Table of Contents

CASE #116 Yang vs CA 409 SCRA 159 (2003)...............................................................................................2

CASE #117 Traders Royal Bank vs CA 269 SCRA 15 (1997).........................................................................13
CASE #118 Atrium Management Corp vs CA 323 SCRA 23 (2001).............................................................29
CASE #119 BPI vs Roxas 536 SCRA 168 (2007)...........................................................................................35
CASE #120 Hi-Cement Corp vs Insular Bank of Asia and America 534 SCRA 269 (2007)............................39
CASE #121 Republic vs Equitable Bank 10 SCRA 8 (1964)..........................................................................49
CASE #122 Sy Hang vs Santos 54 OG 7748.................................................................................................56
CASE #123 PNB vs Seeto 91 Phil 756 (1952)..............................................................................................57
CASE #116 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 #117 Traders Royal Bank vs CA 269 SCRA 15 (1997)

[G.R. No. 93397. March 3, 1997.]

TRADERS ROYAL BANK, Petitioner, v. COURT OF APPEALS, FILRITERS

GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the
PHILIPPINES, Respondents.

Gonzales, Sinense, Jimenez & Associates for Petitioner.

Jaime M. Cabiles for respondent Central Bank.

Ruben L. Almadro for respondent Filriters.

SYLLABUS

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; FREEDOM OF

NEGOTIABILITY; NOT PRESENT IN CERTIFICATE OF INDEBTEDNESS. — The
language of negotiability which characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money. Hence,
freedom of negotiability is the touchstone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for
the protection which the law throws around a holder in due course (11 Am.
Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of
indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time.

2. ID.; CORPORATIONS; PIERCING THE VEIL OF CORPORATE ENTITY;

ELABORATED; NOT PROPER IN CASE AT BAR. — Petitioner cannot put up the
excuse of piercing the veil of corporate entity, as this is merely an equitable
remedy, and may be awarded only in cases when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud of defend
crime or where a corporation is a mere alter ego or business conduit of a
person. Piercing the veil of corporate entity requires stockholders from
liabilities that ordinarily, they could be subject to or distinguishes one
corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate
fiction was misused, to such an extent that injustice, fraud, or crime was
committed upon another, disregarding, thus, his, her, or its rights. It is the
protection of the interests of innocent third persons dealing with the
corporate entity which the law aims to protect by this doctrine. Though it is
true that when valid reasons exist, the legal fiction that a corporation is an
entity with a judicial personality separate from its stockholders and from
other corporations may be disregarded, in the absence of such grounds, the
general rule must be upheld. The fact that Philfinance owns majority shares
in Filriters is not by itself a ground to disregard the independent corporate
status of Filrites. In Liddel & Co., Inc. v. Collector of Internal Revenue, the
mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities. In the
case at bar, there is sufficient showing that the petitioner was not defrauded
at all when it acquired the subject certificate of indebtedness from
Philfinance.

3. ID.; BANKS; CENTRAL BANK CIRCULAR NO. 769; REQUIREMENTS; NONE

COMPLIANCE THEREOF, FATAL; CASE AT BAR. — Petitioner, being a
commercial bank, cannot feign ignorance of Central Bank Circular 769, and
its requirements. An entity which deals with corporate agents within
circumstances showing that the agents are acting in excess of corporate
authority, may not hold the corporation liable. This is only fair, as everyone
must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith. The
transfer made by Filriters to Philfinance did not conform to the said Central
Bank Circular, which for all intents, is considered part of the law. As found
by the courts a quo, Alfredo O. Banaria, who had signed the deed of
assignment from Filriters to Philfinance, purportedly for and in favor of
Filriters was fictitious, and therefore void and inexistent, as there was no
consideration for the same. This is fatal to the petitioner’s cause, for then,
Philfinance had no title over the subject certificate to convey to Traders
Royal Bank. Nemo potest nisi quod de jure potest — no man can do anything
except what he can do lawfully. Concededly, the subject CBCI (Central Bank
Certificate of Indebtedness) was acquired by Filriters to form part of its legal
and capital reserves, which are required by law to be maintained at a
mandated level. It cannot, therefore, be taken out of the said fund, without
violating the requirements of the law. Thus, the unauthorized use or
distribution of the same by a corporate officer of Filriters cannot bind the
said corporation, not without the approval of its Board of Directors, and the
maintenance of the required reserve fund. Consequently, the title of Filriters
over the subject certificate of indebtedness must be upheld over the claimed
interest of Traders Royal Bank.

DECISION
 TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the

respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity
of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891,
2 with a face value of P500,000, from the Philippine Underwriters Finance
Corporation (Philfinance) to the petitioner Trader’s Royal Bank (TRB), under
a Repurchase Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila,
Branch 32, the action was originally filed as a Petition for Mandamus 5 under
Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines
to register the transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).

In the said petition, TRB stated that:jgc:chanrobles.com.ph

"3. On November 27, 1979, Filriters Guaranty Assurance Corporation

(Filriters) executed a ‘Detached Assignment’ . . ., whereby Filriters, as
registered owner, sold, transferred, assigned and delivered unto Philippine
Underwriters Finance Corporation (Philfinance) all its rights and title to
Central Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896,
inclusive, each in the denomination of PESOS: FIVE HUNDRED THOUSAND
(P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE
HUNDRED THOUSAND (P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express

authorization executed by the transferor intended to complete the
assignment through the registration of the transfer in the name of
PhilFinance, which authorization is specifically phrased as follows: ‘(Filriters)
hereby irrevocably authorized the said issuer (Central Bank) to transfer the
said bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement

with PhilFinance . . ., whereby, for and in consideration of the sum of
PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold,
transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No.
D891 with a face value of P500,000.00 . . ., which CBCI was among those
previously acquired by PhilFinance from Filriters as averred in paragraph 3 of
the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex ‘B’), Philfinance
agreed to repurchase CBCI Serial No. D891 (Annex ‘C’), at the stipulated
price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED
SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity,

April 27, 1981, when the checks it issued in favor of petitioner were
dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in

favor of the Petitioner to enable the latter to have its title completed and
registered in the books of the Respondent. And by means of said
Detachment Assignment, Philfinance transferred and assigned all its rights
and title in the said CBCI (Annex ‘C’) to petitioner and, furthermore, it did
thereby ‘irrevocably authorize the said issuer (respondent herein) to transfer
the said bond/certificate on the books of its fiscal agent.’ . . .

9. Petitioner presented the CBCI (Annex ‘C’), together with the two (2)
aforementioned Detached Assignments (Annexes ‘B’ and ‘D’), to the
Securities Servicing Department of the respondent, and requested the latter
to effect the transfer of the CBCI on its books and to issue a new certificate
in the name of petitioner as absolute owner thereof;

10. Respondent failed and refused to register the transfer as requested, and
continues to do so notwithstanding petitioner’s valid and just title over the
same and despite repeated demands in writing, the latest of which is hereto
attached as Annex ‘E’ and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were
substantially complied with in petitioner’s request for registration, to
wit:chanroblesvirtuallawlibrary

‘No transfer thereof shall be valid unless made at said office (where the
Certificate has been registered) by the registered owner hereof, in person or
by his attorney duly authorized in writing, and similarly noted hereon, and
upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered holder thereof.’

and, without a doubt, the Detached Assignments presented to respondent

were sufficient authorizations in writing executed by the registered owner,
Filriters, and its transferee, PhilFinance, as required by the above-quoted
provision;
12. Upon such compliance with the aforesaid requirements, the ministerial
duties of registering a transfer of ownership over the CBCI and issuing a new
certificate to the transferee devolves upon the respondent;"

Upon these assertions, TRB prayed for the registration by the Central Bank
of the subject CBCI in its name.

On December 4, 1984, the Regional Trial Court trying the case took
cognizance of the defendant Central Bank of the Philippines’ Motion for
Admission of Amended Answer with Counter Claim for Interpleader, 6
thereby calling to fore the respondent Filriters Guaranty Assurance
Corporation (Filriters), the registered owner of the subject CBCI
as Respondent.

