. 22 of the Civil Code provides:chanrob1es virtual 1aw library
Every person who through an act of performance by another, or any other

means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.
Petitioners had no legal or just ground to retain the proceeds of the loan at
the expense of private Respondent. Neither could petitioners excuse
themselves and hold Wonderland still liable to pay the loan upon the
rescission of their sales contract. If petitioners sustained damages as a
result of the rescission, they should have impleaded Wonderland and asked
damages. The non-inclusion of a necessary part does not prevent the court
from proceeding in the action, and the judgment rendered therein shall be
without prejudice to the rights of such necessary party. 18 But respondent
appellate court did not err in holding that petitioners are duty-bound under
the law to pay the claims of respondent bank from whom they had obtained
the loan proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision
of the Court of Appeals dated October 17, 1994 is AFFIRMED. Costs against
petitioners.
SO ORDERED.chanrob1es virtua1 1aw 1ibrary

CASE #107 Clark vs Seliner 42 Phil 384 (1921)
[G.R. No. 16477. November 22, 1921. ]
R. N. CLARK, Plaintiff-Appellant, v. GEORGE C. SELLNER, Defendant-

Appellee.
Wolfson, Wolfson & Schwarzkopf for Appellant.
Williams & Ferrier for Appellee.
SYLLABUS
1. NEGOTIABLE INSTRUMENTS; ACCOMMODATION MAKER; VALUE

RECEIVED. — The fact that a joint and several note has been signed by one
or various of the makers thereof for the accommodation by one or more of
his or their comakers, does not render him or them an accommodation
maker or makers with respect to the creditor who, upon the receipt of the
note, pays the full value thereof. In such a case the payment by the creditor
of the value of the note upon the latter passing into his hands, renders all
the signers of the note liable thereon; and it is of no importance that one or
more of the signers has or have not received absolutely any part of the
consideration. The expression "without receiving value there or" used in
section 29 of the Negotiable Instruments Law, means that no value has been
received for the negotiable instrument.
2. ID.; CREDITOR’S INACTION AFTER MATURITY OF NOTE; DEPRECIATION

OF GUARANTY. — Mere delay on the part of the creditor, after the maturity
of the note, in enforcing the guaranty given to secure the payment of said
note, does not affect the liability of the maker, and the latter is not released
by the fact that by the lapse of time the guaranty has become worthless.
DECISION
ROMUALDEZ, J. :
The defendant, in conjunction with two other persons, signed the following
note in favor of the plaintiff:jgc:chanrobles.com.ph
"P12,000.00 MANILA, July 1, 1914.
"Six months after date, for value received, we jointly and severally promise
to pay to the order of R. N. Clark at his office in the city of Manila, the sum
of twelve thousand pesos, Philippine currency, with interest thereon in like
currency from date until paid at the rate of ten per cent per annum, payable
quarterly.
"If suit is necessary to collect this note, we hereby agree to pay as

attorney’s fees ten per centum of the amount found due.
(Sgd.) "W. H. CLARKE,
[INTERNAL REVENUE
STAMP. ] "JOHN MAYE.
"BY W. H. CLARKE, his attorney.
"GEO C. SELLNER."cralaw virtua1aw library
The note matured, but its amount was not paid.
Counsel for the defendant allege that the latter did not receive in that
transaction either the whole or any part of the amount of the debt; that the
instrument was not presented to the defendant for payment; and that the
defendant, being an accommodation party, is not liable unless the note is
negotiated, which was not done, as shown by the evidence.
With regard to the first point, the liability of the defendant, as one of the
signers of the note, is not dependent on whether he has, or has not,
received any part of the amount of the debt. The defendant is really and
expressly one of the joint and several debtors on the note, and as such he is
liable under the provisions of section 60 of Act No. 2031, entitled The
Negotiable Instruments Law which provisions should be applied in this case
in view of the character of the instrument.
As to presentment for payment, such action is not necessary in order to

charge the person primarily liable, as is the defendant. (Sec. 70, Act No.
2031.)
And as to whether or not the defendant is an accommodation party, it should

be taken into account that by putting his signature to the note, he lent his
name, not to the creditor, but to those who signed with him placing himself
with respect to the creditor in the same position and with the same liability
as the said signers. It should be noted that the phrase "without receiving
value therefor," as used in section 29 of the aforesaid Act, means "without
receiving value by virtue of the instrument" and not, as it apparently is
supposed to mean, "without receiving payment for lending his name." If, as
in the instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the signers
has, or has not, received anything in payment of the use of his name. In
reality the legal situation of the defendant in this case may properly be
regarded a9 that of a joint surety rather than that of an accommodation
party. The defendant, as a joint surety, may, upon the maturity of the note,
pay the debt, demand the collateral security and dispose of it to his benefit;
but there is no proof whatever that this was done. As to the plaintiff, he is
the "holder for value," under the phrase of said section 29, for he had paid
the money to the signers at the time the note was executed and delivered to
him. Who is the "holder" is defined in section 191 of the said law
thus:jgc:chanrobles.com.ph
"‘Holder’ means the payee or indorsee of a bill or note, who is in possession

of it, or the bearer thereof."cralaw virtua1aw library
And as such holder, he has the right to demand payment of the debt from
the signer of the note, even though he knows that said person is merely an
accommodation party (section 29 above cited), assuming the defendant to
be such, which, as has been stated, is not the case.
The trial judge took into account the fact that at the time of the maturity of
the note, the collateral security given to guarantee the payment was worth
more than what was due on the note, but it depreciated to such an extent
that, at the time of the institution of this action, it was entirely valueless.
And taking this circumstance, together with the fact that this case was not
commenced until after the lapse of four years from the date on which the
payment fell due, and with the further fact that the defendant had not
received any part of the amount mentioned in the note, he was of the
opinion, and so decided, that the defendant could not be held liable. The
theory of the judge a quo was that the plaintiff’s failure to enforce the
guaranty for the payment of the debt, and his delay in instituting this action
constitute laches, which had the effect of extinguishing his right of action.
We see no sufficient ground for applying such a theory to the case before us.
As stated, the defendant’s position being, as it is, that of a joint surety, he
may, at any time after the maturity of the note, make payment, thus
subrogating himself in the place of the creditor with the right to enforce the
guaranty against the other signers of the note for the reimbursement of
what he is entitled to recover from them. The mere delay of the creditor in
enforcing the guaranty has not by any means impaired his action against the
defendant. It should not be lost sight of that the defendant’s signature on
the note is an assurance to the creditor that the collateral guaranty will
remain good, and that otherwise, he, the defendant, will be personally
responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly or
partially released the surety; but it must be born in mind that it is a
recognized doctrine in the matter of suretyship that with respect to the
surety, the creditor is under no obligation to display any diligence in the
enforcement of his rights as a creditor. His mere inaction indulgence,
passiveness, or delay in proceeding against he principal debtor, or the fact
that he did not enforce the guaranty or apply on the payment of such funds
as were available, constitute no defense at all for the surety, unless the
contract expressly requires diligence and promptness on he part of the
creditor, which is not the case in the present action. There is in some
decisions a tendency toward holding that the creditor’s laches may discharge
the surety, meaning by laches a negligent forbearance. This theory,
however, is not generally accepted and the courts almost universally
consider it essentially inconsistent with the relation of the parties to the
note. (21 R. C. L., 1032- 1034.)
We find that in the judgment appealed from there were committed the
errors assigned, and that the defendant is under obligation to pay the
plaintiff the amount of the debt, as prayed for in the complaint.
The judgment appealed from must, therefore, be, as is hereby, reversed. Let
an order be issued to the effect that the plaintiff have and recover from the
defendant the sum of twelve thousand pesos (P12,000), as principal debt,
plus one thousand two hundred pesos (P1,200), the sum agreed upon as
attorney’s fees, and 10 per cent interest on the principal debt from July 1,
1914, until it is fully paid, deducting therefrom the sum of three hundred
pesos (P300) already paid on account, as stated in the complaint.
This decision is rendered without special pronouncement as to costs. So

ordered.
CASE #108 Atrium Management Corp vs CA GR No. 109496 (2001)
G.R. No. 109491. February 28, 2001
ATRIUM MANAGEMENT CORPORATION, Petitioner, v. 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, v. COURT OF APPEALS, ATRIUM

MANAGEMENT CORPORATION, AND HI-CEMENT
CORPORATION, Respondents.
DECISION
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. 3cräläwvirtualibräry
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 attorneys fees. 4cräläwvirtualibräry
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. 5cräläwvirtualibräry
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. 6cräläwvirtualibräry
Respondent Hi-Cement presented as witness Ms. Erlinda 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. 7cräläwvirtualibräry
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 attorneys fees and the cost of suit.
All other claims are, for lack of merit dismissed.
SO ORDERED.8cräläwvirtualibräry
In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court
of Appeals. 9cräläwvirtualibräry
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. 10cräläwvirtualibräry
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. 11cräläwvirtualibräry
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 plaintiffs 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 attorneys 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 attorneys fees.
With cost in this instance against the appellee Atrium Management

Corporation and appellant Lourdes Victoria M. de Leon.
So ordered.12cräläwvirtualibräry
Hence, the recourse to this Court. 13cräläwvirtualibräry
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 attorneys
fees.14cräläwvirtualibräry
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 attorneys fees and costs.15cräläwvirtualibräry
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. 17cräläwvirtualibräry
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;
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.18cräläwvirtualibräry
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 payees
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.
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 payees account only. From the beginning, Atrium was aware of
the fact that the checks were all for deposit only to payees 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. 19cräläwvirtualibräry
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.
CASE #109 De Ocampo vs Gatchalian 3 SCRA 596 (1961)
G.R. No. L-15126 November 30, 1961
VICENTE R. DE OCAMPO & CO., Plaintiff-Appellee, vs. ANITA

GATCHALIAN, ET AL., Defendants-Appellants.
Vicente Formoso, Jr. for plaintiff-appellee.

Reyes and Pangalañgan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon.

Conrado M. Velasquez, presiding, sentencing the defendants to pay the
plaintiff the sum of P600, with legal interest from September 10, 1953 until
paid, and to pay the costs.chanroblesvirtualawlibrarychanrobles virtual law
library
The action is for the recovery of the value of a check for P600 payable to the
plaintiff and drawn by defendant Anita C. Gatchalian. The complaint sets
forth the check and alleges that plaintiff received it in payment of the
indebtedness of one Matilde Gonzales; that upon receipt of said check,
plaintiff gave Matilde Gonzales P158.25, the difference between the face
value of the check and Matilde Gonzales' indebtedness. The defendants
admit the execution of the check but they allege in their answer, as
affirmative defense, that it was issued subject to a condition, which was not
fulfilled, and that plaintiff was guilty of gross negligence in not taking steps
to protect itself.chanroblesvirtualawlibrarychanrobles virtual law library
At the time of the trial, the parties submitted a stipulation of facts, which
reads as follows:
Plaintiff and defendants through their respective undersigned attorney's

respectfully submit the following Agreed Stipulation of Facts;chanrobles
virtual law library
First. - That on or about 8 September 1953, in the evening, defendant Anita

C. Gatchalian who was then interested in looking for a car for the use of her
husband and the family, was shown and offered a car by Manuel Gonzales
who was accompanied by Emil Fajardo, the latter being personally known to
defendant Anita C. Gatchalian;chanrobles virtual law library
Second. - That Manuel Gonzales represented to defend Anita C. Gatchalian
that he was duly authorized by the owner of the car, Ocampo Clinic, to look
for a buyer of said car and to negotiate for and accomplish said sale, but
which facts were not known to plaintiff;chanrobles virtual law library
Third. - That defendant Anita C. Gatchalian, finding the price of the car
quoted by Manuel Gonzales to her satisfaction, requested Manuel Gonzales
to bring the car the day following together with the certificate of registration
of the car, so that her husband would be able to see same; that on this
request of defendant Anita C. Gatchalian, Manuel Gonzales advised her that
the owner of the car will not be willing to give the certificate of registration
unless there is a showing that the party interested in the purchase of said
car is ready and willing to make such purchase and that for this purpose
Manuel Gonzales requested defendant Anita C. Gatchalian to give him
(Manuel Gonzales) a check which will be shown to the owner as evidence of
buyer's good faith in the intention to purchase the said car, the said check to
be for safekeeping only of Manuel Gonzales and to be returned to defendant
Anita C. Gatchalian the following day when Manuel Gonzales brings the car
and the certificate of registration, but which facts were not known to
plaintiff;chanrobles virtual law library
Fourth. - That relying on these representations of Manuel Gonzales and with

his assurance that said check will be only for safekeeping and which will be
returned to said defendant the following day when the car and its certificate
of registration will be brought by Manuel Gonzales to defendants, but which
facts were not known to plaintiff, defendant Anita C. Gatchalian drew and
issued a check, Exh. "B"; that Manuel Gonzales executed and issued a
receipt for said check, Exh. "1";chanrobles virtual law library
Fifth. - That on the failure of Manuel Gonzales to appear the day following
and on his failure to bring the car and its certificate of registration and to
return the check, Exh. "B", on the following day as previously agreed upon,
defendant Anita C. Gatchalian issued a "Stop Payment Order" on the check,
Exh. "3", with the drawee bank. Said "Stop Payment Order" was issued
without previous notice on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to know check was given to
plaintiff;chanrobles virtual law library
Sixth. - That defendants, both or either of them, did not know personally
Manuel Gonzales or any member of his family at any time prior to
September 1953, but that defendant Hipolito Gatchalian is personally
acquainted with V. R. de Ocampo;chanrobles virtual law library
Seventh. - That defendants, both or either of them, had no arrangements or
agreement with the Ocampo Clinic at any time prior to, on or after 9
September 1953 for the hospitalization of the wife of Manuel Gonzales and
neither or both of said defendants had assumed, expressly or impliedly, with
the Ocampo Clinic, the obligation of Manuel Gonzales or his wife for the
hospitalization of the latter;chanrobles virtual law library
Eight. - That defendants, both or either of them, had no obligation or

liability, directly or indirectly with the Ocampo Clinic before, or on 9
September 1953;chanrobles virtual law library
Ninth. - That Manuel Gonzales having received the check Exh. "B" from
defendant Anita C. Gatchalian under the representations and conditions
herein above specified, delivered the same to the Ocampo Clinic, in payment
of the fees and expenses arising from the hospitalization of his
wife;chanrobles virtual law library
Tenth. - That plaintiff for and in consideration of fees and expenses of

hospitalization and the release of the wife of Manuel Gonzales from its
hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to
payment of said fees and expenses and delivering to Manuel Gonzales the
amount of P158.25 (as per receipt, Exhibit "D") representing the balance on
the amount of the said check, Exh. "B";chanrobles virtual law library
Eleventh. - That the acts of acceptance of the check and application of its
proceeds in the manner specified above were made without previous inquiry
by plaintiff from defendants:chanrobles virtual law library
Twelfth. - That plaintiff filed or caused to be filed with the Office of the City
Fiscal of Manila, a complaint for estafa against Manuel Gonzales based on
and arising from the acts of said Manuel Gonzales in paying his obligations
with plaintiff and receiving the cash balance of the check, Exh. "B" and that
said complaint was subsequently dropped;chanrobles virtual law library
Thirteenth. - That the exhibits mentioned in this stipulation and the other
exhibits submitted previously, be considered as parts of this stipulation,
without necessity of formally offering them in evidence;chanrobles virtual
law library
WHEREFORE, it is most respectfully prayed that this agreed stipulation of

facts be admitted and that the parties hereto be given fifteen days from
today within which to submit simultaneously their memorandum to discuss
the issues of law arising from the facts, reserving to either party the right to
submit reply memorandum, if necessary, within ten days from receipt of
their main memoranda. (pp. 21-25, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the court
rendered the judgment already alluded
above.chanroblesvirtualawlibrarychanrobles virtual law library
In their appeal defendants-appellants contend that the check is not a

negotiable instrument, under the facts and circumstances stated in the
stipulation of facts, and that plaintiff is not a holder in due course. In
support of the first contention, it is argued that defendant Gatchalian had no
intention to transfer her property in the instrument as it was for safekeeping
merely and, therefore, there was no delivery required by law (Section 16,
Negotiable Instruments Law); that assuming for the sake of argument that
delivery was not for safekeeping merely, delivery was conditional and the
condition was not fulfilled.chanroblesvirtualawlibrarychanrobles virtual law
library
In support of the contention that plaintiff-appellee is not a holder in due

course, the appellant argues that plaintiff-appellee cannot be a holder in due
course because there was no negotiation prior to plaintiff-appellee's
acquiring the possession of the check; that a holder in due course
presupposes a prior party from whose hands negotiation proceeded, and in
the case at bar, plaintiff-appellee is the payee, the maker and the payee
being original parties. It is also claimed that the plaintiff-appellee is not a
holder in due course because it acquired the check with notice of defect in
the title of the holder, Manuel Gonzales, and because under the
circumstances stated in the stipulation of facts there were circumstances
that brought suspicion about Gonzales' possession and negotiation, which
circumstances should have placed the plaintiff-appellee under the duty, to
inquire into the title of the holder. The circumstances are as follows:
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth,

Stipulation of Facts). Plaintiff could have inquired why a person would use
the check of another to pay his own debt. Furthermore, plaintiff had the
"means of knowledge" inasmuch as defendant Hipolito Gatchalian is
personally acquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation of
Facts.).chanroblesvirtualawlibrarychanrobles virtual law library
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales

and Dr. V. R. de Ocampo (Paragraph Sixth, Stipulation of
Facts).chanroblesvirtualawlibrarychanrobles virtual law library
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel
Gonzales. (Par. 7, Stipulation of Facts.)chanrobles virtual law library
The check could not have been intended to pay the hospital fees which
amounted only to P441.75. The check is in the amount of P600.00, which is
in excess of the amount due plaintiff. (Par. 10, Stipulation of
Facts).chanroblesvirtualawlibrarychanrobles virtual law library
It was necessary for plaintiff to give Manuel Gonzales change in the sum
P158.25 (Par. 10, Stipulation of Facts). Since Manuel Gonzales is the party
obliged to pay, plaintiff should have been more cautious and wary in
accepting a piece of paper and disbursing cold
cash.chanroblesvirtualawlibrarychanrobles virtual law library
The check is payable to bearer. Hence, any person who holds it should have
been subjected to inquiries. EVEN IN A BANK, CHECKS ARE NOT CASHED
WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have
been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiff-appellee

argues that in accordance with the best authority on the Negotiable
Instruments Law, plaintiff-appellee may be considered as a holder in due
course, citing Brannan's Negotiable Instruments Law, 6th edition, page 252.
On this issue Brannan holds that a payee may be a holder in due course and
says that to this effect is the greater weight of authority, thus:
Whether the payee may be a holder in due course under the N. I. L., as he
was at common law, is a question upon which the courts are in serious
conflict. There can be no doubt that a proper interpretation of the act read
as a whole leads to the conclusion that a payee may be a holder in due
course under any circumstance in which he meets the requirements of Sec.
52.chanroblesvirtualawlibrarychanrobles virtual law library
The argument of Professor Brannan in an earlier edition of this work has

never been successfully answered and is here
repeated.chanroblesvirtualawlibrarychanrobles virtual law library
Section 191 defines "holder" as the payee or indorsee of a bill or note, who
is in possession of it, or the bearer thereof. Sec. 52 defendants defines a
holder in due course as "a holder who has taken the instrument under the
following conditions: 1. That it is complete and regular on its face. 2. That he
became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact. 3. That he took it in good
faith and for value. 4. That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the title of the person
negotiating it."chanrobles virtual law library
Since "holder", as defined in sec. 191, includes a payee who is in possession

the word holder in the first clause of sec. 52 and in the second subsection
may be replaced by the definition in sec. 191 so as to read "a holder in due
course is a payee or indorsee who is in possession," etc. (Brannan's on
Negotiable Instruments Law, 6th ed., p. 543).
The first argument of the defendants-appellants, therefore, depends upon

whether or not the plaintiff-appellee is a holder in due course. If it is such a
holder in due course, it is immaterial that it was the payee and an
immediate party to the instrument.chanroblesvirtualawlibrarychanrobles
virtual law library
The other contention of the plaintiff is that there has been no negotiation of
the instrument, because the drawer did not deliver the instrument to Manuel
Gonzales with the intention of negotiating the same, or for the purpose of
giving effect thereto, for as the stipulation of facts declares the check was to
remain in the possession Manuel Gonzales, and was not to be negotiated,
but was to serve merely as evidence of good faith of defendants in their
desire to purchase the car being sold to them. Admitting that such was the
intention of the drawer of the check when she delivered it to Manuel
Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales
delivered the check or negotiated it. As the check was payable to the
plaintiff-appellee, and was entrusted to Manuel Gonzales by Gatchalian, the
delivery to Manuel Gonzales was a delivery by the drawer to his own agent;
in other words, Manuel Gonzales was the agent of the drawer Anita
Gatchalian insofar as the possession of the check is concerned. So, when the
agent of drawer Manuel Gonzales negotiated the check with the intention of
getting its value from plaintiff-appellee, negotiation took place through no
fault of the plaintiff-appellee, unless it can be shown that the plaintiff-
appellee should be considered as having notice of the defect in the
possession of the holder Manuel Gonzales. Our resolution of this issue leads
us to a consideration of the last question presented by the appellants, i.e.,
whether the plaintiff-appellee may be considered as a holder in due
course.chanroblesvirtualawlibrarychanrobles virtual law library
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:chanrobles virtual law library
(a) That it is complete and regular upon its face;chanrobles virtual law
library
notice that it had been previously dishonored, if such was the
fact;chanrobles virtual law library
(c) That he took it in good faith and for value;chanrobles virtual law library
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee was not aware
of the circumstances under which the check was delivered to Manuel
Gonzales, but we agree with the defendants-appellants that the
circumstances indicated by them in their briefs, such as the fact that
appellants had no obligation or liability to the Ocampo Clinic; that the
amount of the check did not correspond exactly with the obligation of
Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the
check could only be deposited but may not be converted into cash - all these
circumstances should have put the plaintiff-appellee to inquiry as to the why
and wherefore of the possession of the check by Manuel Gonzales, and why
he used it to pay Matilde's account. It was payee's duty to ascertain from
the holder Manuel Gonzales what the nature of the latter's title to the check
was or the nature of his possession. Having failed in this respect, we must
declare that plaintiff-appellee was guilty of gross neglect in not finding out
the nature of the title and possession of Manuel Gonzales, amounting to
legal absence of good faith, and it may not be considered as a holder of the
check in good faith. To such effect is the consensus of authority.
In order to show that the defendant had "knowledge of such facts that his
action in taking the instrument amounted to bad faith," it is not necessary to
prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's
acquisition of title, although he did not have notice of the particular wrong
that was committed. Paika v. Perry, 225 Mass. 563, 114 N.E.
It is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know
the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad
faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord. Davis v.
First Nat. Bank, 26 Ariz. 621, 229 Pac.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy
fifteen years old, less than five feet tall, immature in appearance and
bearing on his face the stamp a degenerate, to the defendants' clerk for
sale. The boy stated that they belonged to his mother. The defendants paid
the boy for the bonds without any further inquiry. Held, the plaintiff could
recover the value of the bonds. The term 'bad faith' does not necessarily
involve furtive motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty Loan department
provided an easy way for thieves to dispose of their plunder. It was a case of
"no questions asked." Although gross negligence does not of itself constitute
bad faith, it is evidence from which bad faith may be inferred. The
circumstances thrust the duty upon the defendants to make further inquiries
and they had no right to shut their eyes deliberately to obvious facts. Morris
v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App.
Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable
Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling that
plaintiff-appellee should not be allowed to recover the value of the check.
Let us now examine the express provisions of the Negotiable Instruments
Law pertinent to the matter to find if our ruling conforms thereto. Section 52
(c) provides that a holder in due course is one who takes the instrument "in
good faith and for value;" Section 59, "that every holder is deemed prima
facie to be a holder in due course;" and Section 52 (d), that in order that
one may be a holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of any . . . defect in the
title of the person negotiating it;" and lastly Section 59, that every holder is
deemed prima facieto be a holder in due
course.chanroblesvirtualawlibrarychanrobles virtual law library
In the case at bar the rule that a possessor of the instrument is prima faciea
holder in due course does not apply because there was a defect in the title of
the holder (Manuel Gonzales), because the instrument is not payable to him
or to bearer. On the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no account with
the payee; that the holder did not show or tell the payee why he had the
check in his possession and why he was using it for the payment of his own
personal account - show that holder's title was defective or suspicious, to
say the least. As holder's title was defective or suspicious, it cannot be
stated that the payee acquired the check without knowledge of said defect in
holder's title, and for this reason the presumption that it is a holder in due
course or that it acquired the instrument in good faith does not exist. And
having presented no evidence that it acquired the check in good faith, it
(payee) cannot be considered as a holder in due course. In other words,
under the circumstances of the case, instead of the presumption that payee
was a holder in good faith, the fact is that it acquired possession of the
instrument under circumstances that should have put it to inquiry as to the
title of the holder who negotiated the check to it. The burden was, therefore,
placed upon it to show that notwithstanding the suspicious circumstances, it
acquired the check in actual good faith.chanroblesvirtualawlibrarychanrobles
virtual law library
The rule applicable to the case at bar is that described in the case of Howard
National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the
Supreme Court of Vermont made the following disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of cases had
developed in this country. The first had its origin in Gill v. Cubitt, 3 B. & C.
466, 10 E. L. 215, where the rule was distinctly laid down by the court of
King's Bench that the purchaser of negotiable paper must exercise
reasonable prudence and caution, and that, if the circumstances were such
as ought to have excited the suspicion of a prudent and careful man, and he
made no inquiry, he did not stand in the legal position of a bona fide holder.
The rule was adopted by the courts of this country generally and seem to
have become a fixed rule in the law of negotiable paper. Later in Goodman
v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English court abandoned its
former position and adopted the rule that nothing short of actual bad faith or
fraud in the purchaser would deprive him of the character of a bona fide
purchaser and let in defenses existing between prior parties, that no
circumstances of suspicion merely, or want of proper caution in the
purchaser, would have this effect, and that even gross negligence would
have no effect, except as evidence tending to establish bad faith or fraud.
Some of the American courts adhered to the earlier rule, while others
followed the change inaugurated in Goodman v. Harvey. The question was
before this court in Roth v. Colvin, 32 Vt. 125, and, on full consideration of
the question, a rule was adopted in harmony with that announced in Gill v.
Cubitt, which has been adhered to in subsequent cases, including those cited
above. Stated briefly, one line of cases including our own had adopted the
test of the reasonably prudent man and the other that of actual good faith.
It would seem that it was the intent of the Negotiable Instruments Act to
harmonize this disagreement by adopting the latter test. That such is the
view generally accepted by the courts appears from a recent review of the
cases concerning what constitutes notice of defect. Brannan on Neg. Ins.
Law, 187-201. To effectuate the general purpose of the act to make uniform
the Negotiable Instruments Law of those states which should enact it, we
are constrained to hold (contrary to the rule adopted in our former
decisions) that negligence on the part of the plaintiff, or suspicious
circumstances sufficient to put a prudent man on inquiry, will not of
themselves prevent a recovery, but are to be considered merely as evidence
bearing on the question of bad faith. See G. L. 3113, 3172, where such a
course is required in construing other uniform
acts.chanroblesvirtualawlibrarychanrobles virtual law library
It comes to this then: When the case has taken such shape that the plaintiff
is called upon to prove himself a holder in due course to be entitled to
recover, he is required to establish the conditions entitling him to standing
as such, including good faith in taking the instrument. It devolves upon him
to disclose the facts and circumstances attending the transfer, from which
good or bad faith in the transaction may be inferred.
In the case at bar as the payee acquired the check under circumstances
which should have put it to inquiry, why the holder had the check and used
it to pay his own personal account, the duty devolved upon it, plaintiff-
appellee, to prove that it actually acquired said check in good faith. The
stipulation of facts contains no statement of such good faith, hence we are
forced to the conclusion that plaintiff payee has not proved that it acquired
the check in good faith and may not be deemed a holder in due course
thereof.chanroblesvirtualawlibrarychanrobles virtual law library
For the foregoing considerations, the decision appealed from should be, as it
is hereby, reversed, and the defendants are absolved from the complaint.
With costs against plaintiff-appellee.chanroblesvirtualawlibrarychanrobles
virtual law library
CASE #110 Prudencio vs CA 143 SCRA 7 (1966)
G.R. No. L-34539 July 14, 1986
EULALIO PRUDENCIO and ELISA T. PRUDENCIO, Petitioners, vs. THE

HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK,
RAMON C. CONCEPCION and MANUEL M. TAMAYO, partners of the
defunct partnership Concepcion & Tamayo Construction Company,
JOSE TORIBIO, Atty-in-Fact of Concepcion & Tamayo Construction
Company, and THE DISTRICT ENGINEER, Puerto Princesa,
Palawan, Respondents.
Fernando R. Mangubat, Jr. for respondent PNB.
GUTIERREZ, JR., J.:
This is a petition for review seeking to annul and set aside the decision of
the Court of Appeals, now the Intermediate Appellate Court, affirming the
order of the trial court which dismissed the petitioners' complaint for
cancellation of their real estate mortgage and held them jointly and severally
liable with the principal debtors on a promissory note which they signed as
accommodation makers.chanroblesvirtualawlibrary chanrobles virtual law
library
The factual background of this case is stated in the decision of the appellate
court:
Appellants are the registered owners of a parcel of land located in Sampaloc,

Manila, and covered by T.C.T. 35161 of the Register of Deeds of Manila. On
October 7, 1954, this property was mortgaged by the appellants to the
Philippine National Bank, hereinafter called PNB, to guarantee a loan of
P1,000.00 extended to one Domingo
Prudencio.chanroblesvirtualawlibrary chanrobles virtual law library
Sometime in 1955, the Concepcion & Tamayo Construction Company,

hereinafter called Company, had a pending contract with the Bureau of
Public Works, hereinafter called the Bureau, for the construction of the
municipal building in Puerto Princess, Palawan, in the amount of P36,800.00
and, as said Company needed funds for said construction, Jose Toribio,
appellants' relative, and attorney-in-fact of the Company, approached the
appellants asking them to mortgage their property to secure the loan of
P10,000.00 which the Company was negotiating with the
PNB.chanroblesvirtualawlibrary chanrobles virtual law library
After some persuasion appellants signed on December 23, 1955 the

'Amendment of Real Estate Mortgage', mortgaging their said property to the
PNB to guaranty the loan of P10,000.00 extended to the Company. The
terms and conditions of the original mortgage for Pl,000.00 were made
integral part of the new mortgage for P10,000.00 and both documents were
registered with the Register of Deeds of Manila. The promissory note
covering the loan of P10,000.00 dated December 29, 1955, maturing on
April 27, 1956, was signed by Jose Toribio, as attorney-in-fact of the
Company, and by the appellants. Appellants also signed the portion of the
promissory note indicating that they are requesting the PNB to issue the
Check covering the loan to the Company. On the same date (December 23,
1955) that the 'Amendment of Real Estate' was executed, Jose Toribio, in
the same capacity as attorney-in- fact of the Company, executed also the
'Deed of Assignment' assigning all payments to be made by the Bureau to
the Company on account of the contract for the construction of the Puerto
Princesa building in favor of the PNB.chanroblesvirtualawlibrary chanrobles
virtual law library
This assignment of credit to the contrary notwithstanding, the Bureau; with

approval, of the PNB, conditioned, however that they should be for labor and
materials, made three payments to the Company on account of the contract
price totalling P11,234.40. The Bureau's last request for P5,000.00 on June
20, 1956, however, was denied by the PNB for the reason that since the loan
was already overdue as of April 28, 1956, the remaining balance of the
contract price should be applied to the
loan.chanroblesvirtualawlibrary chanrobles virtual law library
The Company abandoned the work, as a consequence of which on June 30,