For its part, Filriters interjected as Special Defenses the

following:jgc:chanrobles.com.ph

"11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities
required of respondent as an insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation

of law and the trust fund doctrine and to the prejudice of policyholders and
to all who have present or future claim against policies issued by Filriters,
Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any
board resolution, knowledge or consent of the board of directors of Filriters
and without any clearance or authorization from the Insurance
Commissioner, executed a detached assignment purportedly assigning CBCI
No. 891 to Philfinance;

x       x       x

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and

Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding
the same positions in Philfinance), without any consideration or benefit
redounding to Filriters and to the grave prejudice of Filriters, its policy
holders and all who have present or future claims against its policies,
executed similar detached assignment forms transferring the CBCI to
plaintiff;

x       x       x
15. The detached assignment is patently void and inoperative because the
assignment is without the knowledge and consent of directors of Filriters,
and not duly authorized in writing by the Board, as required by Article V,
Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo

Banaria and not the corporate act of Filriters and as such null and void;

a) The assignment was executed without consideration and for that reason,
the assignment is void from the beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the
board of directors of Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities,

which is a requirement under the Insurance Code for its existence as an
insurance company and the pursuit of its business operations. The
assignment of the CBCI is illegal act, in the sense of malum in se or malum
prohibitum, for anyone to make, either as corporate or personal act;

d) The transfer or diminution of reserve investments of Filriters is expressly

prohibited by law, is immoral and against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in
the solvency deficiency of Filriters (and has in fact helped in placing Filriters
under conservatorship), an inevitable result known to the officer who
executed the detached assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and
invalidity of the assignment;

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of

indebtedness is not payable to bearer but is registered in the name of
Filriters;

b) The provision on transfer of the CBCIs, provides that the Central Bank
shall treat the registered owner as the absolute owner and that the value of
the registered certificates shall be payable only to the registered owner; a
sufficient notice to plaintiff that the assignments do not give them the
registered owner’s right as absolute owner of the CBCIs;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs)

provides that registered certificates are payable only to the registered owner
(Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No.
891 by Filriters is not a regular transaction made in the usual or ordinary
course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against

liabilities required by the Insurance Code and its assignment or transfer is
expressly prohibited by law. There was no attempt to get any clearance or
authorization from the Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the

usual or regular course of its business;

c) The CBCI involved substantial amount and its assignment clearly

constitutes disposition of ‘all or substantially all’ of the assets of Filriters,
which requires the affirmative action of the stockholders (Section 40,
Corporation [sic] Code). 7

In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila,
Branch XXXII found the assignment of CBCI No. D891 in favor of Philfinance,
and the subsequent assignment of the same CBCI by Philfinance in favor of
Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:jgc:chanrobles.com.ph

"ACCORDINGLY, judgment is hereby rendered in favor of the respondent

Filriters Guaranty Assurance Corporation and against the plaintiff Traders
Royal Bank:chanrob1es virtual 1aw library

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and
the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff
Traders Royal Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the
said assignment and to pay the value of the proceeds of the CBCI No. D891
to the Filriters Guaranty Assurance Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters
Guaranty Assurance Corp. The sum of P10,000 as attorney’s fees; and

(d) to pay the costs.

SO ORDERED." 9
The petitioner assailed the decision of the trial court in the Court of Appeals
10 , but their appeal likewise failed. The findings of fact of the said court are
hereby reproduced:jgc:chanrobles.com.ph

"The records reveal that defendant Filriters is the registered owner of CBCI
No. D891. Under a deed of assignment dated November 27, 1971, Filriters
transferred CBCI No. D891 to Philippine Underwriters Finance Corporation
(Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which
was still registered in the name of Filriters, to appellant Traders Royal Bank
(TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back
the note on maturity date, it executed a deed of assignment, dated April 27,
1981, conveying to appellant TRB all its rights and title to CBCI No. D891.

Armed with the deed of assignment, TRB then sought the transfer and
registration of CBCI No. D891 in its name before the Security and Servicing
Department of the Central Bank (CB). Central Bank, however, refused to
effect the transfer and registration in view of an adverse claim filed by
defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus
against the Central Bank in the Regional Trial Court of Manila. The suit,
however, was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be
impleaded as a respondent and the court adjudge which of them is entitled
to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB
now comes to this Court on appeal." 11

In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is thus free
from any defect of title of prior parties and from any defense available to
prior parties among themselves, and it may thus, enforce payment of the
instrument for the full amount thereof against all parties liable thereon. 12

In ignoring said argument, the appellate court said that the CBCI is not a
negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed
thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred by
negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was
fictitious, having been made without consideration, and did not conform to
Central Bank Circular No. 769, series of 1980, better known as the "Rules
and Regulations Governing Central Bank Certificates of Indebtedness", which
provided that any "assignment of registered certificates shall not be valid
unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."cralaw virtua1aw library

Petitioner’s claimed interest has no basis, since it was derived from

Philfinance, whose interest was inexistent, having acquired the certificate
through simulation. What happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation, to guarantee its financing
operations.

Said the Court:jgc:chanrobles.com.ph

"In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For
lack of such authority, the assignment did not therefore bind Filriters and
violated at the same time Central Bank Circular No. 769 which has the force
and effect of a law, resulting in the nullity of the transfer (People v. Que Po
Lay, 94 Phil. 640; 3M Philippines, Inc. v. Commissioner of Internal Revenue,
165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it
could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against

plaintiff-appellant.

SO ORDERED." 13

Petitioner’s present position rests solely on the argument that Philfinance

owns 90% of Filriter’s equity and the two corporations have identical
corporate officers, thus demanding the application of the doctrine of piercing
the veil of corporate fiction, as to give validity to the transfer of the CBCI
from the registered owner to petitioner TRB. 14 This renders the payment by
TRB to Philfinance for CBCI, as actual payment to Filriters. Thus, there is no
merit to the lower courts’ ruling that the transfer of the CBCI from Filriters to
Philfinance was null and void for lack of
consideration.chanroblesvirtuallawlibrary:red
Admittedly, the subject CBCI is not a negotiable instrument in the absence
of words of negotiability within the meaning of the negotiable instruments
law (Act 2031).

The pertinent portions of the subject CBCI read:chanrob1es virtual 1aw

library

x       x       x

The Central Bank of the Philippines (the Bank) for value received, hereby
promises to pay to bearer, or if this Certificate of indebtedness be
registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.

x       x       x

Properly understood, a certificate of indebtedness pertains to certificates for

the creation and maintenance of a permanent improvement revolving fund,
is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is
properly understood as an acknowledgment of an obligation to pay a fixed
sum of money. It is usually used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable
instrument, stating that:jgc:chanrobles.com.ph

"As worded, the instrument provides a promise ‘to pay Filriters Guaranty
Assurance Corporation, the registered owner hereof.’ Very clearly, the
instrument is payable only to Filriters, the registered owner, whose name is
inscribed thereon. It lacks the words of negotiability which should have
served as an expression of consent that the instrument may be transferred
by negotiation." 15

A reading of the subject CBCI indicates that the same is payable to

FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus,
discounting the petitioner’s submission that the same is a negotiable
instrument, and that it is a holder in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a

credit instrument is its freedom to circulate as a substitute for money.
Hence, freedom of negotiability is the touchstone relating to the protection
of holders in due course, and the freedom of negotiability is the foundation
for the protection which the law throws around a holder in due course (11
Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a
certificate of indebtedness as it merely acknowledges to pay a sum of money
to a specified person or entity for a period of time.

As held in Caltex (Philippines), Inc. v. Court of Appeals

16 :jgc:chanrobles.com.ph

"The accepted rule is that the negotiability or non-negotiability of an

instrument is determined from the writing, that is, from the face of the
instrument itself. In the construction of a bill or note, the intention of the
parties is to control, if it can be legally ascertained. While the writing may be
read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may
have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said."cralaw virtua1aw
library

Thus, the transfer of the instrument from Philfinance to TRB was merely an
assignment, and is not governed by the negotiable instruments law. The
pertinent question then is, was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name with the
Central Bank?

The following are the appellate court’s pronouncements on the

matter:jgc:chanrobles.com.ph

"Clearly shown in the record is the fact that Philfinance’s title over CBCI No.
D891 is defective since it acquired the instrument from Filriters fictitiously.
Although the deed of assignment stated that the transfer was for ‘value
received’, there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation. Thus, for lack of any consideration, the assignment made is a
complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did
not conform to Central Bank Circular No. 769, series of 1980, otherwise
known as the ‘Rules and Regulations Governing Central Bank Certificates of
Indebtedness’, under which the note was issued. Published in the Official
Gazette on November 19, 1980, Section 3 thereof provides that ‘any
assignment of registered certificates shall not be valid unless made . . . by
the registered owner thereof in person or by his representative duly
authorized in writing.’

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For
lack of such authority, the assignment did not therefore bind Filriters and
violated at the same time Central Bank Circular No. 769 which has the force
and effect of a law, resulting in the nullity of the transfer (People v. Que Po
Lay, 94 Phil. 640; 3M Philippines, Inc. v. Commissioner of Internal Revenue,
165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it
could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank."cralaw virtua1aw library

Petitioner now argues that the transfer of the subject CBCI to TRB must be
upheld, as the respondent Filriters and Philfinance, though separate
corporate entities on paper, have used their corporate fiction to defraud TRB
into purchasing the subject CBCI, which purchase now is refused registration
by the Central Bank.

Says the petitioner:jgc:chanrobles.com.ph

"Since Philfinance owns about 90% of Filriters and the two companies have
the same corporate officers, if the principle of piercing the veil of corporate
entity were to be applied in this case, then TRB’s payment to Philfinance for
the CBCI purchased by it could just as well be considered a payment to
Filriters, the registered owner of the CBCI as to bar the latter from claiming,
as it has, that it never received any payment for that CBCI sold and that said
CBCI was sold without its authority.

x       x       x

We respectfully submit that, considering that the Court of Appeals has held
that the CBCI was merely borrowed by Philfinance from Filriters, a sister
corporation, to guarantee its (Philfinance’s) financing operations, if it were to
be consistent therewith, on the issue raised by TRB that there was a piercing
a veil of corporate entity, the Court of Appeals should have ruled that such
veil of corporate entity was, in fact, pierced, and the payment by TRB to
Philfinance should be construed as payment to Filriters." 17

We disagree with the Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity,
as this is merely an equitable remedy, and may be awarded only in cases
when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime or where a corporation is a mere alter
ego or business conduit of a person. 18

Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to
such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests
of innocent third persons dealing with the corporate entity which the law
aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains,

despite the petitioners insistence on the contrary. For one, other than the
allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead
the court under the circumstances to disregard their corporate
personalities.chanroblesvirtuallawlibrary

Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in the
absence of such grounds, the general rule must be upheld. The fact that
Philfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters. In Liddel & Co., Inc.
v. Collector of Internal Revenue, 20 the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself a sufficient reason for disregarding the fiction
of separate corporate personalities.