1956, the Bureau rescinded the construction contract and assumed the work
of completing the building. On November 14, 1958, appellants wrote the
PNB contending that since the PNB authorized payments to the Company
instead of on account of the loan guaranteed by the mortgage there was a
change in the conditions of the contract without the knowledge of appellants,
which entitled the latter to a cancellation of their mortgage
contract.chanroblesvirtualawlibrary chanrobles virtual law library
Failing in their bid to have the real estate mortgage cancelled, appellants
filed on June 27, 1959 this action against the PNB, the Company, the latter's
attorney-in-fact Jose Toribio, and the District Engineer of Puerto Princesa,
Palawan, seeking the cancellation of their real estate mortgage. The
complaint was amended to exclude the Company as defendant, it having
been shown that its life as a partnership had already expired and, in lieu
thereof, Ramon Concepcion and Manuel M. Tamayo, partners of the defunct
Company, were impleaded in their private capacity as defendants.
After hearing, the trial court rendered judgment, denying the prayer in the
complaint that the petitioners be absolved from their obligation under the
mortgage contract and that the said mortgage be released or cancelled. The
petitioners were ordered to pay jointly and severally with their co-makers
Ramon C. Concepcion and Manuel M. Tamayo the sum of P11,900.19 with
interest at the rate of 6% per annum from the date of the filing of the
complaint on June 27, 1959 until fully paid and Pl,000.00 attorney's
fees.chanroblesvirtualawlibrary chanrobles virtual law library
The decision also provided that if the judgment was not satisfied within 90
days from its receipt, the mortgaged properties together with all the
improvements thereon belonging to the petitioners would be sold at public
auction and applied to the judgment
debt.chanroblesvirtualawlibrary chanrobles virtual law library
The Court of Appeals affirmed the trial court's decision in toto stating that,
as accommodation makers, the petitioners' liability is that of solidary co-
makers and that since "the amounts released to the construction company
were used therein and, therefore, were spent for the successful
accomplishment of the work constructed for, the authorization made by the
Philippine National Bank of partial payments to the construction company
which was also one of the solidary debtors cannot constitute a valid defense
on the part of the other solidary debtors. Moreover, those who rendered
services and furnished materials in the construction are preferred creditors
and have a lien on the price of the contract." The appellate court further held
that PNB had no obligation whatsoever to notify the petitioners of its
authorizing the three payments in the total amount of Pll,234.00 in favor of
the Company because aside from the fact that the petitioners were not
parties to the deed of assignment, there was no stipulation in said deed
making it obligatory on the part of the PNB to notify the petitioners
everytime it authorizes payment to the Company. It ruled that the
petitioners cannot ask to be released from the real estate
mortgage.chanroblesvirtualawlibrary chanrobles virtual law library
In this petition, the petitioners raise the following issues which they present
in the form of errors:
I. First Assignment of Error.chanroblesvirtualawlibrary chanrobles virtual law

library
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN
PETITIONERS WERE SOLIDARY CO-DEBTORS INSTEAD OF
SURETIES: chanrobles virtual law library
II. Second Assignment of Error.chanroblesvirtualawlibrary chanrobles virtual

law library
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONERS WERE NOT RELEASED FROM THEIR OBLIGATION TO THE
RESPONDENT PNB, WHEN THE PNB, WITHOUT THE KNOWLEDGE AND
CONSENT OF PETITIONERS, CHANGED THE TENOR AND CONDITION OF THE
ASSIGNMENT OF PAYMENTS MADE BY THE PRINCIPAL DEBTOR;
CONCEPCION & TAMAYO CONSTRUCTION COMPANY; AND RELEASED TO
SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC
WORKS WHICH WERE MORE THAN ENOUGH TO WIPE OUT THE
INDEBTEDNESS TO THE PNB.
The petitioners contend that as accommodation makers, the nature of their

liability is only that of mere sureties instead of solidary co-debtors such that
"a material alteration in the principal contract, effected by the creditor
without the knowledge and consent of the sureties, completely discharges
the sureties from all liability on the contract of suretyship. " They state that
when respondent PNB did not apply the initial and subsequent payments to
the petitioners' debt as provided for in the deed of assignment, they were
released from their obligation as sureties and, therefore, the real estate
mortgage executed by them should have been
cancelled.chanroblesvirtualawlibrary chanrobles virtual law library
Section 29 of the Negotiable Instrument Law provides:
Liability of accommodation party. -An accommodation party is one who has

signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him
to be only an accommodation party.
In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539),

we held that "... in lending his name to the accommodated party, the
accommodation party is in effect a surety. ... . " However, unlike in a
contract of suretyship, the liability of the accommodation party remains not
only primary but also unconditional to a holder for value such that even if
the accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far
as a holder for value is concerned, he is a solidary co-
debtor.chanroblesvirtualawlibrary chanrobles virtual law library
Expounding on the nature of the liability of an accommodation petition party

under the aforequoted section, we ruled in Ang Tiong v. Ting (22 SCRA 713,
716):
3. That the appellant, again assuming him to be an accommodation indorser,

may obtain security from the maker to protect himself against the danger of
insolvency of the latter, cannot in any manner affect his liability to the
appellee, as the said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party. So that the appellant
stands only as a surety in relation to the maker, granting this to be true for
the sake of argument, is immaterial to the claim of the appellee, and does
not a whit diminish nor defeat the rights of the latter who is a holder for
value. The liability of the appellant remains primary and unconditional. To
sanction the appellant's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability on
his indorsement by the convenient expedient of interposing the defense that
he is a mere accommodation indorser.
There is, therefore, no question that as accommodation makers, petitioners

would be primarily and unconditionally liable on the promissory note to a
holder for value, regardless of whether they stand as sureties or solidary co-
debtors since such distinction would be entirely immaterial and
inconsequential as far as a holder for value is concerned. Consequently, the
petitioners cannot claim to have been released from their obligation simply
because the time of payment of such obligation was temporarily deferred by
PNB without their knowledge and consent. There has to be another basis for
their claim of having been freed from their obligation. The question which
should be resolved in this instant petition, therefore, is whether or not PNB
can be considered a holder for value under Section 29 of the Negotiable
Instruments Law such that the petitioners must be necessarily barred from
setting up the defense of want of consideration or some other personal
defenses which may be set up against a party who is not a holder in due
course.chanroblesvirtualawlibrary chanrobles virtual law library
A holder for value under Section 29 of the Negotiable Instruments Law is

one who must meet all the requirements of a holder in due course under
Section 52 of the same law except notice of want of consideration.
(Agbayani, Commercial Laws of the Philippines, 1964, p. 208). If he does not
qualify as a holder in due course then he holds the instrument subject to the
same defenses as if it were non-negotiable (Section 58, Negotiable
Instruments Law).chanroblesvirtualawlibrary chanrobles virtual law library
In the case at bar, can PNB, the payee of the promissory note be considered
a holder in due course? chanrobles virtual law library
Petitioners contend that the payee PNB is an immediate party and,

therefore, is not a holder in due course and stands on no better footing than
a mere assignee.chanroblesvirtualawlibrary chanrobles virtual law library
In those cases where a payee was considered a holder in due course, such
payee either acquired the note from another holder or has not directly dealt
with the maker thereof. As was held in the case of Bank of Commerce and
Savings v. Randell (186 NorthWestern Reporter 71):
We conclude, therefore, that a payee who receives a negotiable promissory

note, in good faith, for value, before maturity, and without any notice of any
infirmity, from a holder, not the maker. to whom it was negotiated as a
completed instrument, is a holder in due course within the purview of a
Negotiable Instruments law, so as to preclude the defense of fraud and
failure of consideration between the maker and the holder to whom the
instrument, was delivered.
Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern Reporter

748) on rehearing and quoting Daniel on Negotiable Instruments, it was
held:
It is a general principle of the law merchant that, as between the immediate

parties to a negotiable instrument-the parties between whom there is a
privity-the consideration may be inquired into; and as to them the only
superiority of a bill or note over other unsealed evidence of debt is that it
prima facie imports a consideration.
Although as a general rule, a payee may be considered a holder in due

course we think that such a rule cannot apply with respect to the respondent
PNB. Not only was PNB an immediate party or in privy to the promissory
note, that is, it had dealt directly with the petitioners knowing fully well that
the latter only signed as accommodation makers but more important, it was
the Deed of Assignment executed by the Construction Company in favor of
PNB which principally moved the petitioners to sign the promissory note also
in favor of PNB. Petitioners were made to believe and on that belief entered
into the agreement that no other conditions would alter the terms thereof
and yet, PNB altered the same. The Deed of Assignment specifically provided
that Jose F. Toribio, on behalf of the Company, "have assigned, transferred
and conveyed and by these presents, do assign, transfer and convey unto
the said Philippine National Bank, its successors and assigns all payments to
be received from the Bureau of Public Works on account of contract for the
construction of the Puerto Princesa Municipal Building in Palawan, involving
the total amount of P 36,000.00" and that "This assignment shall be
irrevocable and subject to the terms and conditions of the promissory note
and or any other kind of documents which the Philippine National Bank have
required or may require the assignor to execute to evidence the above-
mentioned obligation." chanrobles virtual law library
Under the terms of the above Deed, it is clear that there are no further
conditions which could possibly alter the agreement without the consent of
the petitioners such as the grant of greater priority to obligations other than
the payment of the loan due to the PNB and part of which loan was
guaranteed by the petitioners in the amount of
P10,000.00.chanroblesvirtualawlibrary chanrobles virtual law library
This, notwithstanding, PNB approved the Bureau's release of three payments

directly to the Company instead of paying the same to the Bank. This
approval was in violation of the Deed of Assignment and without any notice
to the petitioners who stood to lose their property once the promissory note
falls due without the same having been paid because the PNB, in effect,
waived payments of the first three releases. From the foregoing
circumstances, PNB can not be regarded as having acted in good faith which
is also one of the requisites of a holder in due course under Section 52 of the
Negotiable Instruments Law. The PNB knew that the promissory note which
it took from the accommodation makers was signed by the latter because of
full reliance on the Deed of Assignment, which, PNB had no intention to
comply with strictly. Worse, the third payment to the Company in the
amount of P4,293.60 was approved by PNB although the promissory note
was almost a month overdue, an act which is clearly detrimental to the
petitioners.chanroblesvirtualawlibrarychanrobles virtual law library
We, therefore, hold that respondent PNB is not a holder in due course. Thus,
the petitioners can validly set up their personal defense of release from the
real estate mortgage against PNB. The latter, in authorizing the third
payment to the Company after the promissory note became due, in effect,
extended the term of the payment of the note without the consent of the
accommodation makers who stand as sureties to the accommodated party
and to all other parties who are not holders in due course or who do not
derive their right from the same, including
PNB.chanroblesvirtualawlibrary chanrobles virtual law library
It may be argued that the Prudencios could have mortgaged their property
even without the promissory note. The records show, however, that they
would not have mortgaged the lot were it not for the sake of the Company
whose attorney-in-fact was their relative. The spouses did not need the
money for themselves.chanroblesvirtualawlibrary chanrobles virtual law
library
The attorney-in-fact tried twice to convince the Prudencios to mortgage their

property in order to secure a loan in favor of the Company but the
Prudencios refused. It was only when the deed of assignment was shown to
the spouses that they consented to the mortgage and signed the promissory
note in the Bank's favor.chanroblesvirtualawlibrary chanrobles virtual law
library
Article 2085 of the Civil Code enumerates the requisites of a valid mortgage
contract. Petitioners do not dispute the validity of the mortgage. They only
want to have it cancelled because the Bank violated the deed of assignment
and extended the period of time of payment of the promissory note without
the petitioners' consent and to the latter's
detriment.chanroblesvirtualawlibrary chanrobles virtual law library
The mortgage cannot be separated from the promissory note for it is the
latter which is the basis of determining whether the mortgage should be
foreclosed or cancelled. Without the promissory note which determines the
amount of indebtedness there would have been no basis for the
mortgage.chanroblesvirtualawlibrary chanrobles virtual law library
True, if the Bank had not been the assignee, then the petition petitioners
would be obliged to pay the Bank as their creditor on the promissory note,
irrespective of whether or not the deed of assignment had been violated.
However, the assignee and the creditor in this case are one and the same-
the Bank itself. When the Bank violated the deed of assignment, it
prejudiced itself because its very violation was the reason why it was not
paid on time in its capacity as creditor in the promissory note. It would be
unfair to make the petitioners now answer for the debt or to foreclose on
their property.chanroblesvirtualawlibrary chanrobles virtual law library
Neither can PNB justify its acts on the ground that the Bureau of Public
Works approved the deed of assignment with the condition that the wages of
laborers and materials needed in the construction work must take
precedence over the payment of the promissory note. In the first place, PNB
did not need the approval of the Bureau. But even if it did, it should have
informed the petitioners about the amendment of the deed of assignment.
Secondly, the wages and materials have already been paid. That issue is
academic. What is in dispute is who should bear the loss in this case. As
between the petitioners and the Bank, the law and the equities of the case
favor the petitioners, And thirdly, the wages and materials constitute a lien
only on the constructed building but do not enjoy preference over the loan
unless there is a liquidation proceeding such as in insolvency or settlement
of estate. (See Philippine Savings Bank v. Lantin, 124 SCRA 476). There
were remedies available at the time if the laborers and the creditors had not
been paid. The fact is, they have been paid. Hence, when the PNB accepted
the condition imposed by the Bureau without the knowledge or consent of
the petitioners, it amended the deed of assignment which, as stated earlier,
was the principal reason why the petitioners consented to become
accommodation makers.chanroblesvirtualawlibrary chanrobles virtual law
library
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals

affirming the decision of the trial court is hereby REVERSED and SET ASIDE
and a new one entered absolving the petitioners from liability on the
promissory note and under the mortgage contract. The Philippine National
Bank is ordered to release the real estate mortgage constituted on the
property of the petitioners and to pay the amount of THREE THOUSAND
PESOS (P3,000.00) as attorney's fees.chanroblesvirtualawlibrary chanrobles
virtual law library
SO ORDERED.
CASE #111 Montinola vs PNB 88 Phil 178 (1951)
[G.R. No. L-2861. February 26, 1951.]
ENRIQUE P. MONTINOLA, Plaintiff-Appellant, v. THE PHILIPPINE

NATIONAL BANK, ET AL., Defendants-Appellees.
Quijano, Rosete & Lucena, for Appellant.
Second Assistant Corporate Counsel Hilarion U. Jarencio, for

appellee Philippine National Bank.
Solicitor General Felix Bautista Angelo and Solicitor Augusto M.

Luciano,for appellee Provincial Treasurer of Misamis Oriental.
SYLLABUS
1. NEGOTIABLE INSTRUMENT; MATERIAL ALTERATION WHICH DISCHARGES

THE INSTRUMENT. — On May 2, 1942, L in his capacity as Provincial
Treasurer of Misamis Oriental as drawer, issued a check to R in the sum of
P100,000, on the Philippines National Bank as drawee. R sold P30,000 of the
check to m for P90,000 Japanese Military notes, of which only P45,000 was
paid by M. The writing made by R at the back of the check was to the effect
that he was assigning only P30,000 of the value of the document with an
instruction to the bank to pay P30,000 to m and to deposit the balance to
R’s credit. This writing was, however, mysteriously obliterated and in its
place, a supposed indorsement appearing on the back of the check was
made. At the time of the transfer of this check to M about the last days of
December, 1944 or the first days of January, 1845, the check was long
overdue by about 2-1/2 years. In August, 1947, M instituted an action
against the Philippine National Bank and the Provincial Treasurer of Misamis
Oriental to collect the sum of P100,000, the amount of the aforesaid check.
There now appears on the face of said check the words in parenthesis
"Agent, Phil. National Bank" under the signature of L purportedly showing
that L issued the check as agent of the Philippine National Bank. Held: The
words "Agent, Phil. National Bank" now appearing on the face of the check
were added or placed in the instrument after it was issued by the Provincial
Treasurer L to R. The check was issued by only as Provincial Treasure and as
an official of the Government, which was under obligation to provide the
USAFE with advance funds, and not as agent of the bank, which had no such
obligation. The addition of those words was made after the check had been
transferred by R to M. The insertion of the words "Agent, Phil. National
Bank," which converts the bank from a mere drawee to a drawer and
therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so
discharges the instrument.
2. ID.; INDORSEMENT OF PART OF AMOUNT PAYABLE, IS NOT

NEGOTIATION OF INSTRUMENT BUT MAY BE REGARDED AS MERE
ASSIGNMENT. — Where the indorsement of a check is only for a part of the
amount payable, it is not legally negotiated within the meaning of section 32
of the Negotiable Instruments Law which provides that "the indorsement
must be an indorsement of the entire instrument. An indorsement which
purports to transfer to the indorse a part only of the amount payable does
not operate as a negotiation of the instrument." M may, therefore, not be
regarded as an indorse. At most he may be regarded as a mere assignee of
the P30,000 sold to him by R, in which case, as such Provincial Treasurer of
Misamis Oriental against R.
3. ID.; HOLDER IN DUE COURSE; HOLDER WHO HAS TAKEN THE

INSTRUMENT AFTER IT WAS LONG OVERDUE; ASSIGNEE IS NOT A PAYEE.
— Neither can M de considered as a holder in due course because section 52
of the Negotiable Instruments Law defines a holder in due course as a holder
who taken the instrument under certain conditions, one of which is that he
became the holder before it was overdue. When M received the check, it was
long overdue. And, M is not even a holder because section 191 of the same
law defines holder as the payee or indorse of a bill or note and m is not a
payee. Neither is he an indorse, for being only indorse he is considered
merely as an assignee.
4. ID.; INSTRUMENT ISSUED TO DISTRIBUTION OFFICER OF USAFE, WHO

HAS NO RIGHT TO INDORSE IT PERSONALLY. — Where an instrument was
issued to R not as a person but as the disbursing officer of the USAFE, he
has no right to indorse the instrument personally and if he does, the
negotiation constitutes a breach of trust, and he transfers nothing to the
indorse.
5. QUESTIONED DOCUMENTS; DISCREPANCIES BETWEEN PHOTOSTATIC

COPY TAKEN BEFORE TEARING AND BURNING OF CHECK AND PRESENT
CONDITION THEREOF SHOW WORDS IN QUESTION WERE INSERTED AFTER
SAID TEARING AND BURNING. — Recovery on a check, Exhibit A, depended
on the presence of the words "Agent, Phil. National Bank" under the
signature of L, at time Exhibit A was drawn. But the photostatic copy, Exhibit
B, admittedly taken before Exhibit A was burned and torn, showed marked
discrepancies between Exhibits A and B as to the position of the words in
question in relation to the words "Provincial Treasurer." Held: The inference
is plain that the words "Agent, Phil. National Bank" were inserted after the
check was burned and torn.
DECISION
MONTEMAYOR, J.:
In August, 1947, Enrique P. Montinola filed a complaint in the Court of First

Instance of Manila against the Philippine National Bank and the Provincial
Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of
Check No. 1382 issued on May 2, 1942 by the Provincial Treasurer of
Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola.
After hearing, the court rendered a decision dismissing the complaint with
costs against plaintiff-appellant. Montinola has appealed from that decision
directly to this Court inasmuch as the amount in controversy exceeds
P50,000.
There is no dispute as to the following facts. In April and May, 1942, Ubaldo
D. Laya was the Provincial Treasurer of Misamis Oriental. As such Provincial
Treasurer he was ex officio agent of the Philippine National Bank branch in
that province. Mariano V. Ramos worked under him as assistant agent in the
bank branch aforementioned. In April of that year 1942, the currency being
used in Mindanao, particularly Misamis Oriental and Lanao which had not yet
been occupied by the Japanese invading forces, was the emergency currency
which had been issued since January, 1942 by the Mindanao Emergency
Currency Board by authority of the late President Quezon.
About April 26, 1942, thru the recommendation of Provincial Treasurer Laya,
his assistant agent M. V. Ramos was inducted into the United States Armed
Forces in the Far East (USAFFE) as disbursing officer of an army division. As
such disbursing officer, M. V. Ramos on April 30, 1942, went to the
neighboring Province of Lanao to procure a cash advance in the amount of
P800,000 for the use of the USAFFE in Cagayan de Misamis. Pedro
Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash.
So, he gave Ramos P300,000 in emergency notes and a check for P500,000.
On May 2, 1942 Ramos went to the office of Provincial Treasurer Laya at
Misamis Oriental to encash the check for P500,000 which he had received
from the Provincial Treasurer of Lanao. Laya did not have enough cash to
cover the check so he gave Ramos P400,000 in emergency notes and a
check No. 1382 for P100,000 drawn on the Philippine National Bank.
According to Laya he had previously deposited P500,000 emergency notes in
the Philippine National Bank branch in Cebu and he expected to have the
check issued by him cashed in Cebu against said deposit.
Ramos had no opportunity to cash the check because in the evening of the
same day the check was issued to him, the Japanese forces entered the
capital of Misamis Oriental, and on June 10, 1942, the USAFFE forces to
which he was attached surrendered. Ramos was made a prisoner of war until
February 12, 1943, after which, he was released and he resumed his status
as a civilian.
About the last days of December, 1944 or the first days of January, 1945, M.
V. Ramos allegedly indorsed this check No. 1382 to Enrique P. Montinola.
The circumstances and conditions under which the negotiation or transfer
was made are in controversy.
According to Montinola’s version, sometime in June, 1944, Ramos, needing

money with which to buy foodstuffs and medicine, offered to sell him the
check; to be sure that it was genuine and negotiable, Montinola,
accompanied by his agents and by Ramos himself, went to see President
Carmona of the Philippine National Bank in Manila about said check; that
after examining it President Carmona told him that it was negotiable but that
he should not let the Japanese catch him with it because possession of the
same would indicate that he was still waiting for the return of the Americans
to the Philippines; that he and Ramos finally agreed to the sale of the check
for P850,000 Japanese military notes, payable in installments; that of this
amount, P450,000 was paid to Ramos in Japanese military notes in five
installments, and the balance of P400,000 was paid in kind, namely, four
bottles of sulphatiasole, each bottle containing 1,000 tablets, and each tablet
valued at P100; that upon payment of the full price, M. V. Ramos duly
indorsed the check to him. This indorsement which now appears on the back
of the document is described in detail by the trial court as
follows:jgc:chanrobles.com.ph
"The endorsement now appearing at the back of the check (see Exhibit A-1)
may be described as follows: The words, ’pay to the order of ’ — in rubber
stamp and in violet color are placed about one inch from the top. This is
followed by the words ’Enrique P. Montinola’ in typewriting which is
approximately 5/8 of an inch below the stamped words ’pay to the order of’.
Below ’Enrique P. Montinola’, in typewriting are the words and figures also in
typewriting, ’517 Isabel Street’ and about 1/8 of an inch therefrom, the
edges of the check appear to have been burned, but there are words
stamped apparently in rubber stamp which, according to Montinola, are a
facsimile of the signature of Ramos. There is a signature which apparently
reads ’M. V. Ramos’ also in green ink but made in handwriting."cralaw
virtua1aw library
To the above description we may add that the name of M. V. Ramos is

handprinted in green ink, under the signature. According to Montinola, he
asked Ramos to handprint it because Ramos’ signature was not clear.
Ramos in his turn told the court that the agreement between himself and
Montinola regarding the transfer of the check was that he was selling only
P30,000 of the check and for this reason, at the back of the document he
wrote in longhand the following:jgc:chanrobles.com.ph
"Pay to the order of Enrique P. Montinola P30,000 only. The balance to be

deposited in the Philippine National Bank to the credit of M. V.
Ramos."cralaw virtua1aw library
Ramos further said that in exchange for this assignment of P30,000

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

written by him at the back of the check, Exhibit A, does not now appear at
the back of said check. What appears thereon is the indorsement testified to
by Montinola and described by the trial court as reproduced above. Before
going into a discussion of the merits of the version given by Ramos and
Montinola as to the indorsement or writing at the back of the check, it is well
to give a further description of it as we shall do later.
When Montinola filed his complaint in 1947 he stated therein that the check
had been lost, and so in lieu thereof he filed a supposed photostatic copy.
However, at the trial, he presented the check itself and had its face marked
Exhihit A and the back thereof Exhibit A-1. But the check is badly mutilated,
blotted, torn and partly burned, and its condition can best be appreciated by
seeing it. Roughly, it may be stated that looking at the face of the check
(Exhibit A) we see that the left third portion of the paper has been cut off
perpendicularly and severed from the remaining 2/3 portion; a triangular
portion of the upper right hand corner of said remaining 2/3 portion has
been similarly cut off and severed, and to keep and attach this triangular
portion and the rectangular 1/3 portion to the rest of the document, the
entire check is pasted on both sides with cellophane; the edges of the
severed portions as well as of the remaining major portion, where cut bear
traces of burning and searing; there is a big blot with indelible ink about the
right middle portion, which seems to have penetrated to the back of the
check (Exhibit A-1), which back bears a larger smear right under the blot,
but not as black and sharp as the blot itself; finally, all this tearing, burning,
blotting and smearing and pasting of the check renders it difficult if not
impossible to read some of the words and figures on the check. In
explanation of the mutilation of the check Montinola told the court that
several months after indorsing and delivering the check to him, Ramos
demanded the return of the check to him, threatening Montinola with bodily
harm, even death by himself or his guerrilla forces if he did not return said
check, and that in order to justify the non-delivery of the document and to
discourage Ramos from getting it back, he (Montinola) had to resort to the
mutilation of the document.
As to what was really written at the back of the check which Montinola
claims to be a full indorsement of the check, we agree with the trial court
that the original writing of Ramos on the back of the check was to the effect
that he was assigning only P30,000 of the value of the document and that he
was instructing the bank to deposit to his credit the balance. This writing
was in some mysterious way obliterated, and in its place was placed the
present indorsement appearing thereon. Said present indorsement occupies
a good portion of the back of the check. It has already been described in
detail. As to how said present indorsement came to be written, the
circumstances surrounding its preparation, the supposed participation of M.
V. Ramos in it and the writing originally appearing on the reverse side of the
check, Exhibit A-1, we quote with approval what the trial court presided over
by Judge Conrado V. Sanchez, in its well-prepared decision, says on these
points:jgc:chanrobles.com.ph
"The alleged indorsement: ’Pay to the order of Enrique P. Montinola the

amount of P30,000 only. The balance to be deposited to the credit of M. V.
Ramos’, signed by M. V. Ramos — according to the latter — does not now
appear at the back of the check. A different indorsement, as aforesaid, now
appears.
"Had Montinola really paid in full the sum of P850,000 in Japanese Military
Notes as consideration for the check? The following observations are in
point:red:chanrobles.com.ph
"(a) According to plaintiff’s witness Gregorio A. Cortado, the oval line in

violet, enclosing ’P.’ of the words ’Enrique P. Montinola’ and the line in the
form of cane handle crossing the word ’street’ in the words and figures ’517
Isabel Street’ in the endorsement Exhibit A-1, are ’unusual’ to him, and that
as far as he could remember this writing did not appear on the instrument
and he had no knowledge as to how it happened to be there. Obviously
Cortado had no recollection as to how such marks ever were stamped at the
back of the check.
"(b) Again Cortado, speaking of the endorsement as it now appears at the

back of the check (Exh. A-1) stated that Ramos typewrote these words
outside of the premises of Montinola, that is, in a nearby house. Montinola,
on the other hand, testified that Ramos typewrote the words ’Enrique P.
Montinola, 517 Isabel Street’, in his own house. Speaking of the rubber
stamp used at the back of the check and which produced the words ’pay to
the order of’, Cortado stated that when he (Cortado), Atadero, Montinola
and Ramos returned in group to the house of Montinola, the rubber stamp
was already in the house of Montinola, and it was on the table of the upper
floor of the house, together with the stamp pad used to stamp the same.
Montinola, on the other hand, testified that Ramos carried in his pocket the
said rubber stamp as well as the ink pad, and stamped it in his house.
"The unusually big space occupied by the indorsement on the back of the
check and the discrepancies in the versions of Montinola and his witness
Cortado just noted, create doubts as to whether or not really Ramos made
the indorsement as it now appears at the back of Exhibit A. One thing
difficult to understand is why Ramos should go into the laborious task of
placing the rubber stamp ’Pay to the order of’ and afterwards move to the
typewriter and write the words ’Enrique P. Montinola’ and ’517 Isabel Street’,
and finally sign his name too far below the main indorsement.
"(c) Another circumstance which bears heavily upon the claim of plaintiff
Montinola that he acquired the full value of the check and paid the full
consideration therefor is the present condition of said check. It is now so
unclean and discolored; it is pasted in cellophane, blotted with ink on both
sides torn into three parts, and with portions thereof burned - all done by
plaintiff, the alleged owner thereof.
"The acts done by the very plaintiff on a document so important and

valuable to him, and which according to him involves his life savings,
approximate intentional cancellation. The only reason advanced by plaintiff
as to why he tore the check, burned the torn edges and blotted out the
registration at the back, is found in the following: That Ramos came to his
house, armed with a revolver, threatened his life and demanded from him
the return of the check; that when he informed Ramos that he did not have
it in the house, but in some deposit outside thereof and that Ramos
promised to return the next day; that the same night he tore the check into
three parts, burned the sides with a parrafin candle to show traces of
burning; and that upon the return of Ramos the next day he showed the two
parts of the check, the triangle on the right upper part and the torn piece on
the left part, and upon seeing the condition thereof Ramos did not bother to
get the check back. He also said that he placed the blots in indelible ink to
prevent Ramos — if he would be forced to surrender the middle part of the
check — from seeing that it was registered in the General Auditing Office.
"Conceding at the moment these facts to be true, the question is: Why
should Montinola be afraid of Ramos? Montinola claims that Ramos went
there about April, 1945, that is, during liberation. If he believed he was
standing by his rights, he could have very well sought police protection or
transferred to some place where Ramos could not bother him. And then, if
really Ramos did not have anything more to do with this check for the
reason that Montinola had obtained in full the amount thereof, there could
not be any reason why Ramos should have threatened Montinola as stated
by the latter. Under the circumstances, the most logical conclusion is that
Ramos wanted the check at all costs because Montinola did not acquire the
check to such an extent that it borders on intentional cancellation thereof
(see Sections 119- 123 Negotiable Instruments Law) there is room to
believe that Montinola did not have so much investments in that check as to
have adopted an ’what do I care?’ attitude.
"And there is the circumstance of the alleged loss of the check. At the time
of the filing of the complaint the check was allegedly lost, so much so that a
photostatic copy thereof was merely attached to the complaint (see
paragraph 7 of the complaint). Yet, during the trial the original check Exhibit
A was produced in court.
"But a comparison between the photostatic copy and the original check
reveals discrepancies between the two. The condition of the check as it was
produced is such that it was partially burned, partially blotted, badly
mutilated, discolored and pasted with cellophane. What is worse is that
Montinola’s excuse as to how it was lost, that it was mixed up with
household effects is not plausible, considering the fact that it involves his life
savings, and that before the alleged loss, he took extreme pains and
precautions to save the check from the possible ravages of the war, had it
photographed, registered said check with the General Auditing Office and he
knew that Ramos, since liberation, was not after the possession of that
check.
"(d) It seems that Montinola was not so sure as to what he had testified to in
reference to the consideration he paid for the check. In court he testified
that he paid P450,000 in cash from June to December 1944, and P400,000
worth of sulphatiazole in January 1945 to complete the alleged consideration
of P850,000. When Montinola testified this way in court, obviously he
overlooked a letter he wrote to the provincial treasurer of Cagayan, Oriental
Misamis, dated May 1, 1947, Erhibit 8 of the record. In that letter Exhibit 3,
Montinola told Provincial Treasurer Elizalde of Misamis Oriental that ’Ramos
endorsed it (referring to check) to me for goods in kind, medicine, etc.,
received by him for the use of the guerrillas.’ In said letter Exhibit 3,
Montinola did not mention the cash that he paid for the check.
"From the foregoing the court concludes that plaintiff Montinola came into
the possession of the check in question about the end of December 1944 by
reason of the fact that M. V. Ramos sold to him P30,000 of the face value
thereof in consideration of the sum of P90,000 Japanese money, of which
only one-half or P45,000 (in Japanese money) was actually paid by said
plaintiff to Ramos." (R. on A., pp. 31-33; Brief of Appellee, pp. 14-20.)
At the beginning of this decision, we stated that as Provincial Treasurer of