In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from
Philfinance.

On its face, the subject certificates states that it is registered in the name of
Filriters. This should have put the petitioner on notice, and prompted it to
inquire from Filriters as to Philfinance’s title over the same or its authority to
assign the certificate. As it is, there is no showing to the effect that
petitioner had any dealings whatsoever with Filriters, nor did it make
inquiries as to the ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER.
Thus:jgc:chanrobles.com.ph

"TRANSFER: This Certificate shall pass by delivery unless it is registered in

the owner’s name at any office of the Bank or any agency duly authorized by
the Bank, and such registration is noted hereon. After such registration no
transfer thereof shall be valid unless made at said office (where the
Certificate has been registered) by the registered owner hereof, in person,
or by his attorney, duly authorized in writing and similarly noted hereon and
upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered owner thereof.
The bank or any agency duly authorized by the Bank may deem and treat
the bearer of this Certificate, or if this Certificate is registered as herein
authorized, the person in whose name the same is registered as the absolute
owner of this Certificate, for the purpose of receiving payment hereof, or on
account hereof, and for all other purpose whether or not this Certificate shall
be overdue."cralaw virtua1aw library

This is notice to petitioner to secure from Filriters a written authorization for

the transfer or to require Philfinance to submit such an authorization from
Filriters.

Petitioner knew that Philfinance is not the registered owner of CBCI No.
D891. The fact that a non-owner was disposing of the registered CBCI
owned by another entity was a good reason for petitioner to verify or inquire
as to the title of Philfinance to dispose of the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980
21 , known as the Rules and Regulations Governing Central Bank Certificates
of Indebtedness, Section 3, Article V of which provides
that:jgc:chanrobles.com.ph

"SEC. 3. Assignment of Registered Certificates. — Assignment of registered

certificates shall not be valid unless made at the office where the same have
been issued and registered or at the Securities Servicing Department,
Central Bank of the Philippines, and by the registered owner thereof, in
person or by his representative, duly authorized in writing. For this purpose,
the transferee may be designated as the representative of the registered
owner."cralaw virtua1aw library
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank
Circular 769, and its requirements. An entity which deals with corporate
agents within circumstances showing that the agents are acting in excess of
corporate authority, may not hold the corporation liable. 22 This is only fair,
as everyone must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and
good faith. 23

The transfer made by Filriters to Philfinance did not conform to the said
Central Bank Circular, which for all intents, is considered part of the law. As
found by the courts a quo, Alfredo O. Banaria, who had signed the deed of
assignment from Filriters to Philfinance, purportedly for and in favor of
Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no
consideration for the same. This is fatal to the petitioner’s cause, for then,
Philfinance had no title over the subject certificate to convey to Traders
Royal Bank. Nemo potest nisi quod de jure potest — no man can do anything
except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its
legal and capital reserves, which are required by law 24 to be maintained at
a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge
of respondent Filriters, in his testimony given before the court on May 30,
1986.

"Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI
No. D891 in the face value of P500,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was the CBCI of the company sought to be examined by the
Insurance Commission sometime in early 1981 and this CBCI No. 891 was
among the CBCI’s that were found to be missing.

Q Let me take you back further before 1981. Did you have the knowledge of
this CBCI No. 891 before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance

Commission as legal reserve of the company.
Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal
reserves under Section 213 of the Insurance Code equivalent to 40 percent
of the premiums receipt and further, the Insurance Commission requires this
reserve to be invested preferably in government securities or government
bonds. This is how this CBCI came to be purchased by the company."cralaw
virtua1aw library

It cannot, therefore, be taken out of the said fund, without violating the
requirements of the law. Thus, the unauthorized use or distribution of the
same by a corporate officer of Filriters cannot bind the said corporation, not
without the approval of its Board of Directors, and the maintenance of the
required reserve fund.

Consequently, the title of Filriters over the subject certificate of indebtedness

must be upheld over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from

dated January 29, 1990 is hereby AFFIRMED.

SO ORDERED.
CASE #118 Atrium Management Corp vs CA 323 SCRA 23 (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 #119 BPI vs Roxas 536 SCRA 168 (2007)

[G.R. NO. 157833 : October 15, 2007]

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. GREGORIO C.

ROXAS, Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari assailing the
Decision1 of the Court of Appeals (Fourth Division) dated February 13, 2003
in CA-G.R. CV No. 67980.

The facts of the case, as found by the trial court and affirmed by the Court of
Appeals, are:

Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he

delivered stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As
payment therefor, spouses Cawili issued a personal check in the amount
of P348,805.50. However, when respondent tried to encash the check, it was
dishonored by the drawee bank. Spouses Cawili then assured him that they
would replace the bounced check with a cashier's check from the Bank of the
Philippine Islands (BPI), petitioner.

On March 31, 1993, respondent and Rodrigo Cawili went to petitioner's

branch at Shaw Boulevard, Mandaluyong City where Elma Capistrano, the
branch manager, personally attended to them. Upon Elma's instructions, Lita
Sagun, the bank teller, prepared BPI Cashier's Check No. 14428 in the
amount of P348,805.50, drawn against the account of Marissa Cawili,
payable to respondent. Rodrigo then handed the check to respondent in the
presence of Elma.

The following day, April 1, 1993, respondent returned to petitioner's branch

at Shaw Boulevard to encash the cashier's check but it was dishonored. Elma
informed him that Marissa's account was closed on that date.

Despite respondent's insistence, the bank officers refused to encash the

check and tried to retrieve it from respondent. He then called his lawyer who
advised him to deposit the check in his (respondent's) account at Citytrust,
Ortigas Avenue. However, the check was dishonored on the ground "Account
Closed."

On September 23, 1993, respondent filed with the Regional Trial Court,
Branch 263, Pasig City a complaint for sum of money against petitioner,
docketed as Civil Case No. 63663. Respondent prayed that petitioner be
ordered to pay the amount of the check, damages and cost of the suit.

In its answer, petitioner specifically denied the allegations in the complaint,

claiming that it issued the check by mistake in good faith; that its dishonor
was due to lack of consideration; and that respondent's remedy was to sue
Rodrigo Cawili who purchased the check. As a counterclaim, petitioner
prayed that respondent be ordered to pay attorney's fees and expenses of
litigation.

Petitioner filed a third-party complaint against spouses Cawili. They were

later declared in default for their failure to file their answer.

After trial, the RTC rendered a Decision, the dispositive portion of which
reads:

WHEREFORE, in view of the foregoing premises, this Court hereby renders

judgment in favor of herein plaintiff and orders the defendant, Bank of the
Philippine Islands, to pay Gerardo C. Roxas:

1) The sum of P348,805.50, the face value of the cashier's check, with legal
interest thereon computed from April 1, 1993 until the amount is fully paid;

2) The sum of P50,000.00 for moral damages;

3) The sum of P50,000.00 as exemplary damages to serve as an example

for the public good;

4) The sum of P25,000.00 for and as attorney's fees; and the

5) Costs of suit.

As to the third-party complaint, third-party defendants Spouses Rodrigo and

Marissa Cawili are hereby ordered to indemnify defendant Bank of the
Philippine Islands such amount(s) adjudged and actually paid by it to herein
plaintiff Gregorio C. Roxas, including the costs of suit.

SO ORDERED.
On appeal, the Court of Appeals, in its Decision, affirmed the trial court's
judgment.

Hence, this petition.

Petitioner ascribes to the Court of Appeals the following errors: (1) in finding
that respondent is a holder in due course; and (2) in holding that it
(petitioner) is liable to respondent for the amount of the cashier's check.

Section 52 of the Negotiable Instruments Law provides:

SEC. 52. What constitutes a holder in due course. - 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 person negotiating it.

As a general rule, under the above provision, every holder is

presumed prima facie to be a holder in due course. One who claims
otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking. In this case,
petitioner contends that the element of "value" is not present, therefore,
respondent could not be a holder in due course.

Petitioner's contention lacks merit. Section 25 of the same law states:

SEC. 25. Value, what constitutes. - Value is any consideration sufficient to

support a simple contract. An antecedent or pre-existing debt constitutes
value; and is deemed as such whether the instrument is payable on demand
or at a future time.

In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and

South Sea Surety & Insurance Co., Inc.,2 this Court ruled that value "in
general terms may be some right, interest, profit or benefit to the party who
makes the contract or some forbearance, detriment, loan, responsibility, etc.
on the other side." Here, there is no dispute that respondent received
Rodrigo Cawili's cashier's check as payment for the former's vegetable oil.
The fact that it was Rodrigo who purchased the cashier's check from
petitioner will not affect respondent's status as a holder for value since the
check was delivered to him as payment for the vegetable oil he sold to
spouses Cawili. Verily, the Court of Appeals did not err in concluding that
respondent is a holder in due course of the cashier's check.

Furthermore, it bears emphasis that the disputed check is a cashier's check.

In International Corporate Bank v. Spouses Gueco,3 this Court held that a
cashier's check is really the bank's own check and may be treated as a
promissory note with the bank as the maker. The check becomes
the primary obligation of the bank which issues it and constitutes a
written promise to pay upon demand. In New Pacific Timber & Supply
Co. Inc. v. Señeris,4 this Court took judicial notice of the "well-known and
accepted practice in the business sector that a cashier's check is deemed as
cash." This is because the mere issuance of a cashier's check is
considered acceptance thereof.

In view of the above pronouncements, petitioner bank became liable to

respondent from the moment it issued the cashier's check. Having been
accepted by respondent, subject to no condition whatsoever, petitioner
should have paid the same upon presentment by the
former.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of

Appeals (Fourth Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs
against petitioner.

SO ORDERED.
CASE #120 Hi-Cement Corp vs Insular Bank of Asia and America 534 SCRA 269
(2007)

[G.R. NO. 132403 : September 28, 2007]

HI-CEMENT CORPORATION, Petitioner, v. INSULAR BANK OF ASIA

AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and now, EQUITABLE-PCI BANK) Respondent.

[G.R. NO. 132419]

E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA
TAN, Petitioners, v. INSULAR BANK OF ASIA AND AMERICA (later
PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now,
EQUITABLE-PCI BANK), Respondent.

DECISION

CORONA, J.:

At bar are consolidated petitions assailing the decision of the Court of

Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600
entitled Insular Bank of Asia and America [now Philippine Commercial
International Bank/(PCIB)] v. E.T. Henry & Co., et al.1

The antecedent facts follow.

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling
stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in
the business of processing and distributing bunker fuel. 2 Among E.T. Henry's
customers were petitioner Hi-Cement Corporation (Hi-Cement), 3 Riverside
Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc.
(Kanebo). For their purchases, these corporations issued postdated checks
to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB
and now Equitable PCI-Bank) granted E.T. Henry a credit facility known as
"Purchase of Short Term Receivables." Through this arrangement, E.T.
Henry was able to encash, with pre-deducted interest, the postdated checks
of its clients. In other words, E.T. Henry and respondent were into "re-
discounting" of checks.
For every transaction, respondent required E.T. Henry to execute a
promissory note and a deed of assignment bearing the conformity of the
client to the re-discounting.4

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks
(with deeds of assignment) with respondent. However, in February 1981, 20
checks5 of Hi-Cement (which were crossed and which bore the restriction
"deposit to payee's account only”) were dishonored. So were the checks
of Riverside and Kanebo.6

Respondent filed a complaint for sum of money7 in the then Court of First
Instance of Rizal8 against E.T. Henry, the spouses Tan, Hi-Cement (including
its general manager9 and its treasurer 10 as signatories of the postdated
crossed checks), Riverside and Kanebo.11

In its complaint, respondent claimed that, due to the dishonor of the checks,
it suffered actual damages equivalent to their value, exclusive of accrued
and accruing interests, charges and penalties such as attorney's fees and
expenses of litigation, as follows:

1. Riverside Mills Corporation P     115,312.50

2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00
3. Hi-Cement Corporation 10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan
other loan obligations (amounting to P1,661,266.51 and P4,900,805,
respectively) as deficiencies resulting from the foreclosure of the real estate
mortgage on E.T. Henry's property in Sucat, Parañaque. 12

Hi-Cement filed its answer alleging, among others, that: (1) its general
manager and treasurer were not authorized to issue the postdated crossed
checks in E.T. Henry's favor; (2) the deed of assignment purportedly
executed by Hi-Cement assigning them to respondent only bore the
conformity of its treasurer and (3) respondent was not a holder in due
course as it should not have discounted them for being "crossed
checks.”13

In their answer (with counterclaim against respondent and cross-claims

against Hi-Cement, Riverside and Kanebo),14 E.T. Henry and the spouses Tan
claimed that: (1) the drawers of the postdated checks failed to honor them
due to the adverse economic conditions prevailing at the time respondent
presented them for payment; (2) the extra-judicial sale of the mortgaged
Sucat property was void due to gross inadequacy of the bid price15 and (3)
their loans were subjected to a usurious interest rate of 21% p.a.

For their part, Riverside and Kanebo sought the dismissal of the case against
them, arguing that they were not privy to the re-discounting arrangement
between respondent and E.T. Henry.

On June 30, 1989, the trial court rendered a decision which read:
WHEREFORE, in view of the foregoing, and as a consequence of the
preponderance of evidence, this Court hereby renders judgment in favor of
[respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside
and Kanebo], to wit:

1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo],

jointly and severally, to pay [respondent] damages represented by the
face value of the postdated checks as follows:

(a) Riverside Mills Corporation P       115,312.50

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00
(c) Hi-Cement Corporation 10,000,000.00

plus interests, services, charges and penalties until fully paid;

2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the

sum of P4,900,805.00 plus accrued interests, charges, penalties until
fully paid;

3. Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of
P1,661,266.51 plus interests, charges, and penalties until fully paid;

4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo]

to pay [respondent] [a]ttorney's fees and expenses of litigation in the
amount of P200,000.00 and pay the cost of this suit.16

SO ORDERED.17
Only petitioners appealed the decision to the CA which affirmed it in toto.
Hence, these petitions.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated
crossed checks because (1) it did not authorize their issuance; (2)
respondent was not a holder in due course and (3) there was no basis for
the lower court's holding that it was solidarily liable for the face value of
Riverside's and Kanebo's checks.18

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan
essentially contend that the lower courts erred in: (1) applying the doctrine
of piercing the veil of the corporate entity to make the spouses Tan solidarily
liable with E.T. Henry; (2) not ruling on their cross-claims and
counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat
property as void.19

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is

limited to review of errors of law.20 The factual findings of the trial court,
specially when affirmed by the appellate court, are generally binding on us
unless there was a misapprehension of facts or when the inference drawn
from the facts was manifestly mistaken.21 This case falls within the
exception.

AUTHORITY OF HI-CEMENT'S
GENERAL MANAGER AND
TREASURER TO ISSUE THE
POSTDATED CROSSED CHECKS

Both the trial court and the CA concluded that Hi-Cement authorized its
general manager and treasurer to issue the subject postdated crossed
checks. They both held that Hi-Cement was already estopped from denying
such authority since it never objected to the signatories' issuance of all
previous checks to E.T. Henry which the latter, in turn, was able to re-
discount with respondent.

We agree with the lower courts that both the general manager and treasurer
of Hi-Cement were authorized to issue the subjects checks. However,
notwithstanding such fact, respondent could not be considered a holder in
due course.

RESPONDENT BANK NOT A

HOLDER IN DUE COURSE

The Negotiable Instruments Law (NIL), specifically Section 191, 22 provides:

"Holder" means the payee or indorsee of a bill or a note, or the person who
is in possession of it, or the bearer thereof.
On the other hand, Section 5223 states:
A holder in due course is a holder who has taken the instrument under the
following conditions: (a) it is complete and regular on its face; (b) he
became the holder of it before it was overdue, and without notice that it has
previously been dishonored, if such was the fact; (c) he took it in good faith
and for value and (d) 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.
Absent any of the elements set forth in Section 52, the holder is not a holder
in due course. In the case at bar, the last two requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,24 we held that the
holder of crossed checks was not a holder in due course. There, the drawer
(BCCF) issued postdated crossed checks in favor of one of its suppliers
(George King) who promised to deliver bales of tobacco leaf but failed.
George King, however, sold the checks on discount to State Investment
House, Inc. (SIHI) and upon the latter's presentment to the drawee bank,
BCCF ordered a "stop payment." Thereafter, SIHI filed a collection case
against it. In ruling that SIHI was not a holder in due course, we explained:
In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check should have the following effects: (a)
the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once - to one who has an account with a bank
[and]; (c) the act of crossing the checks serves as warning to the holder that
the check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose, otherwise, he is not a
holder in due course.
Likewise, in Atrium Management Corporation v. CA,25 where E.T. Henry, Hi-
Cement and its treasurer26 again engaged in a legal scuffle over four
postdated crossed checks, we held that Atrium (with which the checks were
re-discounted) was not a holder in due course. In that case, E.T. Henry was
the payee of four Hi-Cement postdated checks which it endorsed to Atrium.
When the latter presented the crossed checks to the drawee bank, Hi-
Cement stopped payment.27 We held that Atrium was not a holder in due
course:
In the instant case, the checks were crossed and specifically indorsed for
deposit to payee's account only. From the beginning, Atrium was aware of
the fact that the checks were all for deposit only to payee's account,
meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder
in due course.
In the case at bar, respondent's claim that it acted in good faith when it
accepted and discounted Hi-Cement's postdated crossed checks from E.T.
Henry (as payee therein) fails to convince us. Good faith becomes
inconsequential amidst proof of respondent's grossly negligent conduct in
dealing with the subject checks.