Misamis Oriental, Ubaldo D. Laya was ex officio agent of the Philippine
National Bank branch in that province. On the face of the check (Exh. A) we
now find the words in parenthesis "Agent, Phil. National Bank" under the
signature of Laya, purportedly showing that he issued the check as agent of
the Philippine National Bank. If this is true, then the bank is not only drawee
but also a drawer of the check, and Montinola evidently is trying to hold the
Philippine National Bank liable in that capacity of drawer, because as drawee
alone, inasmuch as the bank has not yet accepted or certified the check, it
may yet avoid payment.
Laya, testifying in court, stated that he issued the check only as Provincial
Treasurer, and that the words in parenthesis "Agent, Phil. National Bank"
now appearing under his signature did not appear on the check when he
issued the same. In this he was corroborated by the payee M. V. Ramos who
equally assured the court that when he received the check and then
delivered it to Montinola, those words did not appear under the signature of
Ubaldo D. Laya. We again quote with approval the pertinent portion of the
trial court’s decision:jgc:chanrobles.com.ph
"The question is reduced to whether or not the words, ’Agent, Phil, National
Bank’ were added after Laya had issued the check. In a straightforward
manner and without vacillation Laya positively testified that the check
Exhibit A was issued by him in his capacity as Provincial Treasurer of
Misamis Oriental and that the words ’Agent, Phil. National Bank’ which now
appear on the check Exhibit A were not typewritten below his signature
when he signed the said check and delivered the same to Ramos. Laya
assured the court that there could not be any mistake as to this. For,
according to Laya, when he issued checks in his capacity as agent of the
Misamis Oriental agency of the Philippine National Bank the said check must
be countersigned by the cashier of the said agency — not by the provincial
auditor. He also testified that the said check was issued by him in his
capacity as provincial treasurer of Misamis Oriental and that is why the same
was countersigned by Provincial Auditor Flores. The Provincial Auditor at that
time had no connection in any capacity with the Misamis Oriental agency of
the Philippine National Bank. Plaintiff Montinola on the other hand testified
that when he received the check Exhibit A it already bore the words ’Agent,
Phil. National Bank’ below the signature of Laya and the printed words
’Provincial Treasurer’.
"After considering the testimony of the one and the other, the court finds
that the preponderance of the evidence supports Laya’s testimony. In the
first place, his testimony was corroborated by the payee M. V. Ramos. But
what renders more probable the testimony of Laya and Ramos is the fact
that the money for which the check was issued was expressly for the use of
the USAFFE of which Ramos was then disbursing officer, so much so that
upon the delivery of the P400,000 in emergency notes and the P100,000
check to Remos, Laya credited his depository accounts as provincial
treasurer with the corresponding credit entry. In the normal course of events
the check could not have been issued by the bank, and this is borne by the
fact that the signature of Laya was countersigned by the provincial auditor,
not the bank cashier. And then, too there is the circumstance that this check
was issued by the provincial treasurer of Lanao to Ramos who requisitioned
the said funds in his capacity as disbursing officer of the USAFFE. The check,
Exhibit A is not what we may term in business parlance, ’certified check’ or
’cashier’s check.’.
"Besides, at the time the check was issued, Laya already knew that Cebu
and Manila were already occupied. He could not have therefore issued the
check — as a bank employee — payable at the central office of the Philippine
National Bank.
"Upon the foregoing circumstances the court concludes that the words
’Agent, Phil. National Bank’ below the signature of Ubaldo D. Laya and the
printed words ’Provincial Treasurer’ were added in the check after the same
was issued by the Provincial Treasurer of Misamis Oriental."cralaw virtua1aw
library
From all the foregoing, we may safely conclude as we do that the words
"Agent, Phil. National Bank" now appearing on the face of the check (Exh. A)
were added or placed in the instrument after it was issued by Provincial
Treasurer Laya to M. V. Ramos. There is no reason known to us why
Provincial Treasurer Laya should issue the check (Exh. A) as agent of the
Philippine National Bank. Said check for P100,000 was issued to complete
the payment of the other check for P500,000 issued by the Provincial
Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE in
Cagayan de Misamis. The balance of P400,000 in cash was paid to Ramos by
Laya from the funds, not of the bank but of the Provincial Treasury. Said
USAFFE were being financed not by the Bank but by the Government and,
presumably, one of the reasons for the issuance of the emergency notes in
Mindanao was for this purpose. As already stated, according to Provincial
Treasurer Laya, upon receiving a relatively considerable amount of these
emergency notes for his office, he deposited P500,000 of said currency in
the Philippine National Bank branch in Cebu, and that in issuing the check
(Exh. A), he expected to have it cashed at said Cebu bank branch against his
deposit of P500,000.
The logical conclusion, therefore, is that the check was issued by Laya only
as Provincial Treasurer and as an official of the Government which was under
obligation to provide the USAFFE with advance funds, and not by the
Philippine National Bank which had no such obligation. The very Annex C,
made part of plaintiff’s complaint, and later introduced in evidence for him
as Exhibit E states that Laya issued the check "in his capacity as Provincial
Treasurer of Misamis Oriental", obviously, not as agent of the Bank.
Now, did M. V. Ramos add or place those words below the signature of Laya
before transferring the check to Montinola? Let us bear in mind that Ramos
before his induction into the USAFFE had been working as assistant of
Treasurer Laya as ex-officio agent of the Misamis Oriental branch of the
Philippine National Bank. Naturally, Ramos must have known the procedure
followed there as to the issuance of checks, namely, that when a check is
issued by the Provincial Treasurer as such, it is countersigned by the
Provincial Auditor as was done on the check (Exhibit A), but that if the
Provincial Treasurer issues a check as agent of the Philippine National Bank,
the check is countersigned not by the Provincial Auditor who has nothing to
do with the bank, but by the bank cashier, which was not done in this case.
It is not likely, therefore, that Ramos had made the insertion of the words
"Agent, Phil. National Bank" after he received the check, because he should
have realized that following the practice already described, the check having
been issued by Laya as Provincial Treasurer, and not as agent of the bank,
and since the check bears the countersignature not of the Bank cashier but
of the Provincial Auditor, the addition of the words "Agent, Phil. National
Bank" could not change the status and responsibility of the bank. It is
therefore more logical to believe and to find that the addition of those words
was made after the check had been transferred by Ramos to Montinola.
Moreover, there are other facts and circumstances involved in the case
which support this view. Referring to the mimeographed record on appeal
filed by the plaintiff- appellant, we find that in transcribing and copying the
check, particularly the face of it (Exhibit A) in the complaint, the words
"Agent, Phil. National Bank" now appearing on the face of the check under
the signature of the Provincial Treasurer, is missing. Unless the plaintiff in
making this copy or transcription in the complaint committed a serious
omission which is decisive as far as the bank is concerned, the inference is,
that at the time the complaint was filed, said phrase did not appear on the
face of the check. That probably was the reason why the bank in its motion
to dismiss dated September 2, 1947, contended that if the check in question
had been issued by the provincial treasurer in his capacity as agent of the
Philippine National Bank, said treasurer would have placed below his
signature the words "Agent of the Philippine National Bank." The plaintiff
because of the alleged loss of the check, allegedly attached to the complaint
a photostatic copy of said check and marked it as Annex A. But in
transcribing and copying said Annex A in his complaint, the phrase "Agent,
Phil. National Bank" does not appear under the signature of the provincial
treasurer. We tried to verify this discrepancy by going over the original
records of the Court of First Instance so as to compare the copy of Annex A
in the complaint, with the original Annex A, the photostatic copy, but said
original Annex A appears to be missing from the record. How it disappeared
is not explained. Of course, now we have in the list of exhibits a photostatic
copy marked Annex A and Exhibit B, but according to the manifestation of
counsel for the plaintiff dated October 15, 1948, said photostatic copy now
marked Annex A and Exhibit B was submitted on October 15, 1948, in
compliance with the verbal order of the trial court. It is therefore evident
that the Annex A now available is not the same original Annex A attached to
the complaint in 1947.
There is one other circumstance, important and worth noting. If Annex A

also marked Exhibit B is the photostatic copy of the original check No. 1382
particularly the face thereof (Exhibit A), then said photostatic copy should be
a faithful and accurate reproduction of the check, particularly of the phrase
"Agent, Phil. National Bank" now appearing under the signature of the
Provincial Treasurer on the face of the original check (Exhibit A). But a
minute examination of and comparison between Annex A, the photostatic
copy also marked Exhibit B and the face of the check, Exhibit A, especially
with the aid of a hand lens, show notable differences and discrepancies. For
instance, on Exhibit A, the letter A of the word "Agent" is toward the right of
the tail of the beginning letter of the signature of Ubaldo D. Laya; this same
letter "A" however in Exhibit B is directly under said tail.
The letter "N" of the word "National" on Exhibit A is underneath the space
between "Provincial" and "Treasurer" ; but the same letter "N" is directly
under the letter "I" of the word "Provincial" in Exhibit B.
The first letter "a" of the word "National" is under "T" of the word
"Treasurer" in Exhibit A; but the same letter "a" in Exhibit "B" is just below
the space between the words "Provincial" and "Treasurer."
The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular
border line near the lower righthand corner of the edge of the check (Exh.
A); this same letter "k" however, on Exhibit B is on the very border line itself
or even before said border line.
The closing parenthesis")" on Exhibit A is a little far from the perpendicular

green border line and appears to be double instead of one single line; this
same")" on Exhibit B appears in a single line and is relatively nearer to the
border line.
There are other notable discrepancies between the check Annex A and the
photostatic copy, Exhibit B, as regards the relative position of the phrase
"Agent, Phil. National Bank", with the title Provincial Treasurer, giving
ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit
A).
We then have the following facts. Exhibit A was issued by Laya in his
capacity as Provincial Treasurer of Misamis Oriental as drawer on the
Philippine National Bank as drawee. Ramos sold P30,000 of the check to
Enrique P. Montinola for P90,000 Japanese military notes, of which only
P45,000 was paid by Montinola. The writing made by Ramos at the back of
the check was an instruction to the bank to pay P30,000 to Montinola and to
deposit the balance to his (Ramos) credit. This writing was obliterated and in
its place we now have the supposed indorsement appearing on the back of
the check (Exh. A-1).
At the time of the transfer of this check (Exh. A) to Montinola about the last
days of December, 1944, or the first days of January, 1945, the check
which, being a negotiable instrument, was payable on demand, was long
overdue by about 2 1/2 years. It may therefore be considered even then, a
stale check. Of course, Montinola claims that about June, 1944 when Ramos
supposedly approached him for the purpose of negotiating the check, he
(Montinola) consulted President Carmona of the Philippine National Bank
who assured him that the check was good and negotiable. However,
President Carmona on the witness stand flatly denied Montinola’s claim and
assured the court that the first time that he saw Montinola was after the
Philippine National Bank, of which he was President, reopened, after
liberation, around August or September, 1945, and that when shown the
check he told Montinola that it was stale. M. V. Ramos also told the court
that it is not true that he ever went with Montinola to see President Carmona
about the check in 1944.
On the basis of the facts above related there are several reasons why the
complaint of Montinola cannot prosper. The insertion of the words "Agent,
Phil. National Bank" which converts the bank from a mere drawee to a
drawer and therefore changes its liability, constitutes a material alteration of
the instrument without the consent of the parties liable thereon, and so
discharges the instrument. (Section 124 of the Negotiable Instruments Law).
The check was not legally negotiated within the meaning of the Negotiable
Instruments Law. Section 32 of the same law provides that "the indorsement
must be an indorsement of the entire instrument. An indorsement which
purports to transfer to the indorsee a part only of the amount payable, . . .
(as in this case) does not operate as a negotiation of the instrument."
Montinola may therefore not be regarded as an indorsee. At most he may be
regarded as a mere assignee of the P30,000 sold to him by Ramos, in which
case, as such assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos. Neither can
Montinola be considered as a holder in due course because section 52 of said
law defines a holder in due course as a holder who has taken the instrument
under certain conditions, one of which is that he became the holder before it
was overdue. When Montinola received the check, it was long overdue. And,
Montinola is not even a holder because section 191 of the same law defines
holder as the payee or indorsee of a bill or note and Montinola is not a
payee. Neither is he an indorsee for as already stated, at most he can be
considered only as assignee. Neither could it be said that he took it in good
faith. As already stated, he has not paid the full amount of P90,000 for
which Ramos sold him P30,000 of the value of the check. In the second
place, as was stated by the trial court in its decision, Montinola speculated
on the check and took a chance on its being paid after the war. Montinola
must have known that at the time the check was issued in May, 1942, the
money circulating in Mindanao and the Visayas was only the emergency
notes and that the check was intended to be payable in that currency. Also,
he should have known that a check for such a large amount of P100,000
could not have been issued to Ramos in his private capacity but rather in his
capacity as disbursing officer of the USAFFE, and that at the time that
Ramos sold a part of the check to him, Ramos was no longer connected with
the USAFFE but already a civilian who needed the money only for himself
and his family.
As already stated, as a mere assignee Montinola is subject to all the

defenses available against assignor Ramos. And, Ramos had he retained the
check may not now collect its value because it had been issued to him as
disbursing officer. As observed by the trial court, the check was issued to M.
V. Ramos not as a person but M. V. Ramos as the disbursing officer of the
USAFFE. Therefore, he had no right to indorse it personally to plaintiff. It
was negotiated in breach of trust, hence he transferred nothing to the
plaintiff.
In view of all the foregoing, finding no reversible error in the decision

appealed from, the same is hereby affirmed with costs.
In the prayer for relief contained at the end of the brief for the Philippine
National Bank dated September 27, 1949, we find this
prayer:red:chanrobles.com.ph
"It is also respectfully prayed that this Honorable Court refer the check,
Exhibit A, to the City Fiscal’s Office for appropriate criminal action against
the plaintiff-appellant if the facts so warrant."cralaw virtua1aw library
Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola

dated February 27, 1950 he asked this Court to allow him to withdraw the
original check (Exh. A) for him to keep, expressing his willingness to submit
it to the Court whenever needed for examination and verification. The bank
on March 2, 1950 opposed the said petition on the ground that inasmuch as
the appellant’s cause of action in this case is based on the said check, it is
absolutely necessary for the court to examine the original in order to see the
actual alterations supposedly made thereon, and that should this Court grant
the prayer contained in the bank’s brief that the check be later referred to
the city fiscal for appropriate action, said check may no longer be available if
the appellant is allowed to withdraw said document. In view of said
opposition this Court by resolution of March 6, 1950, denied said petition for
withdrawal.
Acting upon the petition contained in the bank’s brief already mentioned,
once the decision becomes final, let the Clerk of Court transmit to the city
fiscal the check (Exh. A) together with all pertinent papers and documents in
this case, for any action he may deem proper in the premises.
CASE #112 Gonzales vs Rizal Commercial Banking Corp GR No. 156294 (2006)
[G.R. NO. 156294 : November 29, 2006]
MELVA THERESA ALVIAR GONZALES, Petitioner, v. RIZAL

COMMERCIAL BANKING CORPORATION, Respondent.
DECISION
GARCIA, J.:
An action for a sum of money originating from the Regional Trial Court (RTC)
of Makati City, Branch 61, thereat docketed as Civil Case No. 88-1502, was
decided in favor of therein plaintiff, now respondent Rizal Commercial
Banking Corporation (RCBC). On appeal to the Court of Appeals (CA) in CA-
G.R. CV No. 48596, that court, in a decision1 dated August 30, 2002,
affirmed the RTC minus the award of attorney's fees. Upon the instance of
herein petitioner Melva Theresa Alviar Gonzales, the case is now before this
Court via this Petition for Review on Certiorari, based on the following
undisputed facts as unanimously found by the RTC and the CA, which the
latter summarized as follows:
Gonzales was an employee of Rizal Commercial Banking Corporation (or

RCBC) as New Accounts Clerk in the Retail Banking Department at its Head
Office.
A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of
the Ade Medical Group with address at 569 Western Avenue, Los Angeles,
California, against the drawee bank Wilshire Center Bank, N.A., of Los
Angeles, California, U.S.A., and payable to Gonzales' mother, defendant Eva
Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special
accommodations to its employees to receive the check's value without
awaiting the clearing period, Gonzales presented the foreign check to Olivia
Gomez, the RCBC's Head of Retail Banking. After examining this, Olivia
Gomez requested Gonzales to endorse it which she did. Olivia Gomez then
acquiesced to the early encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00 only". Afterwards,
Olivia Gomez directed Gonzales to present the check to RCBC employee
Carlos Ramos and procure his signature. After inspecting the check, Carlos
Ramos also signed it with an "ok" annotation. After getting the said
signatures Gonzales presented the check to Rolando Zornosa, Supervisor of
the Remittance section of the Foreign Department of the RCBC Head Office,
who after scrutinizing the entries and signatures therein authorized its
encashment. Gonzales then received its peso equivalent of P155,270.85.
RCBC then tried to collect the amount of the check with the drawee bank by
the latter through its correspondent bank, the First Interstate Bank of
California, on two occasions dishonored the check because of "END. IRREG"
or irregular indorsement. Insisting, RCBC again sent the check to the drawee
bank, but this time the check was returned due to "account closed". Unable
to collect, RCBC demanded from Gonzales the payment of the peso
equivalent of the check that she received. Gonzales settled the matter by
agreeing that payment be made thru salary deduction. This temporary
arrangement for salary deductions was communicated by Gonzales to RCBC
through a letter dated November 27, 1987 xxx
xxxxxxxxx
The deductions was implemented starting October 1987. On March 7, 1988

RCBC sent a demand letter to Alviar for the payment of her obligation but
this fell on deaf ears as RCBC did not receive any response from Alviar.
Taking further action to collect, RCBC then conveyed the matter to its
counsel and on June 16, 1988, a letter was sent to Gonzales reminding her
of her liability as an indorser of the subject check and that for her to avoid
litigation she has to fulfill her commitment to settle her obligation as assured
in her said letter. On July 1988 Gonzales resigned from RCBC. What had
been deducted from her salary was only P12,822.20 covering ten months.
It was against the foregoing factual backdrop that RCBC filed a complaint for
a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the
latter's husband Gino Gonzales. The spouses Gonzales filed an Answer with
Counterclaim praying for the dismissal of the complaint as well as payment
of P10,822.20 as actual damages, P20,000.00 as moral
damages, P20,000.00 as exemplary damages, and P20,000.00 as attorney's
fees and litigation expenses. Defendant Eva Alviar, on the other hand, was
declared in default for having filed her Answer out of time.
After trial, the RTC, in its three-page decision,2 held two of the three
defendants liable as follows:
WHEREFORE, premises above considered and plaintiff having established its

case against the defendants as above stated, judgment is hereby rendered
for plaintiff and as against defendant EVA. P. ALVIAR as principal debtor and
defendants MELVA THERESA ALVIAR GONZLAES as guarantor as follows:
1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount
of P12,622.20, as salary deduction of [Gonzales]), representing the
outstanding obligation of the defendants with interest of 12% per annum
starting February 1987 until fully paid;
2. To pay the amount of P40,000.00 as and for attorney's fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of attorney's fees, affirmed the RTC
judgment.
Hence, this recourse by the petitioner on her submission that the CA erred
Ì¶
XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK

SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR;
XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE,

DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK
APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE
CHECK;
XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE

PETITIONER].
The recourse is impressed with merit.
The dollar-check3 in question in the amount of $7,500.00 drawn by Don

Zapanta of Ade Medical Group (U.S.A.) against a Los Angeles, California
bank, Wilshire Center Bank N.A., was dishonored because of "End.
Irregular," i.e., an irregular endorsement. While the foreign drawee bank did
not specifically state which among the four signatures found on the dorsal
portion of the check made the check irregularly endorsed, it is absolutely
undeniable that only the signature of Olivia Gomez, an RCBC employee, was
a qualified endorsement because of the phrase "up to P17,500.00 only."
There can be no other acceptable explanation for the dishonor of the foreign
check than this signature of Olivia Gomez with the phrase "up to P17,500.00
only" accompanying it. This Court definitely agrees with the petitioner that
the foreign drawee bank would not have dishonored the check had it not
been for this signature of Gomez with the same phrase written by her.
The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the
bearer of this dollar-check drawn by Don Zapanta because of the defect
introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a
useless piece of paper if returned in that state to its original payee, Eva
Alviar.
There is no doubt in the mind of the Court that a subsequent party which
caused the defect in the instrument cannot have any recourse against any of
the prior endorsers in good faith. Eva Alviar's and the petitioner's liability to
subsequent holders of the foreign check is governed by the Negotiable
Instruments Law as follows:
Sec. 66. Liability of general indorser. - Every indorser who indorses without

qualification, warrants to all subsequent holders in due course;
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding section; andcralawlibrary
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted

or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section
65 are the following:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
Under Section 66, the warranties for which Alviar and Gonzales are liable as
general endorsers in favor of subsequent endorsers extend only to the state
of the instrument at the time of their endorsements, specifically, that the
instrument is genuine and in all respects what it purports to be; that they
have good title thereto; that all prior parties had capacity to contract; and
that the instrument, at the time of their endorsements, is valid and
subsisting. This provision, however, cannot be used by the party which
introduced a defect on the instrument, such as respondent RCBC in this
case, which qualifiedly endorsed the same, to hold prior endorsers liable on
the instrument because it results in the absurd situation whereby a
subsequent party may render an instrument useless and inutile and let
innocent parties bear the loss while he himself gets away scot-free. It cannot
be over-stressed that had it not been for the qualified endorsement ("up
to P17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there
would have been no reason for the dishonor of the check, and full payment
by drawee bank therefor would have taken place as a matter of course.
Section 66 of the Negotiable Instruments Law which further states that the
general endorser additionally engages that, on due presentment, the
instrument shall be accepted or paid, or both, as the case may be, according
to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to
any subsequent endorser who may be compelled to pay it, must be read in
the light of the rule in equity requiring that those who come to court should
come with clean hands. The holder or subsequent endorser who tries to
claim under the instrument which had been dishonored for "irregular
endorsement" must not be the irregular endorser himself who gave cause for
the dishonor. Otherwise, a clear injustice results when any subsequent party
to the instrument may simply make the instrument defective and later claim
from prior endorsers who have no knowledge or participation in causing or
introducing said defect to the instrument, which thereby caused its dishonor.
Courts in this jurisdiction are not only courts of law but also of equity, and
therefore cannot unqualifiedly apply a provision of law so as to cause clear
injustice which the framers of the law could not have intended to so
deliberately cause. In Carceller v. Court of Appeals,4 this Court had occasion
to stress:
Courts of law, being also courts of equity, may not countenance such grossly
unfair results without doing violence to its solemn obligation to administer
fair and equal justice for all.
RCBC, which caused the dishonor of the check upon presentment to the
drawee bank, through the qualified endorsement of its employee, Olivia
Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable
on the instrument.
Moreover, it is a well-established principle in law that as between two

parties, he who, by his acts, caused the loss shall bear the same. 5 RCBC, in
this instance, should therefore bear the loss.
Relative to the petitioner's counterclaim against RCBC for the amount
of P12,822.20 which it admittedly deducted from petitioner's salary, the
Court must order the return thereof to the petitioner, with legal interest of
12% per annum, notwithstanding the petitioner's apparent acquiescence to
such an arrangement. It must be noted that petitioner is not any ordinary
client or depositor with whom RCBC had this isolated transaction. Petitioner
was a rank-and-file employee of RCBC, being a new accounts clerk thereat.
It is easy to understand how a vulnerable Gonzales, who is financially
dependent upon RCBC, would rather bite the bullet, so to speak, and
expectedly opt for salary deduction rather than lose her job and her entire
salary altogether. In this sense, we cannot take petitioner's apparent
acquiescence to the salary deduction as being an entirely free and voluntary
act on her part. Additionally, under the obtaining facts and circumstances
surrounding the present complaint for collection of sum of money by RCBC
against its employee, which may be deemed tantamount to harassment, and
the fact that RCBC itself was the one, acting through its employee, Olivia
Gomez, which gave reason for the dishonor of the dollar-check in question,
RCBC may likewise be held liable for moral and exemplary damages and
attorney's fees by way of damages, in the amount of P20,000.00 for each.
WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED

and SET ASIDE and the Complaint in this case DISMISSED for lack of merit.
Petitioner's counterclaim is GRANTED, ordering the respondent RCBC to
reimburse petitioner the amount P12,822.20, with legal interest computed
from the time of salary deduction up to actual payment, and to pay
petitioner the total amount of P60,000.00 as moral and exemplary damages,
and attorney's fees.
Costs against the respondent.
SO ORDERED.
CASE #113 BPI vs CA 326 SCRA 641 (2000)
G.R. No. 112392. February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COURT OF APPEALS

and BENJAMIN C. NAPIZA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of

Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139,2 which dismissed the complaint filed by
petitioner Bank of the Philippine Islands against private respondent
Benjamin C. Napiza for sum of money.d
On September 3, 1987, private respondent deposited in Foreign Currency

Deposit Unit (FCDU) Savings Account No. 028-187 3 which he maintained in
petitioner banks Buendia Avenue Extension Branch, Continental Bank
Managers Check No. 000147574 dated August 17, 1984, payable to "cash" in
the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side. 5 It appears that the check
belonged to a certain Henry Chan who went to the office of private
respondent and requested him to deposit the check in his dollar account by
way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is cleared,
both of them would go to the bank to withdraw the amount of the check
upon private respondents presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on

October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the
withdrawal slip shows that the amount was payable to Ramon A. de Guzman
and Agnes C. de Guzman and was duly initialed by the branch assistant
manager, Teresita Lindo.6cräläwvirtualibräry
On November 20, 1984, petitioner received communication from the Wells

Fargo Bank International of New York that the said check deposited by
private respondent was a counterfeit check7 because it was "not of the type
or style of checks issued by Continental Bank International." 8 Consequently,
Mr. Ariel Reyes, the manager of petitioners Buendia Avenue Extension
Branch, instructed one of its employees, Benjamin D. Napiza IV, who is
private respondents son, to inform his father that the check bounced. 9 Reyes
himself sent a telegram to private respondent regarding the dishonor of the
check. In turn, private respondents son wrote to Reyes stating that the
check had been assigned "for encashment" to Ramon A. de Guzman and/or
Agnes C. de Guzman after it shall have been cleared upon instruction of
Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of
town.10cräläwvirtualibräry
Private respondents son undertook to return the amount of $2,500.00 to

petitioner bank. On December 18, 1984, Reyes reminded private respondent
of his sons promise and warned that should he fail to return that amount
within seven (7) days, the matter would be referred to the banks lawyers for
appropriate action to protect the banks interest. 11 This was followed by a
letter of the banks lawyer dated April 8, 1985 demanding the return of the
$2,500.00.12cräläwvirtualibräry
In reply, private respondent wrote petitioners counsel on April 20,

198513 stating that he deposited the check "for clearing purposes" only to
accommodate Chan. He added:
"Further, please take notice that said check was deposited on September 3,
1984 and withdrawn on October 23, 1984, or a total period of fifty (50) days
had elapsed at the time of withdrawal. Also, it may not be amiss to mention
here that I merely signed an authority to withdraw said deposit subject to its
clearing, the reason why the transaction is not reflected in the passbook of
the account. Besides, I did not receive its proceeds as may be gleaned from
the withdrawal slip under the captioned signature of recipient.
If at all, my obligation on the transaction is moral in nature, which (sic) I

have been and is (sic) still exerting utmost and maximum efforts to collect
from Mr. Henry Chan who is directly liable under the circumstances.
xxx......xxx......xxx."
On August 12, 1986, petitioner filed a complaint against private respondent,

praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a
"blank" withdrawal slip with the understanding that the amount deposited
would be withdrawn only after the check in question has been cleared. He
likewise alleged that he instructed the party to whom he issued the signed
blank withdrawal slip to return it to him after the bank drafts clearance so
that he could lend that party his passbook for the purpose of withdrawing
the amount of $2,500.00. However, without his knowledge, said party was
able to withdraw the amount of $2,541.67 from his dollar savings account
through collusion with one of petitioners employees. Private respondent
added that he had "given the Plaintiff fifty one (51) days with which to clear
the bank draft in question." Petitioner should have disallowed the withdrawal
because his passbook was not presented. He claimed that petitioner had no
one to blame except itself "for being grossly negligent;" in fact, it had
allegedly admitted having paid the amount in the check "by mistake" x x x
"if not altogether due to collusion and/or bad faith on the part of (its)
employees." Charging petitioner with "apparent ignorance of routine bank
procedures," by way of counterclaim, private respondent prayed for moral
damages of P100,000.00, exemplary damages of P50,000.00 and attorneys
fees of 30% of whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party

complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even
without private respondents passbook. Thus, private respondent prayed that
third party defendant Chan be made to refund to him the amount withdrawn
and to pay attorneys fees of P5,000.00 plus P300.00 honorarium per
appearance.
Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, wherein it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case
asserting that private respondents claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and
to avoid multiplicity of suits, the motion to admit third party complaint
should be granted. Meanwhile, the trial court issued orders on August 25,
1987 and October 28, 1987 directing private respondent to actively
participate in locating Chan. After private respondent failed to comply, the
trial court, on May 18, 1988, dismissed the third party complaint without
prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint.

The lower court held that petitioner could not hold private respondent liable
based on the checks face value alone. To so hold him liable "would
render inutile the requirement of clearance from the drawee bank before the
value of a particular foreign check or draft can be credited to the account of
a depositor making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in question to
the account of the private respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal from the latters
account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before
authorizing the withdrawal of its value or proceeds, petitioner should suffer
the resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts decision. The
appellate court held that petitioner committed "clear gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondents passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondents account. It stressed that the
mere deposit of a check in private respondents account did not mean that
the check was already private respondents property. The check still had to
be cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore,
petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a
passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect
the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC,14 where this Court stated that a personal check is not legal
tender or money, and held that the check deposited in this case must be
cleared before its value could be properly transferred to private respondent's
account.
Without filing a motion for the reconsideration of the Court of Appeals

Decision, petitioner filed this petition for review on certiorari, raising the
following issues:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN

RESPONDENT NAPIZA AND RUBEN GAYON.
3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN

ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):
"SEC. 66. Liability of general indorser. Every indorser who indorses without

qualification, warrants to all subsequent holders in due course
(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of
the next preceding section; and
(b)......That the instrument is at the time of his indorsement, valid and

subsisting.
And, in addition, he engages that on due presentment, it shall be accepted

or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it."
Section 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified indorsement:
(a) that the instrument is genuine and in all respects what it purports to be;
(b) that he has a good title to it, and (c) that all prior parties had capacity to
contract.15 In People v. Maniego,16 this Court described the liabilities of an
indorser as follows:
"Appellants contention that as mere indorser, she may not be liable on

account of the dishonor of the checks indorsed by her, is likewise untenable.
Under the law, the holder or last indorsee of a negotiable instrument has the
right to enforce payment of the instrument for the full amount thereof
against all parties liable thereon. Among the parties liable thereon is an
indorser of the instrument, i.e., a person placing his signature upon an
instrument otherwise than as a maker, drawer or acceptor * * unless he
clearly indicated by appropriate words his intention to be bound in some
other capacity. Such an indorser who indorses without qualification, inter
alia engages that on due presentment, * * (the instrument) shall be
accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or any subsequent
indorser who may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts, i.e., a person who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other
person. As such, she is under the law liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument
knew * * (her) to be only an accommodation party, although she has the
right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them is in effect that of principal
and surety, the accommodation party being the surety."
It is thus clear that ordinarily private respondent may be held liable as an

indorser of the check or even as an accommodation party. 17 However, to
hold private respondent liable for the amount of the check he deposited by
the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of
the public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent

"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondents son and the lapse of more than fifty (50)
days from date of deposit of the Continental Bank draft, without the same
being returned yet."18 We hold, however, that the propriety of the
withdrawal should be gauged by compliance with the rules thereon that both
petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following

rules on withdrawal of deposits appear:
"4.......Withdrawals must be made by the depositor personally but in some

exceptional circumstances, the Bank may allow withdrawal by another upon
the depositors written authority duly authenticated; and neither a deposit
nor a withdrawal will be permitted except upon the presentation of the
depositors savings passbook, in which the amount deposited withdrawn shall
be entered only by the Bank.
5.......Withdrawals may be made by draft, mail or telegraphic transfer in
currency of the account at the request of the depositor in writing on the
withdrawal slip or by authenticated cable. Such request must indicate the
name of the payee/s, amount and the place where the funds are to be paid.
Any stamp, transmission and other charges related to such withdrawals shall
be for the account of the depositor and shall be paid by him/her upon
demand. Withdrawals may also be made in the form of travellers checks and
in pesos. Withdrawals in the form of notes/bills are allowed subject however,
to their (availability).
6.......Deposits shall not be subject to withdrawal by check, and may be

withdrawn only in the manner above provided, upon presentation of the
depositors savings passbook and with the withdrawal form supplied by the
Bank at the counter."19cräläwvirtualibräry
Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositors passbook. Private
respondent admits that he signed a blank withdrawal slip ostensibly in
violation of Rule No. 6 requiring that the request for withdrawal must name
the payee, the amount to be withdrawn and the place where such
withdrawal should be made. That the withdrawal slip was in fact a blank one
with only private respondents two signatures affixed on the proper spaces is
buttressed by petitioners allegation in the instant petition that had private
respondent indicated therein the person authorized to receive the money,
then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner
contends that "(i)n failing to do so (i.e., naming his authorized agent), he
practically authorized any possessor thereof to write any amount and to
collect the same."20cräläwvirtualibräry
Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to
"Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case,
petitioners personnel should have been duly warned that Gayon, who was
also employed in petitioners Buendia Ave. Extension branch, 21 was not the
proper payee of the proceeds of the check. Otherwise, either Ramon or
Agnes de Guzman should have issued another authority to Gayon for such
withdrawal. Of course, at the dorsal side of the withdrawal slip is an
"authority to withdraw" naming Gayon the person who can withdraw the
amount indicated in the check. Private respondent does not deny having
signed such authority. However, considering petitioners clear admission that
the withdrawal slip was a blank one except for private respondents
signature, the unavoidable conclusion is that the typewritten name of
"Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by
Gayon or whoever was allowed by petitioner to withdraw the amount. Under
these facts, there could not have been a principal-agent relationship
between private respondent and Gayon so as to render the former liable for
the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign
currency savings passbook by the depositor in person. For withdrawals thru
a representative, depositor should accomplish the authority at the back."
The requirement of presentation of the passbook when withdrawing an
amount cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule
No. 6 set out by petitioner so that, for the protection of the banks interest
and as a reminder to the depositor, the withdrawal shall be entered in the
depositors passbook. The fact that private respondents passbook was not
presented during the withdrawal is evidenced by the entries therein showing
that the last transaction that he made with the bank was on September 3,
1984, the date he deposited the controversial check in the amount of
$2,500.00.22cräläwvirtualibräry
In allowing the withdrawal, petitioner likewise overlooked another rule that