Respondent was all too aware that subject checks were crossed and bore
restrictions that they were for deposit to payee's account only; hence, they
could not be further negotiated to it. The records likewise reveal that
respondent completely disregarded a telling sign of irregularity in the re-
discounting of the checks when the general manager did not acquiesce to it
as only the treasurer's signature appeared on the deed of assignment. As a
banking institution, it behooved respondent to act with extraordinary
diligence in every transaction.28 Its business is impressed with public
interest, thus, it was not expected to be careless and negligent, specially so
where the checks it dealt with were crossed. In Bataan Cigar and Cigarette
Factory, Inc.,29 we ruled:
It is then settled that crossing of checks should put the holder on
inquiry and upon him devolves the duty to ascertain the indorser's
title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting
to legal absence of good faith…and as such[,] the consensus of
authority is to the effect that the holder of the check is not a holder in due
course. (emphasis supplied)
The next query is whether Hi-Cement can still be made liable for the checks.
We answer in the negative.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate

Court,30 SIHI re-discounted crossed checks and was declared not a holder in
due course. As a result, when it presented the checks for deposit, we
deemed that its presentment to the drawee bank was not proper, hence, the
liability did not attach to the drawer of the checks. We ruled that:
The three subject checks in the case at bar had been crossed…which could
only mean that the drawer had intended the same for deposit only by the
rightful person, i.e., the payee named therein. Apparently, it was not the
payee who presented the same for payment and therefore, there was no
proper presentment, and the liability did not attach to the drawer. Thus, in
the absence of due presentment, the drawer did not become liable. 31
Our resolution in the foregoing case was reiterated in Atrium Management
Corporation v. CA,32 where we affirmed the CA ruling that the drawer of the
postdated crossed checks was not liable to the holder who was deemed not a
holder in due course.

We note, however, that in the two aforementioned cases, we made it clear

that the NIL does not absolutely bar a holder who is not a holder in due
course from recovering on the checks. In both, we ruled that it may recover
from the party who indorsed/encashed the checks "if the latter has no valid
excuse for refusing payment." Here, there was no doubt that it was E.T.
Henry that re-discounted Hi-Cement's checks and received their value from
respondent. Since E.T. Henry had no justification to refuse payment, it
should pay respondent.

SOLIDARY LIABILITY OF HI-

CEMENT FOR THE FACE VALUE
OF RIVERSIDE'S AND KANEBO'S
CHECKS

Hi-Cement could not also be made solidarily liable with Riverside and Kanebo
for the face value of their checks. Hi-Cement had nothing to do with the
checks of these two corporations. However, although the language of the
trial court decision's dispositive portion seemed confusing, a reading of the
decision in its entirety reveals that the fallo was for each corporation to be
liable solidarily with E.T. Henry and/or the spouses Tan for the respective
values of their checks.

Furthermore, solidary liability cannot be presumed but must be established

by law or contract. Neither is present here. Articles 1207 and 1208 of the
Civil Code provide:
Art. 1207. The concurrence of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the
presentation. There is solidary liability only when the obligation
expressly so states, or when the obligation requires
solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to
which the preceding article refers to the contrary does not appear, the credit
or debt shall be presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered distinct from
one another, subject to the Rules governing the multiplicity of suits.
At any rate, the issue has become moot in view of our ruling that Hi-Cement
is not liable for the checks.

(B) G.R. No. 132419

DOCTRINE OF PIERCING THE

VEIL OF CORPORATE ENTITY

In their petition, E.T. Henry and the spouses Tan argue that the lower courts
erred in applying the "piercing the veil of corporate entity" doctrine to their
case. They claim that both the trial and appellate courts failed to cite the
reasons why the doctrine was relevant to them.

We agree with petitioners E.T. Henry and the spouses Tan in this respect.

If any general rule can be laid down, it is that the corporation will be looked
upon as a legal entity until sufficient reasons to the contrary appear. 33 It is
only when the fiction or notion of legal entity is used to defeat public
convenience, justify wrong, perpetuate fraud or defend crime that the law
will shred the corporate legal veil and regard it as a mere association of
persons.34 This is referred to as the doctrine of piercing the veil of corporate
entity.

After a careful study of the records, we hold that E.T. Henry's corporate veil
should not have been pierced at all.

First, the trial court failed to provide a clear ground why the doctrine was
used. It merely stated that it agreed with respondent's arguments but did
not explain why the doctrine was relevant to petitioner E.T. Henry's and the
spouses Tan's case. On the other hand, the CA held:
…It appears that spouses Tan are controlling stockholders of E.T. Henry &
Co., Inc. as well as its authorized signatories. The business of the
corporation was conducted solely for the benefit of the spouses Tan who
colluded with [Hi-Cement] in defrauding [respondent]. As the lower court
cited…[I]t is a settled law in this and other jurisdictions that when the
corporation is a mere alter ego of a person, same being true when the
corporation is controlled, and its affairs are so conducted to make it merely
an instrumentality, agency or conduit of another. 35
Similarly, the CA left a gaping hole by failing to provide the basis for its
ruling that E.T. Henry and the spouses Tan defrauded respondent. It did not
also state what act constituted the fraud. Fraud is an allegation of fact that
demands clear and convincing evidence. 36 It is never presumed.37

Second, the mere ownership by a single stockholder or by another

corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate
personality.38 For this ground to stand in this case, there must be proof that
the spouses Tan: (1) had control or complete domination of E.T. Henry's
finances and that the latter had no separate existence with respect to the act
complained of; (2) used such control to commit fraud or wrong and (3) the
control was the proximate cause of the loss or injury complained of by
respondent.39 The records of this case do not show that these elements were
present.

INADEQUACY OF THE BID PRICE

TO ANNUL FORECLOSURE
PROCEEDING

With respect to the allegation that foreclosure was void due to the
inadequacy of the bid price, we agree with the CA that the "mere inadequacy
of the price obtained at the [s]heriff's sale, unless shocking to the
conscience, (was) not sufficient to set aside the sale if there (was) no
showing that, in the event of a regular sale, a better price (could) be
obtained.”40

Furthermore, in the absence of any irregularity in the foreclosure proceeding

or proof that it was carried out without strict observance of the procedure,
we will continue to assume its regularity and strike down any attempt to
vitiate it. In this case, E.T. Henry and the spouses Tan made no mention of
any anomaly to support the nullification of the foreclosure sale but merely
alleged a disparity in the bid price and the property's fair market value.

COUNTERCLAIMS AND CROSS-CLAIMS

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the
alleged failure of the lower court to pass upon their counterclaim against
respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They
ask us now to hold these parties liable on the basis of said claims. We
decline to do so.

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside
and Kanebo as parties in the case at bar. Under Rule 3 of the Rules of Court,
every action, including a counterclaim (or a cross-claim), must be
prosecuted or defended in the name of the real party in interest. 41 The term
"defendant" may refer to the original defending party, the defendant in a
counterclaim, the cross-defendant or the third (fourth, etc.) party
defendant.42 Hence, for this technical lapse, we are constrained not to pass
on E.T. Henry's and the spouses Tan's cross-claims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against
respondent on the basis of an alleged void foreclosure proceeding on E.T.
Henry's Sucat property due to an inadequate bid price. It is no longer
necessary to delve into this matter in view of our finding that the mere
inadequacy of the bid price on the property did not automatically render the
foreclosure sale irregular or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower
courts' ruling on E.T. Henry's and the spouses Tan's solidary liability with
Riverside and Kanebo vis-a-vis their checks.43 To be consistent, however,
with our dictum on the separate personality of E.T. Henry and the spouses
Tan, the solidarity liability arising from the checks of Riverside and Kanebo
shall only be enforced against E.T. Henry.

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV

No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly,
petitioner Hi-Cement Corporation is discharged from any liability. Only
petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of
Asia and America (later Philippine Commercial International Bank and now
Equitable PCI-Bank) the following:

1. P10,000,000 representing the value of Hi-Cement's checks it received

from respondent plus accrued interests, charges and penalties until
fully paid, and

2. the loans for P1,661,266.51 and P4,900,805 plus accrued interests,

charges and penalties until fully paid.

Let the records of this case be remanded to the trial court for the proper
computation of E.T. Henry's, Riverside's and Kanebo's liabilities for the
checks, attorney's fees and costs of litigation.

Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan.

SO ORDERED.
CASE #121 Republic vs Equitable Bank 10 SCRA 8 (1964)

G.R. No. L-15894 January 30, 1964

REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellant, vs. EQUITABLE

BANKING CORPORATION, Defendant-Appellee.

-----------------------------

G.R. No. L-15894 January 30, 1964

REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellant, vs. THE BANK OF

THE PHILIPPINE ISLANDS, defendant-appellee,
CORPORATION DE LOS P. DOMINICOS DE FILIPINAS, third-party-
defendant-appellee.

Office of the Solicitor General for plaintiff-appellant.

Claudio Teehankee and Aranda and Aviado for defendant-appellee.
Ignacio B. Alcuaz for third-party-defendant-appellee.