is printed in the passbook. Thus:
"2.......All deposits will be received as current funds and will be repaid in the

same manner; provided, however, that deposits of drafts, checks, money
orders, etc. will be accepted as subject to collection only and credited to the
account only upon receipt of the notice of final payment. Collection charges
by the Banks foreign correspondent in effecting such collection shall be for
the account of the depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the account. If, for any
reason, the proceeds of the deposited checks, drafts, money orders, etc.,
cannot be collected or if the Bank is required to return such proceeds, the
provisional entry therefor made by the Bank in the savings passbook and its
records shall be deemed automatically cancelled regardless of the time that
has elapsed, and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute immediately the
necessary corrections, amendments or changes in its record, as well as on
the savings passbook at the first opportunity to reflect such cancellation."
(Italics and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his

name, private respondent did not become the outright owner of the amount
stated therein. Under the above rule, by depositing the check with
petitioner, private respondent was, in a way, merely designating petitioner
as the collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a managers check or ordinary check,
is not legal tender.23 As such, after receiving the deposit, under its own
rules, petitioner shall credit the amount in private respondents account or
infuse value thereon only after the drawee bank shall have paid the amount
of the check or the check has been cleared for deposit. Again, this is in
accordance with ordinary banking practices and with this Courts
pronouncement that "the collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements." 24 The rule
finds more meaning in this case where the check involved is drawn on a
foreign bank and therefore collection is more difficult than when the drawee
bank is a local one even though the check in question is a managers
check.25cräläwvirtualibräry
In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial

bank in Madrid, Spain, paid the amounts represented in three (3) checks to
Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The
bank did so without previously clearing the checks with the drawee bank, the
Philippine National Bank in New York, on account of the "special treatment"
that Boncan received from the personnel of Banco Atlanticos foreign
department. The Court held that the encashment of the checks without prior
clearance is "contrary to normal or ordinary banking practice specially so
where the drawee bank is a foreign bank and the amounts involved were
large." Accordingly, the Court approved the Auditor Generals denial of Banco
Atlanticos claim for payment of the value of the checks that was withdrawn
by Boncan.
Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence of
a good father of a family but it should do so with the highest degree of care.
[28]
In the case at bar, Petitioner, in allowing the withdrawal of private

respondents deposit, failed to exercise the diligence of a good father of a
family. In total disregard of its own rules, petitioners personnel negligently
handled private respondents account to petitioners detriment. As this Court
once said on this matter:
"Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and
reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides the test by which to determine the
existence of negligence in a particular case which may be stated as follows:
Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. The law here in effect
adopts the standard supposed to be supplied by the imaginary conduct of
the discreet pater-familias of the Roman law. The existence of negligence in
a given case is not determined by reference to the personal judgment of the
actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence
and determines liability by that."29cräläwvirtualibräry
Petitioner violated its own rules by allowing the withdrawal of an amount

that is definitely over and above the aggregate amount of private
respondents dollar deposits that had yet to be cleared. The banks ledger on
private respondents account shows that before he deposited $2,500.00,
private respondent had a balance of only $750.00. 30 Upon private
respondents deposit of $2,500.00 on September 3, 1984, that amount was
credited in his ledger as a deposit resulting in the corresponding total
balance of $3,250.00.31 On September 10, 1984, the amount of $600.00 and
the additional charges of $10.00 were indicated therein as withdrawn
thereby leaving a balance of $2,640.00. On September 30, 1984, an interest
of $11.59 was reflected in the ledger and on October 23, 1984, the amount
of $2,541.67 was entered as withdrawn with a balance of $109.92.32 On
November 19, 1984 the word "hold" was written beside the balance of
$109.92.33 That must have been the time when Reyes, petitioners branch
manager, was informed unofficially of the fact that the check deposited was
a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy
of the communication thereon from Wells Fargo Bank International in New
York the following day, November 20, 1984. 34 According to Reyes, Wells
Fargo Bank International handled the clearing of checks drawn against U.S.
banks that were deposited with petitioner.35cräläwvirtualibräry
From these facts on record, it is at once apparent that petitioners personnel

allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00
although they had not yet received notice from the clearing bank in the
United States on whether or not the check was funded. Reyes contention
that after the lapse of the 35-day period the amount of a deposited check
could be withdrawn even in the absence of a clearance thereon, otherwise it
could take a long time before a depositor could make a withdrawal, 36 is
untenable. Said practice amounts to a disregard of the clearance
requirement of the banking system.
While it is true that private respondents having signed a blank withdrawal

slip set in motion the events that resulted in the withdrawal and encashment
of the counterfeit check, the negligence of petitioners personnel was the
proximate cause of the loss that petitioner sustained. Proximate cause,
which is determined by a mixed consideration of logic, common sense, policy
and precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred."37 The proximate cause of
the withdrawal and eventual loss of the amount of $2,500.00 on petitioners
part was its personnels negligence in allowing such withdrawal in disregard
of its own rules and the clearing requirement in the banking system. In so
doing, petitioner assumed the risk of incurring a loss on account of a forged
or counterfeit foreign check and hence, it should suffer the resulting
damage.
WHEREFORE , the petition for review on certiorari is DENIED. The Decision

of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
SO ORDERED.
CASE #114 Dela Victoria vs Burgos 245 SCRA 374 (1995)
[G.R. No. 111190. June 27, 1995.]
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his

personal capacity as garnishee, Petitioner, v. HON. JOSE BURGOS, Presiding
Judge, RTC, and RAUL H. SESBREÑO, Respondents.
DECISION
BELLOSILLO, J.:
RAUL H. SESBREÑO filed a complaint for damages against Assistant City

Fiscals Bienvenido N. Mabanto, Jr., before the Regional Trial Court of Cebu
City. After trial Judgment was rendered ordering the defendants to pay
P11,000.00 to the plaintiff, private respondent herein. The decision having
become final and executory, on motion of the latter, the trial court ordered
its execution. This order was questioned by the defendants before the Court
of Appeals. However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto

D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto,
Jr., was then detailed. The Notice directed petitioner not to disburse,
transfer, release or convey to any other person except to the deputy sheriff
concerned the salary checks, monies, or cash due or belonging to Mabanto,
Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a
motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was
dismissed. Thus the trial court, finding no more legal obstacle to act on the
motion for examination of the garnishees, directed petitioner on 4 November
1992 to submit his report showing the amount of the garnished salaries of
Mabanto, Jr., within (15) days from receipt 2 taking into consideration the
provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require

petitioner to explain why he should not be cited in contempt of court for
failing to comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice
of garnishment claiming that he was not in possession of any money, funds,
credit, property or anything of value belonging to Mabanto, Jr., until
delivered to him. He further claimed that, as such, they were still public
funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner
to immediately comply with its order of 4 November 1992. 3 It opined that
the checks of Mabanto, Jr., had already been released through petitioner by
the Department of Justice duly signed by the officer concerned. Upon service
of the writ of garnishment, petitioner as custodian of the checks was under
obligation to hold them for the judgment creditor. Petitioner became a
virtual party to, or a forced intervenor in, the case and the trial court hereby
acquired jurisdiction to bind him to its orders and processes with a view to
the complete satisfaction of the judgment. Additionally there was no
sufficient reason for petitioner to hold the checks because they were no
longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments
Law.
With regard to the contempt charge, the trial court was not morally
convinced of petitioner's guilt. For, while his explanation suffered from
procedural infirmities nevertheless he took pains in enlightening the court by
sending a written explanation dated 22 July 1992 requesting for the lifting of
the notice of garnishment on the ground that the notice should have been
sent to the Finance Officer of the Department of Justice. Petitioner insists
that he had no authority to segregate a portion of the salary of Mabanto, Jr..
The explanation however was not submitted to the trial court for action since
the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court
explained that it was not the duty of the garnishee to inquire or judge for
himself whether the issuance of the order of execution, writ of execution and
notice of garnishment was justified. His only duty was to turn over the
garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in
the hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter; and, (2) whether the salary
check of a government official or employee funded with public funds can be
subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that petitioner
as garnishee has no legal obligation to hold and deliver them to the trial
court to be applied to Mabanto, Jr.' s judgment debt. The thesis of petitioner
is that the salary checks still formed part of public funds and therefore
beyond the reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits

belonging to the Judgment debtor owing to him from a stranger to the
litigation. 6 Emphasis is laid on the phrase "belonging to the judgment
debtor" since it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public
funds. He receives his compensation in the form of checks from the
Department of Justice through petitioner as City Fiscal of Mandaue City and
head of office. Under Sec. 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or the drawer with intent to transfer title to the
payee and recognize him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer concerned
through petitioner and upon service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At the same
time however it considered the checks as no longer government finds and
presumed delivered to the payee based on the last sentence of Sec. 16 of
the Negotiable Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed." Yet, the presumption is
not conclusive because the last portion of the provision says "until the
contrary is proved." However this phrase was deleted by the trial court for
no apparent reason. Proof to the contrary is its own finding that the checks
were in the custody of petitioner. Inasmuch as said checks had not yet been
delivered to Mabanto, Jr., they did not belong to him and still had the
character of public funds. In Tiro v. Hontanosas 8 we ruled that -
The salary check of a government officer or employee such a s a teacher

does not belong to him before it is physically delivered to him. Until that
time the check belongs to the government. Accordingly, before there is
actual delivery of the check, the payee has no power over it; he cannot
assign it without the consent of the Government.
As a necessary consequence of being public fund, the checks may not be

garnished to satisfy the judgment. 9 The rationale behind this doctrine is
obvious consideration of public policy. The Court succinctly stated in
Commissioner of Public Highways v. San Diego 10 that -
The functions and public services rendered by the State cannot be allowed to
be paralyzed or disrupted by the diversion of public funds from their
legitimate and specific objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed

the additional ratiocination that it was not the duty of the garnishee to
inquire or judge for himself whether the issuance of the order of execution,
the writ of execution, and the notice of garnishment was justified, citing our
ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our
precise ruling in that case that "[I]t is not incumbent upon the garnishee to
inquire or to judge for itself whether or not the order for the advance
execution of a judgment is valid." But that is invoking only the general rule.
We have also established therein the compelling reasons, as exceptions
thereto, which were not taken into account by the trial court, e.g., a defect
on the face of the writ or actual knowledge by the garnishee of lack of
entitlement on the part of the garnisher. It is worth to note that the ruling
referred to the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was applicable to a
notice of garnishment as well. In the case at bench, it was incumbent upon
petitioner to inquire into the validity of the notice of garnishment as he had
actual knowledge of the non-entitlement of private respondent to the checks
in question. Consequently, we find no difficulty concluding that the trial court
exceeded its jurisdiction in issuing the notice of garnishment concerning the
salary checks of Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20

April 1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the
petition are SET ASIDE. The notice of garnishment served on petitioner
dated 3 February 1992 is ordered DISCHARGED.
SO ORDERED.
Davide, Jr., Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., concurring:nadchanroblesvirtualawlibrary
This Court may take judicial notice of the fact that checks for salaries of
employees of various Departments all over the country are prepared in
Manila not at the end of the payroll period, but days before it to ensure that
they reach the employees concerned not later that the end of the payroll
period. As to the employees in the provinces or cities, the checks are sent
through the heads of the corresponding offices of the Departments. Thus, in
the case of Prosecutors and Assistant Prosecutors of the Department of
Justice, the checks are sent through the Provincial Prosecutors or City
Prosecutors, as the case may be, who shall then deliver the checks to the
payees.
Involved in the instant case are the salary and RATA checks of the Assistant
City Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office of the
City Fiscal (now Prosecutor) of Mandaue City. Conformably with the
aforesaid practice, these checks were sent to Mabanto thru the petitioner
who was then the city Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary
check and the month to which the RATA check corresponds.
I respectfully submit that if these salary and RATA checks corresponded,

respectively, to a payroll period and to a month which had already lapsed at
the time the notice of garnishment was served, the garnishment would be
valid, as the checks would then cease to be property of the Government and
would become property of Mabanto. Upon the expiration of such period and
month, the sums indicated therein were deemed automatically segregated
from the budgetary allocations for the Department of Justice under the
General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or

garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry vs.
Concepcion 1 where the core issue was whether or not the salary due from
the Government to a public officer or employee can, by garnishment, be
seized before being paid to him and appropriated to the payment of his
judgment debts, this Court held:nadchanroblesvirtualawlibrary
A rule, which has never been seriously questioned, is that money in the
hands of public officers, although it may be due government employees, is
not liable to the creditors of these employees in the process of garnishment.
One reason is, that the State, by virtue of its sovereignty, may not be sued
in its own courts except by express authorization by the Legislature, and to
subject its officers to garnishment would be to permit indirectly what is
prohibited directly. Another reason is that moneys sought to be garnished,
as long as they remain in the hands of the disbursing officer of the
Government, belong to the latter, although the defendant in garnishment
may be entitled to a specific portion thereof. And still another reason which
covers both of the foregoing is that every consideration of public policy
forbids it.
The United States Supreme Court, in the leading case of Buchanan vs.
Alexander ([1846]), 4 How., 19), in speaking of the right of creditors of
seamen, by process of Attachment, to divert the public money from its
legitimate and appropriate object, said:nadchanroblesvirtualawlibrary
"To state such a principle is to refute it. No government can sanction it. At
all times it would be found embarrassing, and under such circumstances it
might be fatal to the public service. . . . So long as money remains in the
hands of a disbursing officer, it is as much the money of the United States,
as if it had not been drawn from the treasury. Until paid over by the agent of
the government to the person entitled to it, the fund cannot, in any legal
sense, be considered a part of his effects." (See, further, 12 R.C.L., p. 841;
Keene vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson [1871], 23 La.
Ann., 752; Bank of Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.], 379).
(Emphasis Supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on

therein were public funds, to wit: (a) the pump irrigation trust fund
deposited with the Philippine National Bank (PNB) in the Account of the
Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits of the
National Media Production Center in Traders Royal Bank vs. Intermediate
Appellate Court; 3 and (c) the deposits of the Bureau of Public Highways
with the PNB under a current account which may be expended only for their
legitimate object as authorized by the corresponding legislative
appropriation in Commissioner of Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the
validity of Circular No. 21, series of 1969, issued by the Director of Public
Schools which directed that henceforth no cashier or disbursing officer shall
pay to attorneys-in-fact or other persons who may be authorized under a
power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an
immediate member of the family of the employees concerned, and in all
other cases except upon proper authorization of the Assistant Executive
Secretary for legal and Administrative Matters, with the recommendation of
the Financial Assistant." Private respondent Zapra Financing Enterprise,
which had extended loans to public school teachers in Cebu City and
obtained from the latter promissory notes and special powers of attorney
authorizing it to take and collect their salary checks from the Division Office
in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the
Circular. It is clear that the teachers had in fact assigned to or waived in
favor of Zafra their future salaries which were still public funds. That
assignment or waiver was contrary to public policy.
I would therefore vote to grant the petition only of the salary and RATA
checks garnished corresponds to an unexpired payroll period and RATA
month, respectively.
CASE #115 Stelco Manufacturing Corp vs CA 210 SCRA 51
[G.R. No. 96160. June 17, 1992.]
STELCO MARKETING CORPORATION, Petitioner, v. HON. COURT OF

APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES,
INC., Respondents.
Reyes, Kho & Associates for Petitioner.
Ocampo, Dizon & Domingo for Private Respondent.
SYLLABUS
1. NEGOTIABLE INSTRUMENTS LAW; ACCOMMODATION PARTY; LIABLE TO

A HOLDER FOR VALUE. — STELCO evidently places much reliance on the
pronouncement of the Regional Trial Court in Criminal Case No. 66571, that
the acquittal of the two (2) accused (Limson and Torres) did not operate "to
release Steelweld Corporation from its liability under Sec. 29 of the
Negotiable Instruments Law for having issued (the check) for the
accommodation of Romeo Lim." The cited provision reads as follows:
"SECTION 29. Liability of accommodation party. — An accommodation party
is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party." It is noteworthy
that the Trial Court’s pronouncement containing reference to said Section 29
did not specify to whom STEELWELD, as accommodation party, is supposed
to be liable; and certain it is that neither said pronouncement nor any other
part of the judgment of acquittal declared it liable to STELCO. To be sure, as
regards an accommodation party (such as STEELWELD), lack of notice of
any infirmity in the instrument or defect in title of the persons negotiating it,
has no application. This is because Section 29 of the law above quoted
preserves the right of recourse of a "holder for value" against the
accommodation party notwithstanding that "such holder, at the time of
taking the instrument, knew him to be only an accommodation party"
[Prudential Bank and Trust Co, v. Ramesh Trading Co. C.A. 32908-R,
September 10, 1964].
2. ID.; ID.; HOLDER IN DUE COURSE; DEFINED. — "A holder in due course,"
says the law, [SEC. 52, Negotiable Instruments Law, Act No. 2031] "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 persons negotiating
it."cralaw virtua1aw library
3. ID.; ID.; EFFECTS OF POSSESSION OF NEGOTIABLE INSTRUMENT AFTER