CONCEPCION, J.:chanrobles virtual law library

Appeal from a decision of the Court of First Instance of Manila dismissing the
complaints and the third-party complaints in the above entitled cases,
without special pronouncement as to costs. The cases are before us, only
questions of law being raised in the appeal, apart from the fact that the
amount involved in G.R. No. L-16895 exceeds P200,000, and that the
evidence introduced therein is the same evidence in G.R. No. L-
15894.chanroblesvirtualawlibrarychanrobles virtual law library

The Republic of the Philippines, hereinafter referred to as the Government,

seeks to recover: (1) from the Equitable Banking Corporation - hereinafter
referred to as the Equitable Bank - in case G.R. No. L-15894, the sum of
P17,100, representing the aggregate value of four (4) treasury warrants -
hereinafter referred to as warrants - paid to said bank by the Treasurer of
the Philippines - hereinafter referred to as the Treasurer - thru the Clearing
Office of the Central Bank of the Philippines; and (2) from the Bank of the
Philippine Islands - hereinafter referred to as the PI Bank - in G.R. No. L-
15895, the total sum of P342,767.63, representing the aggregate value of
twenty-four (24) warrants similarly paid by the Treasurer to the PI Bank.
These claims for refund are based upon a common ground - although said
twenty-eight (28) warrants were executed on genuine government forms,
the signature thereon of the drawing office and that of the representative of
the Auditor General in that office are
forged.chanroblesvirtualawlibrarychanrobles virtual law library

It is not disputed that from July to December 1952, the Corporacion de los
Padres Dominicos - hereinafter referred to as the Corporacion - had acquired
the twenty-four (24) treasury warrants involved in case G.R. No. L-15895 by
accommodating its former trusted employee - one Jacinto Carranza - who
asked the Corporacion to cash the warrants, alleging that it was difficult to
do so directly with the Government and that his wife expected a sort of
commission for the encashment; that the Corporacion acceded to Carranza's
request, provided that the warrants would first be deposited with PI Bank,
and that actual payment of the value of the warrants would be made only
after the same had been duly accepted and cleared by the Treasurer and the
proceeds thereof duly credited to the account of the Corporacion in the PI
Bank; that the warrants were, accordingly, deposited by the Corporacion
with said bank, which accepted them "subject to collection only"; that when
the warrants were deposited with the PI Bank, each bore the indorsement of
the respective payees and that of the Corporation; that, subsequently, the PI
Bank presented the warrants for payment to the drawee thereof - the
Government - thru the Clearing Office of the Central Bank - hereinafter
referred to as the Clearing Office; that after being cleared, the warrants
were paid by the Treasurer as follows:

T/W Date Date

Payee Amount
No. ISSUED Cleared
Marcela
2132655 Antonio 6-18-52 P8,722.37 7- 1-52
Domingo
Gregoria
2132650 6-23-52 14,605.91 7- 8-52
Santos Castro
Josefa Castro
2468943 10-34-52 14,250.15 11-14-52
de Villanueva
Anacleta
2159698 Santos de 10-18-52 15,800.00 12- 5-52
Angeles
Virginia Salem
2159668 11-13-52 16,900.00 12-10-52
de Marcelino
2159692 Brigida San 9-15-52 13,900.00 11- 3-52
 Luis de Santos
Silva Sanches
2159673 10-14-52 14,810.00 11-11-52
de Apolinario
Francisca
2159667 Gomez de 10-12-52 16,200.75 11-11-52
Galvez
Gaudencia Ruiz
2451448 7- 1-52 12,702.76 7-15-52
Alvarez
Anastacia Capili
2132653 6-25-52 8,794.21 7-15-52
Trinidad
Monica
2468979 Anselmo de 7- 1-52 13,870.24 9- 852
Pascua
Rosalia Manalo
2468944 7-10-52 14,701.76 9- 8-52
de Nazario
Luisa Santos de
2159682 11-18-52 16,400.50 12- 8-52
Arellano
Leticia Moreno
2159669 11-16-52 15,880.75 12- 8-52
de Ocampo
Juana Castro
2159670 10-12-52 16,200.00 12-15-52
de Jesus
Antonia Sison
2159671 9- 9-52 12,900.75 11-10-52
de Mauricio
Rosario Pilapil
2159660 9- 4-52 13,950.39 9-23-52
de Rodrigo
Mauricia Sison
2169658 9-12-52 15,200.76 9-23-52
de Angeles
Lucia Angeles
2159686 9-12-52 12,890.74 10-27-52
de Natalio
Nicolasa
2468977 Alvares 7- 2-52 15,340.76 7-25-52
Jaranilla
Maria Antonio
2468978 7- 2-52 14,722.31 7-25-52
de los Reyes
2159659 Je Jastive de 8-16-52 14,820.00 8-27-52
 Fernandez
Gregoria
2159656 8-15-52 12,900.75 8-27-52
Pascual de Lira
Luisa Dancel de
2159666 10-11-52 16,300.75 12- 2-52
Mendoza

and that, accordingly, the PI Bank credited the proceeds of said warrants to
the Corporation, which, in turn, withdrew said proceeds by means of its own
checks and eventually paid the corresponding amounts to Jacinto Carranza.
On December 23, 1952, the Treasurer returned three (3) of said warrants
(Nos. 2159659, 2159656, and 2159666) to the Central Bank, and
demanded, on the ground that they had been forged, that the value thereof
be charged against the accounts of the PI Bank in the Clearing Office and
credited back to the demand deposit of the Bureau of the Treasury,
hereinafter referred to as the Treasury. Four (4) days later, two (2) more
warrants (Nos. 2468977 and 2468978), and, finally, on January 16, 1953,
the remaining nineteen (19) warrants were returned by the Treasury to the
Central Bank for the same reason and with the same demand. The Central
Bank in turn referred said warrants, together with the letters of demand of
the Treasurer, for appropriate action to the PI Bank, which opposed the
return of the warrants or to have the value thereof charged against its
account in the Clearing Office and requested the Central Bank to return the
warrants to the Treasurer.chanroblesvirtualawlibrarychanrobles virtual law
library

The records of G.R. No. L-15894 show that the four (4) warrants involved
therein were deposited with the Equitable Bank by persons known thereto as
its depositors or customers, namely, Robert Wong, Lu Chill Kau and Chung
Ching; that, in due course, the Equitable Bank cleared said warrants, thru
the Clearing Office, then collected the corresponding amounts from the
Treasurer and thereafter credited said amounts to the accounts of the
respective depositors; that on January 15, 1958, the Treasurer notified the
Equitable Bank of the alleged defect of said warrants and demanded
reimbursement of the amounts thereof; and that this demand was rejected
by the Equitable Bank. Hence, the institution of G.R. No. L-15895 (Civil Case
No. 19599 of the Court of First Instance of Manila), against the PI Bank, for
the recovery of P342,767.63, and of G.R. No. L-15894 (Civil Case No. 19600
of the Court of First Instance of Manila), against the Equitable Bank for, the
recovery of P17,100.00.chanroblesvirtualawlibrarychanrobles virtual law
library
Upon leave of the lower court, the PI Bank filed a third-party complaint
against the Corporacion. In G.R. No. L-15895, and the Equitable Bank filed a
similar complaint against, Robert Wong, Lu Chill Kau and Chung Ching in
G.R. No. L-15894, for whatever reimbursements the PI Bank and the
Equitable Bank may respectively be sentenced to make to the Government.
By agreement of the parties, the two (2) cases were jointly heard, and after
appropriate proceedings, the lower court rendered the decision adverted to
above.chanroblesvirtualawlibrarychanrobles virtual law library

The clearing of the aforementioned twenty-eight (28) warrants thru the

Clearing Office was made pursuant to the "24-hour clearing house rule",
which had been adopted by the Central Bank in a conference with
representatives and officials of the different banking institutions in the
Philippines. The rule is embodied in Section 4, subsection (c) of Circular No.
9 of the Central Bank, dated February 17, 1949 (Exhibit B), as amended by
the letter of the Governor of the Central Bank, dated June 4, 1949 (Exhibit
D), reading:

Items which should be returned for any reason whatsoever shall be returned
directly to the bank, institution or entity from which the item was received.
For this purpose, the Receipt for Returned Checks (Cash Form No. 9) should
be used. The original and duplicate copies of said Receipt shall be given to
the bank, institution or entity which returned the items and the triplicate
copy should be retained by the bank, institution or entity whose demand is
being returned. At the following clearing, the original of the Receipt for
returned Checks shall be presented through the Clearing Office as a demand
against the bank, institution or entity whose item has been returned.
Nothing in this section shall prevent the resumed items from being settled
by direct reimbursement to the bank, institution or entity returning the
items. All items cleared at 11:00 o'clock a.m. shall be returned not later
than 2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock
p.m. shall be returned not later than 8:30 a.m. of the following business
day, except for items cleared on Saturday which may be returned not later
than 3:30 a.m. of the following day. (Emphasis supplied.)