PRESENTMENT AND DISHONOR, OR PAYMENT. — The record does show that
after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor
of the check, to give it in evidence at the trial of the civil case it had
instituted against the drawers of the check (Limson and Torres) and RLY.
But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does
not make the possessor a holder for value within the meaning of the law; it
gives rise to no liability on the part of the maker or drawer and indorsers.
4. REMEDIAL LAW; FACTUAL FINDINGS OF THE COURT OF APPEALS;

NORMALLY CONCLUSIVE ON THE SUPREME COURT. — Now, STELCO
theorizes that it should be deemed a "holder for value" of STEELWELD’s
Check No. 765380 because the record shows it to have been in "actual
possession" thereof; otherwise, it "could not have presented, marked and
introduced (said check) in evidence before the court a quo." "Besides," it
adds, the check in question was presented by STELCO to the drawee bank
for payment through Armstrong Industries, the manufacturing arm of
STELCO and its sister company." The trouble is, there is no evidence
whatever that STELCO’s possession of Check No. 765380 ever dated back to
any time before the instrument’s presentment and dishonor. There is no
evidence whatsoever that the check was ever given to it, or indorsed to it in
any manner or form in payment of an obligation or as security for an
obligation, or for any other purpose before it was presented for payment. On
the contrary, the factual finding of the Court of Appeals, which by traditional
precept is normally conclusive on this Court, is that STELCO never became a
holder for value and that" (n)owhere in the check itself does the name of
Stelco Marketing appear as payee, indorsee or depositor thereof."
DECISION
NARVASA, J.:
Stelco Marketing Corporation is engaged in the distribution and sale to the

public of structural steel bars. 1 On seven (7) different occasions in
September and October, 1980, it sold to RYL Construction, Inc. quantities of
steel bars of various sizes and rolls of G.I. wire. These bars and wire were
delivered at different places at the indication of RYL Construction, Inc. The
aggregate price for the purchases was P126,859.61.chanrobles virtual
lawlibrary
Although the corresponding invoices issued by STELCO stipulated that RYL

would pay "COD" (cash on delivery), the latter made no payments for the
construction materials thus ordered and delivered despite insistent demands
for payment by the former.
On April 4, 1981, RYL gave to Armstrong Industries — described by STELCO

as its "sister corporation" and "manufacturing arm" 2 — a check drawn
against Metrobank in the amount of P126,129.86, numbered 765380 and
dated April 4, 1981. That check was a company check of another
corporation, Steelweld Corporation of the Philippines, signed by its President,
Peter Rafael Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim,
President of RYL. Romeo Lim had asked Limson for financial assistance, and
the latter had agreed to give Lim a check only by way of accommodation,
"only as guaranty but not to pay for anything." 3 Why the check was made
out in the amount of P126,129.86 is not explained. Anyway, the check was
actually issued in said amount of P126,129.86, and as already stated, was
given by R.Y. Lim to Armstrong, Industries, 4 in payment of an obligation.
When the latter deposited the check at its bank, it was dishonored because
"drawn against insufficient funds." 5 When so deposited, the check bore two
(2) indorsements, that of "RYL Construction," followed by that of "Armstrong
Industries." 6
On account of the dishonor of Metrobank Check No. 765380, and on

complaint of Armstrong Industries (through a Mr. Young), Rafael Limson and
Artemio Torres were charged in the Regional Trial Court of Manila with a
violation of Batas Pambansa Bilang 22. 7 They were acquitted in a decision
rendered on June 28, 1984 "on the ground that the check in question was
not issued by the drawer ‘to apply on account for value,’ it being merely for
accommodation purposes." 8 That judgment however conditioned the
acquittal with the following pronouncement:jgc:chanrobles.com.ph
"This is not however to release Steelweld Corporation from its liability under
Sec. 29 of the Negotiable Instruments Law for having issued it for the
accommodation of Romeo Lim."cralaw virtua1aw library
Eleven months or so later — and some four (4) years after issuance of the
check in question — in May, 1985, STELCO filed with the Regional Trial Court
of Caloocan City a civil complaint 9 against both RYL and STEELWELD for the
recovery of the value of the steel bars and wire sold to and delivered to RYL
(as already narrated) in the amount of P126,129.86, "plus 18% interest
from August 20, 1980 . . . (and) 25% of the total amount sought to be
recovered as and by way of attorney’s fees . . ." 10 Among the allegations of
its complaint was that Metrobank Check No. 765380 above mentioned had
been given to it in payment of RYL’s indebtedness, duly indorsed by R.Y.
Lim. 11 A preliminary attachment was issued by the trial court on the basis
of the averments of the complaint but was shortly dissolved upon the filing
of a counter-bond by STEELWELD.
RYL could no longer be located and could not be served with summons. 12 It
never appeared. Only STEELWELD filed an answer, under date of July 16,
1985. 13 In said pleading, it specifically denied the facts alleged in the
complaint, the truth, according to Steelweld, being basically that —
1) STELCO "is a complete stranger to it;" it had "not entered into any
transaction or business dealing of any kind" with STELCO, the transactions
described in the complaint having been solely and exclusively between the
plaintiff and RYL Construction;
2) the check in question was "only given to a certain R. Lim to be used as

collateral for another obligation . . . (but) in breach of his agreement (Lim)
utilized and negotiated the check for another purpose . . .;"
3) nevertheless, the check "is wholly inoperative since . . . Steelweld . . . did

not issue it for any valuable consideration either to R. Lim or to the plaintiff
not to mention also the fact that the said plaintiff failed to comply with the
requirements of the law to hold the said defendant (STEELWELD)
liable . . ."cralaw virtua1aw library
Trial ensued upon these issues, after which judgment was rendered on June
26, 1986. 14 The judgment sentenced "the defendant Steelweld corporation
to pay to . . . (Stelco Marketing Corporation) the amount of P126,129.86
with legal rate of interest from May 9, 1985, when this case was instituted
until fully paid, plus another sum equivalent to 25% of the total amount due
as and for attorney’s fees . . ." 15 That disposition was justified in the
judgment as follows: 16
"There is no question, then, that as far as any commercial transaction is

concerned between plaintiff and defendant Steelweld no such transaction
over occurred. Ordinarily, under civil law rules, there having been no
transaction between them involving the purchase of certain merchandise
there would be no privity of contract between them, and plaintiff will have
no right to sue the defendant for payment of said merchandise for simple
reason that the defendant did not order them, much less receive them.
But we have here a case where the defendant Steelweld thru its President
Peter Rafael Limson admitted to have issued a check payable to cash in
favor of his friend Romeo Lim who was the President of RYL Construction by
way of accommodation. Under the Negotiable Instruments Law an
accommodation party is liable.
‘SEC. 29. Liability of an accommodation party. — An accommodation party is

one who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for
value notwithstanding such holder at the time of taking the instrument knew
him to be only an accommodation party.’"
From this adverse judgment STEELWELD appealed to the Court of Appeals

17 and there succeeded in reversing the judgment. By Decision promulgated
on May 29, 1990, 18 the Court of Appeals 19 ordered "the complaint against
appellant (STEELWELD) DISMISSED; (and the appellee, STELCO) to pay
appellant the sum of P15,000.00 as attorney’s fees and cost of litigation, the
suit . . . (being) a baseless one that dragged appellant in court and caused it
to incur attorney’s fees and expense of litigation."cralaw virtua1aw library
STELCO’s motion for reconsideration was denied by the Appellate Tribunal’s

resolution dated November 13, 1990. 20 The Court stressed that —
". . . as far as Steelweld is concerned, there was no commercial transaction

between said appellant and appellee. Moreover, there is no evidence that
appellee Stelco Marketing became a holder for value. Nowhere in the check
itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof. Finally, appellee’s complaint is for the collection of the
unpaid accounts for delivery of steel bars and construction materials. It
having been established that appellee had no commercial transaction with
appellant Stelco, appellee had no cause of action against said
appellant."cralaw virtua1aw library
STELCO appealed to this Court in accordance with Rule 45 of the Rules of
Court. In this Court it seeks to make the following points in connection with
its plea for the overthrow of the Appellate Tribunal’s aforesaid decision,
viz.:chanrob1es virtual 1aw library
1) said decision is "not in accord with law and jurisprudence;"
2) "STELCO is a ‘holder’ within the meaning of the Negotiable Instruments

Law;
3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . .

(and hence) holds the same free from personal or equitable defense;" and
4) "Negotiation in breach of faith is a personal defense . . . (and hence) no

effective as against a holder in due course."cralaw virtua1aw library
The points are not well taken.
The crucial question is whether or not STELCO ever became a holder in due
course of Check No. 765380, a bearer instrument within the contemplation
of the Negotiable Instruments Law. It never did.
STELCO evidently places much reliance on the pronouncement of the

Regional Trial Court in Criminal Case No. 66571, 21 that the acquittal of the
two (2) accused (Limson and Torres) did not operate "to release Steelweld
Corporation from its liability under Sec. 29 of the Negotiable Instruments
Law for having issued . . . (the check) for the accommodation of Romeo
Lim." The cited provision reads as follows:jgc:chanrobles.com.ph
"SECTION 29. Liability of accommodation party. — An accommodation party

is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party."cralaw virtua1aw
library
It is noteworthy that the Trial Court’s pronouncement containing reference

to said Section 29 did not specify to whom STEELWELD, as accommodation
party, is supposed to be liable; and certain it is that neither said
pronouncement nor nay other part of the judgment of acquittal declared it
liable to STELCO.
"A holder in due course," says the law, 22 "is a holder who has taken the
instrument under the following conditions:chanrob1es virtual 1aw library
(a) That it is complete and regular upon its face;
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 persons negotiating
it."cralaw virtua1aw library
To be sure, as regards an accommodation party (such as STEELWELD), the

fourth condition, i.e., lack of notice of any infirmity in the instrument or
defect in title of the persons negotiating it, has no application. This is
because Section 29 of the law above quoted preserves the right of recourse
of a "holder for value" against the accommodation party notwithstanding
that "such holder, at the time of taking the instrument, knew him to be only
an accommodation party." 23
Now, STELCO theorizes that it should be deemed a "holder for value" of

STEELWELD’s Check No. 765380 because the record shows it to have been
in "actual possession" thereof; otherwise, it "could not have presented,
marked and introduced (said check) in evidence . . . before the court a quo."
"Besides," it adds, the check in question was presented by STELCO to the
drawee bank for payment through Armstrong Industries, the manufacturing
arm of STELCO and its sister company." 24
The trouble is, there is no evidence whatever that STELCO’s possession of

Check No. 765380 ever dated back to any time before the instrument’s
presentment and dishonor. There is no evidence whatsoever that the check
was ever given to it, or indorsed to it in any manner or form in payment of
an obligation or as security for an obligation, or for any other purpose before
it was presented for payment. On the contrary, the factual finding of the
Court of Appeals, which by traditional precept is normally conclusive on this
Court, is that STELCO never became a holder for value and that" (n)owhere
in the check itself does the name of Stelco Marketing appear as payee,
indorsee or depositor thereof."25cralaw:red
What the record shows is that: (1) the STEELWELD company check in
question was given by its president to R.Y. Lim; (2) it was given only by way
of accommodation, to be "used as collateral for another obligation;" (3) in
breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of an obligation; (4) Armstrong deposited the check
to its account, after indorsing it; (5) the check was dishonored. The record
does not show any intervention or participation by STELCO in any manner or
form whatsoever in these transactions, or any communication of any sort
between STEELWELD and STELCO, or between either of them and Armstrong
Industries, at any time before the dishonor of the check.
The record does show that after the check had been deposited and
dishonored, STELCO came into possession of it in some way, and was able,
several years after the dishonor of the check, to give it in evidence at the
trial of the civil case it had instituted against the drawers of the check
(Limson and Torres) and RYL. But, as already pointed out, possession of a
negotiable instrument after presentment and dishonor, or payment, is
utterly inconsequential; it does not make the possessor a holder for value
within the meaning of the law; it gives rise to no liability on the part of the
maker or drawer and indorsers.chanrobles law library : red
It is clear from the relevant circumstances that STELCO cannot be deemed a

holder of the check for value. It does not meet two of the essential requisites
prescribed by the statute. It did not become "the holder of it before it was
overdue, and without notice that it had been previously dishonored," and it
did not take the check "in good faith and for value." 26
Neither is there any evidence whatever that Armstrong Industries, to whom

R.Y. Lim negotiated the check, accepted the instrument and attempted to
encash it in behalf, and as agent of STELCO. On the contrary, the indications
are that Armstrong was really the intended payee of the check and was the
party actually injured by its dishonor; it was after all its representative (a
Mr. Young) who instituted the criminal prosecution of the drawers, Limson
and Torres, albeit unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or
reversal of the challenged judgment of the Court of Appeals which, on the
contrary, appears to be entirely in accord with the facts and the applicable
law.
WHEREFORE, the petition is DENIED and the Decision of the Court of

Appeals in CA-G.R. CV No. 13418 is AFFIRMED in toto. Costs against
petitioner.
SO ORDERED.

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CASE #99 Pineda vs de la Rama 121 SCRA 671 (1983).................................................................................2

G.R. No. L-31831 April 28, 1983

JESUS PINEDA, Petitioner, vs. JOSE V. DELA RAMA and COURT OF

Rosauro Alvarez for petitioner.chanrobles virtual law library

Arturo Zialcita for respondents.

This is a petition to review on certiorari a decision of the Court of Appeals

chanrobles virtual law library

The court stated:chanrobles virtual law library

xxx xxx xxxchanrobles virtual law library

The trial court rendered judgment as follows: chanrobles virtual law library

WHEREFORE, the Court finds by a preponderance of evidence that the

The appellate court stated: chanrobles virtual law library

We find this petition meritorious.chanroblesvirtualawlibrary chanrobles

SECTION 24. Presumption of consideration.-Every negotiable instrument is

The Court of Appeals' reliance on the above provision is misplaced. The

There is no dispute that an air-conditioning unit valued at P1,250.00 was

xxx xxx xxx chanrobles virtual law library

xxx xxx xxx

Whether or not the supposed cash advances reached their destination is of

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The

[G.R. No. 117913. February 1, 2002.]

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,

[G.R. No. 117914. February 1, 2002.]

MICO METALS CORPORATION, Petitioner, v. COURT OF APPEALS and

a) Ordering the defendants-appellees jointly and severally to pay plaintiff

c) Ordering defendants-appellees jointly and severally to pay PBCom the

The facts of the case are as follows:chanrob1es virtual 1aw library

On March 2, 1979, Charles Lee, as President of MICO wrote private

Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO

On July 14, 1980, petitioner Charles Lee, in his capacity as president of

On July 29, 1980, MICO furnished PBCom with a notarized certification

RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he

RESOLVED FURTHER, That said bank is hereby authorized, empowered and

On January 4, 1982, MICO applied, for authority to open a foreign letter of

Petitioners (MICO and herein petitioners-sureties) denied all the allegations

Petitioners filed a motion for reconsideration of the challenged decision of

We are not convinced.

Private respondent PBCom presented the following documentary evidence to

7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez

9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom

Petitioners-sureties, for their part, presented the By-Laws 34 of Mico Metals

Petitioners-sureties also presented a letter of their counsel dated October 9,

In addition to the foregoing, MICO and petitioners-sureties cited the decision

A: Well, it was credited to the current account of Mico Metals Corp.

A: Well, that is our understanding.

ATTY. DURAN:chanrob1es virtual 1aw library

COURT:chanrob1es virtual 1aw library

Can you produce the ledger account?

A: Yes, Your Honor, I will bring.

COURT:chanrob1es virtual 1aw library

The ledger or record of the current account of Mico Metals Corp.

A: Yes, Your Honor.

ATTY. ACEJAS:chanrob1es virtual 1aw library

ATTY. SANTOS:chanrob1es virtual 1aw library

Well, you are the one who is asking that.

ATTY. DURAN:chanrob1es virtual 1aw library

COURT:chanrob1es virtual 1aw library

Q: Are those availments were release? (sic)

A: By the credit to their current account.

ATTY. ACEJAS:chanrob1es virtual 1aw library

ATTY. ACEJAS:chanrob1es virtual 1aw library

Petitioners allege that PBCom presented no evidence that it remitted