The Government maintains that it is not bound by this rule because: (1) the
Treasury is not a bank; and (2) the Treasurer has objected to the application
of said rule to his office. This contention, however, untenable for,
admittedly, the Treasury is a member of the aforementioned Clearing Office
and Exh. A clearly shows that the former "has agreed to clear its clearable
items through" the latter "subject to the rules and regulations of the Central
Bank." Besides, the above quoted rule applies not only to banks, but, also,
to the institutions and entities therein alluded to. Then too, the opposition of
the Treasurer to the "24-hour clearing house rule" is not sufficient to exempt
the Treasury from the operation thereof. Upon the other hand, said
opposition is predicated upon the allegation that it is physically impossible
for the Treasury to check and verify the genuineness of treasury warrants
within twenty-four (24) hours, because, during 1952 said office used to
receive daily from 3,000 to 4,000 warrants which, considering its very
limited personnel at that time, would have required one (1) or two (2)
months clear. This claim is belied, however, by the statements the
Treasurer, Exhibits 38 and 38-A to 38-C, showing that on September 15, 23
and 24 and November 25, 1952, his office had cleared 1,618, 2,851, 1,742
and 2,360 warrant respectively. Moreover, if the rule was unwise, the
Treasurer could have secured the proper remedy through the President of
the Philippines, since the Treasury and Central Bank are both agencies of the
Government.chanroblesvirtualawlibrarychanrobles virtual law library

At any rate, the aforementioned twenty-eight (28) warrants were cleared

and paid by the Treasurer, in view which the PI Bank and the Equitable Bank
credited the corresponding amounts to the respective depositors of the
warrants and then honored their checks for said amounts. Thus, the
Treasury had not only been negligent in clearing its own warrants, but had,
also, thereby induced the PI Bank and the Equitable Bank to pay the
amounts thereof to said depositors. The gross nature of the negligence of
the Treasury becomes more apparent when we consider that each one of the
twenty-four (24) warrants involve in G.R. No. L-15895 was for over P5,000,
and, hence; beyond the authority of the auditor of the Treasury - whose
signature thereon had been forged - to approve. In other words, the
irregularity of said warrants was apparent the face thereof, from the
viewpoint of the Treasury. Moreover, the same had not advertised the loss of
genuine forms of its warrants. Neither had the PI Bank nor the Equitable
Bank been informed of any irregularity in connection with any of the
warrants involved in these two (2) cases, until after December 23, 1952, -
or after the warrants had been cleared and honored - when the Treasury
gave notice of the forgeries adverted to above. As a consequence, the loss of
the amounts thereof is mainly imputable to acts and omissions of the
Treasury, for which the PI Bank and the Equitable Bank should not and
cannot be penalized.

Where a loss, which must be borne by one of two parties alike innocent of
forgery, can be traced to the neglect or fault of either, it is reasonable that it
would be borne by him, even if innocent of any intentional fraud, through
whose means it has succeeded, (Phil. National Bank v. National City Bank of
New York, 63 Phil. 711, 723.) chanrobles virtual law library

Generally, where a drawee bank otherwise would have a right of recovery

against a collecting or indorsing bank for its payment of a forged check its
action will be barred if it is guilty of an unreasonable delay in discovering the
forgery and in giving notice? thereof. (C.J.S. 769-
700.).chanroblesvirtualawlibrarychanrobles virtual law library

Where defendant bank, on presentation to it on September 2, of forged

check drawn on another bank, paid part of amount to presenter, drawee
paying check through clearing house on said day, held that the latter, not
giving notice of forgery until December 5, could not hold defendant for
amount so paid. (First State Bank & Trust Co. v. First Nat. Bank, 145 N. E.
382, 314 Ill. 269, affirming 234 Ill. App. 39.)

WHEREFORE, the decision appealed from is hereby affirmed, without special

pronouncement as to costs. It is so ordered.
CASE #122 Sy Hang vs Santos 54 OG 7748
CASE #123 PNB vs Seeto 91 Phil 756 (1952)

[G.R. No. L-4221. August 30, 1952.]

MARCELO D. MONTENEGRO, Petitioner-Appellant, v. GEN. MARIANO

CASTAÑEDA and COLONEL EULOGIO BALAO, Respondents-Appellees.

Felixberto M. Serrano and Honorio Ilagan for Appellant.

Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar

for Appellees.

Jesus G. Barrera, Francisco A. Rodrigo, Enrique Fernando and

Claudio Teehankee as amici curiae.

SYLLABUS

1. CONSTITUTIONAL LAW; EX POST FACTO LAWS. — The constitutional

prohibition against bills of attainder or ex post facto laws applies only to
statutes.

2. HABEAS CORPUS; SUSPENSION THEREOF; PROCLAMATION NO. 210;

SEDITION, NOT INCLUDED THEREIN. — The stay of the privilege of the writ
of habeas corpus, ordered in Proclamation No. 210, is in accordance with the
powers expressly vested in the President by the Constitution. However, the
word "sedition" in Proclamation No. 210 should be deemed a mistake or
surplusage that does not taint the decree as a whole.

3. ID.; ID. — The president has power to suspend the privilege of the writ
of habeas corpus, when public safety requires it, in cases of (1) invasion, (2)
insurrection, (3) rebellion, or (4) imminent danger thereof. The official
declaration that "there is actual danger of rebellion which may extend
throughout the country" amply justifies the suspension of the writ.

4. ID.; ID.; CONCLUSIVENESS. — The President’s declaration about the

existence of danger is conclusive upon the courts.

5. ID.; ID.; EFFECT OF SUSPENSION ON CASES FILED BEFORE THE

PROCLAMATION. — A proclamation of the President suspending the writ
of habeas corpus is valid and efficient in law to suspend all proceedings
pending upon habeas corpus.
 6. ID.; ID.; EVIDENCE OF THE FACTS STATED IN THE PETITION. —
In habeas corpus cases, averments of facts in the return, in the absence of
denial or appropriate pleading avoiding their effect, will be taken as true and
conclusive, regardless of the allegations contained in the petition.

DECISION

BENGZON, J.:

The purpose of this appeal from the Court of First Instance of Quezon City is
to test the validity of Proclamation No. 210 suspending the privilege of the
writ of habeas corpus.

A few months ago the same proclamation came up for discussion in

connection with the request for bail of some prisoners charged with
rebellion. 1 The divided opinion of this Court did not squarely pass on the
validity of the proclamation; but, assuming it was obligatory, both sides
proceeded to determine its effect upon the right of such prisoners to go on
bail.

This decision will now consider the points debated regarding the aforesaid
presidential order.

The facts are few and simple: About five o’clock in the morning of October
18, 1950, Maximino Montenegro was arrested with others at the Samanillo
Bldg., Manila, by agents of the Military Intelligence Service of the Armed
Forces of the Philippines, for complicity with a communistic organization in
the commission of acts of rebellion, insurrection or sedition. So far as the
record discloses, he is still under arrest in the custody of respondents. On
October 22, 1950, the President issued Proclamation No. 210 suspending the
privilege of the writ of habeas corpus. On October 21, 1950, Maximino’s
father, the petitioner, submitted this application for a writ of habeas
corpus seeking the release of his son.

Opposing the writ, respondents admitted having the body of Maximino, but
questioned judicial authority to go further in the matter, invoking the above-
mentioned proclamation.

Petitioner replied that such proclamation was void, and that, anyway, it did
not apply to his son, who had been arrested before its promulgation.
Heeding the suspension order, the court of first instance denied the release
prayed for. Hence this appeal, founded mainly on the petitioner’s
propositions:chanrob1es virtual 1aw library

(a) The proclamation is unconstitutional "because it partakes of a bill of

attainder, or an ex post facto law; and unlawfully includes sedition which
under the Constitution is not a ground for suspension" ;

(b) "There is no state of invasion, insurrection or rebellion, or imminent

danger thereof," the only situations permitting discontinuance of the writ
of habeas corpus; showing was made that the petitioner’s son was included
within the terms thereof.

(c) Supposing the proclamation is valid, no prima facie

Proclamation No. 210 reads partly as follows:jgc:chanrobles.com.ph

"WHEREAS, lawless elements of the country have committed overt acts of

sedition, insurrection and rebellion for the purpose of overthrowing the duly
constituted authorities and, in pursuance thereof, have created a state of
lawlessness and disorder affecting public safety and the security of the
state;

"WHEREAS, these acts of sedition, insurrection and rebellion consisting of

armed raids, sorties and ambushes and the wanton acts of murder, rape,
spoilage, looting, arson, planned destruction of public and private buildings,
and attacks against police and constabularly detachments, as well as against
civilian lives and properties, as reported by the Commanding General of the
Armed Forces, have seriously endangered and still continue to endanger the
public safety;

"WHEREAS, these acts of sedition, insurrection and rebellion have been

perpetrated by various groups of persons well organized for concerted action
and well armed with machine guns, rifles, pistols and other automatic
weapons, by reason whereof there is actual danger of rebellion which may
extend throughout the country;

"WHEREAS, 100 leading members of these lawless elements have been

apprehended and are presently under detention, and strong and convincing
evidence has been found in their possession to show that they are engaged
in rebellious, seditious and otherwise subversive acts as above set forth; and

"WHEREAS, public safety requires that immediate and effective action be

taken to insure the peace and security of the population and to maintain the
authority of the government;

"NOW, THEREFORE, I, ELPIDIO QUIRINO, President of the Philippines, by

virtue of the powers vested upon me by article VII, section 10, paragraph
(2) of the Constitution, do hereby suspend the privilege of the writ of habeas
corpus for the persons presently detained, as well as all others who may be
hereafter similarly detained for the crimes of sedition, insurrection or
rebellion, and all other crimes and offenses committed by them in
furtherance or on the occasion thereof, or incident thereto, or in connection
therewith."cralaw virtua1aw library

A. t is first argued that the proclamation is invalid because it "partakes" of a

bill of attainder or an ex post facto law, and violates the constitutional
precept that no bill of attainder or ex post facto law shall be passed. The
argument is devoid of merit. The prohibition applies only to statutes. U. S. v.
Gen. El., 80 Fed. Supp. 989; De Pass v. Bidwell, 124 Fed., 615. 1 A bill of
attainder is a legislative act which inflicts punishment without judicial trial.
(16 C. J. S. p. 902; U. S. v. Lovett (1946) 328 U. S. 303). Anyway, if, as we
find, the stay of the writ was ordered in accordance with the powers
expressly vested in the President by the Constitution, such order must be
deemed an exception to the general prohibition against ex post facto laws
and bills of attainder — supposing there is a conflict between the prohibition
and the suspension.

On the other hand there is no doubt it was erroneous to include those

accused of sedition among the persons as to whom suspension of the writ is
decreed. Under the Constitution the only grounds for suspension of the
privilege of the writ are "invasion, insurrection, rebellion or imminent danger
thereof." Obviously, however, the inclusion of sedition does not invalidate
the entire proclamation; and it is immaterial in this case, inasmuch as the
petitioner’s descendant is confined in jail not only for sedition, but for the
graver offense of rebellion and insurrection. Without doing violence to the
presidential directive, but in obedience to the supreme law of the land, the
word "sedition" in Proclamation No. 210 should be deemed a mistake or
surplusage that does not taint the decree as a whole.

B. In his second proposition appellant insists there is no state of invasion,

insurrection, rebellion or imminent danger thereof. "There are" he admits
"intermittent sorties and lightning attacks by organized bands in different
places" ; but, he argues, "such sorties are occasional, localized and
transitory. And the proclamation speaks no more than of overt acts of
insurrection and rebellion, not of cases of invasion, insurrection or rebellion
or imminent danger thereof." On this subject it is noted that the President
concluded from the facts recited in the proclamation, and others connected
therewith, that "there is actual danger of rebellion which may extend
throughout the country." Such official declaration implying much more than
imminent danger of rebellion amply justifies the suspension of the writ.

To the petitioner’s unpracticed eye the repeated encounters between

dissident elements and military troops may seem sporadic, isolated, or
casual. But the officers charged with the Nation’s security, analyzed the
extent and pattern of such violent clashes and arrived at the conclusion that
they are warp and woof of a general scheme to overthrow this government
vi et armis, by force and arms.

And we agree with the Solicitor General that in the light of the views of the
United States Supreme Court thru Marshall, Taney and Story quoted with
approval in Barcelon v. Baker (5 Phil., 87, pp. 98 and 100) the authority to
decide whether the exigency has arisen requiring suspension belongs to the
President and "his decision is final and conclusive" upon the courts and upon
all other persons.

Indeed as Justice Johnson said in that decision, whereas the Executive

branch of the Government is enabled thru its civil and military branches to
obtain information about peace and order from every quarter and corner of
the nation, the judicial department, with its very limited machinery can not
be in better position to ascertain or evaluate the conditions prevailing in the
Archipelago.

But even supposing the President’s appraisal of the situation is merely prima
facie, we see that petitioner in this litigation has failed to overcome the
presumption of correctness which the judiciary accords to acts of the
Executive and Legislative Departments of our Government.

C. The petitioner’s last contention is that the respondents failed to establish

that his son is included within the terms of the proclamation.

On this topic, respondents’ return officially informed the court that Maximino
had been arrested and was under custody for complicity in the commission
of acts of rebellion, insurrection and sedition against the Republic of the
Philippines. Not having traversed that allegation in time, petitioner must be
deemed to have conceded it.

". . . In the absence of a denial, or appropriate pleading avoiding their effect,

averment of facts in the return will be taken as true and conclusive,
regardless of the allegations contained in the petition; and the only question
for determination is whether or not the facts stated in the return, as a
matter of law, authorizes the restraint under investigation." (39 C. J. S.,
664-665.)

D. An interesting issue is posed by amici curiae. The Bill of Rights prohibits

suspension of the privilege of the writ of habeas corpus except when the
public safety requires it, in cases of (1) invasion (2) insurrection or (3)
rebellion.

Article VII Section 10 authorizes the President to suspend the privilege,

when public safety requires it, in cases of (1) invasion (2) insurrection or (3)
rebellion or (4) imminent danger thereof.

"Imminent danger," is no cause for suspension under the Bill of Rights. It is

under Article VII. To complicate matters, during the debates of the
Constitutional Convention on the Bill of Rights, particularly the suspension of
the writ, the Convention voted down an amendment adding a fourth cause of
suspension: imminent danger of invasion, insurrection or rebellion.

Professor Aruego, a member of the Convention, describes the incident as

follows:chanrob1es virtual 1aw library

During the debates on the first draft, Delegate Francisco proposed an

amendment inserting, as a fourth cause for the suspension of the writ
of habeas corpus imminent danger of the three causes included herein.
When submitted to a vote for the first time, the amendment was carried.

"After his motion for a reconsideration of the amendment was approved,

Delegate Orense spoke against the amendment alleging that it would be
dangerous to make imminent danger a ground for the suspension of the writ
of habeas corpus. In part, he said:jgc:chanrobles.com.ph

"‘Gentlemen, this phrase is too ambiguous, and in the hands of a President

who believes more or less a dictator, it is extremely dangerous; it would be
a sword with which he would behead us.’

"In defense of the amendment, Delegate Francisco pointed out that it was
intended to make this part of the bill of rights conform to that part of the
draft giving the President the power to suspend the writ of habeas
corpus also in the case of an imminent danger of invasion or rebellion. When
asked by Delegate Rafols if the phrase, imminent danger, might not be
struck out from the corresponding provision under the executive power
instead, Delegate Francisco answered:jgc:chanrobles.com.ph

"‘Outright, it is possible to eliminate the phrase, imminent danger thereof, in

the page I have mentioned. But I say, going to the essence and referring
exclusively to the necessity of including the words, of imminent danger of
one or the other, I wish to say the following: that it should not be necessary
that there exists a rebellion, insurrection, or invasion in order that habeas
corpus may be suspended. It should be sufficient that there exists not a
danger but an imminent danger, and the word, imminent, should be
maintained. When there exists an imminent danger, the State requires for
its protection and for that of all the citizens the suspension of habeas
corpus.’

"When put to vote for the second time, the amendment was defeated with
72 votes against and 56 votes in favor of the same." (I Aruego’s Framing of
the Philippine Constitution, pp. 180-181)

Nevertheless when the President’s specific powers under Article VII, were
taken up, there was no objection to his authority to suspend in case of
"imminent danger." (At least we are not informed of any debate thereon.)
Now then, what is the effect of the seeming discrepancy?.

Is the prohibition of suspension in the bill of rights to be interpreted as

limiting Legislative powers only - not executive measures under section VII?
Has Article VII (sec. 10) pro tanto modified the bill of rights in the same
manner that a subsequent section of a statute modifies a previous one?.

The difference between the two constitutional provisions would seem to be:
whereas the bill of rights impliedly denies suspension in case of imminent
danger of invasion etc., Article VII sec. 10 expressly authorizes the President
to suspend when there is imminent danger of invasion etc.

The following statements in a footnote in Cooley’s Constitutional limitations

(8th Ed.) p. 129, appear to be persuasive:jgc:chanrobles.com.ph

"It is a general rule in the construction of writings, that, a general intent

appearing, it shall control the particular intent; but this rule must sometimes
give way, and effect must be given to a particular intent plainly expressed in
one part of a constitution, though apparently opposed to a general intent
deduced from other parts. Warren V. Shuman, 5 Tex. 441. In Quick V.
Whitewater Township, 7 Ind. 570, it was said that if two provisions of a
written constitution are irreconcilably repugnant, that which is last in order
of time and in local position is to be preferred. In Gulf, C. & S. F. Ry. Co. v.
Rambolt, 67 Tex. 654, 4 S. W. 356, this rule was recognized as a last resort,
but if the last provision is more comprehensive and specific, it was held that
it should be given effect on that ground."cralaw virtua1aw library

And in Hoag v. Washington Oregon Corp. (1915) 147 Pac. Rep., 756 at p.
763 it was said:jgc:chanrobles.com.ph

"It is a familiar rule of construction that, where two provisions of a written

Constitution are repugnant to each other, that which is last in order of time
and in local position is to be preferred. Quick v. White Water Township, 7
Ind. 570; G., C. & S. F. Ry. Co. v. Rambolt, 67 Tex. 654, 4 S. W. 356. So,
even assuming the two clauses discussed are repugnant, the latter must
prevail."cralaw virtua1aw library

Wherefore in the light of these precedents, the constitutional authority of the

President to suspend in case of imminent danger of invasion, insurrection or
rebellion under Article VII may not correctly be placed in doubt.

E. The petitioner insisted in the court below that the suspension should not
apply to his son, because the latter had been arrested and had filed the
petition before the Executive proclamation. On this phase of the controversy,
it is our opinion that the order of suspension affects the power of the courts
and operates immediately on all petitions therein pending at the time of its
promulgation.

"A proclamation of the President suspending the writ of habeas corpus was

held valid and efficient in law to suspend all proceedings pending
upon habeas corpus, which was issued and served prior to the date of the
proclamation. Matter of Dunn, D. C. N. Y. 1863, 25 How. Prac. 467, Fed.
Cas. No. 4,171."cralaw virtua1aw library

F. Premises considered, the decision of the court a quo refusing to release

the prisoner is affirmed, without costs.