G.R. No.

L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,

vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G.
Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the
complaint filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico
Palomar and Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten
(10) money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena,
Quezon. After the postal teller had made out money ordersnumbered 124685, 124687-
124695, Montinola offered to pay for them with a private checks were not generally
accepted in payment of money orders, the teller advised him to see the Chief of the
Money Order Division, but instead of doing so, Montinola managed to leave building
with his own check and the ten(10) money orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid
money orders, an urgent message was sent to all postmasters, and the following day
notice was likewise served upon all banks, instructing them not to pay anyone of the
money orders aforesaid if presented for payment. The Bank of America received a copy
of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was
received by appellant as part of its sales receipts. The following day it deposited the
same with the Bank of America, and one day thereafter the latter cleared it with the
Bureau of Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order
Division of the Manila Post Office, acting for and in behalf of his co-appellee,
Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the bank's clearing account.
For its part, on August 2 of the same year, the Bank of America debited appellant's
account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the
action taken by his office deducting the sum of P200.00 from the clearing account of the
Bank of America, but his request was denied. So was appellant's subsequent request
that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant
elevated the matter to the Secretary of Public Works and Communications, but the latter
sustained the actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the
Court of First Instance of Manila (Criminal Case No. 43866) but after trial he was
acquitted on the ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of
Manila praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on

September 27, 1961, deducting from the said Bank's clearing account the
sum of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-½%
per annum from September 27, 1961, which is the rate of interest being
paid by plaintiff on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and
severally, actual and moral damages in the amount of P1,000.00 or in
such amount as will be proved and/or determined by this Honorable Court:
exemplary damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just
and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court
rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to

countermand the notice given to the Bank of America on September 27,
1961, deducting from said Bank's clearing account the sum of P200.00
representing the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of P200.00 with
interest thereon at the rate of 8-½% per annum from September 27, 1961
until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties
had resubmitted the same stipulation of facts, the appealed decision dismissing the
complaint, with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related
to the other and will therefore be discussed jointly. They raise this main issue: that the
postal money order in question is a negotiable instrument; that its nature as such is not
in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts
and addressed to all banks with a clearing account with the Post Office, and that money
orders, once issued, create a contractual relationship of debtor and creditor,
respectively, between the government, on the one hand, and the remitters payees or
endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the
United States. For this reason, ours are generally construed in accordance with the
construction given in the United States to their own postal statutes, in the absence of
any special reason justifying a departure from this policy or practice. The weight of
authority in the United States is that postal money orders are not negotiable instruments
(Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912),
the reason behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than
one endorsement; payment of money orders may be withheld under a variety of
circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid
down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of
America for the redemption of postal money orders received by it from its depositors.
Among others, the condition is imposed that "in cases of adverse claim, the money
order or money orders involved will be returned to you (the bank) and the,
corresponding amount will have to be refunded to the Postmaster, Manila, who reserves
the right to deduct the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to continue
enjoying the facilities theretofore enjoyed by its depositors, were accepted by the Bank
of America. The latter is therefore bound by them. That it is so is clearly referred from
the fact that, upon receiving advice that the amount represented by the money order in
question had been deducted from its clearing account with the Manila Post Office, it did
not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers,
on the one hand, and the Bank of America, on the other, appellant has no right to assail
the terms and conditions thereof on the ground that the letter setting forth the terms and
conditions aforesaid is void because it was not issued by a Department Head in
accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however,
said legal provision does not apply to the letter in question because it does not provide
for a department regulation but merely sets down certain conditions upon the privilege
granted to the Bank of Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is clear that the Director of
Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised
Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the
third and fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby
affirmed with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo

and Villamor, JJ., concur.

Castro and Makasiar, JJ., took no part.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.
23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner
against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by
respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution, through

its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of
one Angel dela Cruz who deposited with herein defendant the aggregate
amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts
and Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1
to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein
plaintiff in connection with his purchased of fuel products from the latter
(Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo

Tiangco, the Sucat Branch Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said depositor to execute and
submit a notarized Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost CTDs (TSN, February 9,
1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to

defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).
On the basis of said affidavit of loss, 280 replacement CTDs were issued
in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)
which stated, among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and after date" of the
assignment and further authorizes said bank to pre-terminate, set-off and
"apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9,
1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff

Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's

Exhibit 563) from herein plaintiff formally informing it of its possession of
the CTDs in question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to

furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel
dela Cruz" obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim
for payment of the value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and applied
the time deposits in question to the payment of the matured loan (TSN,
February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate value of the
certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.
 After trial, the court a quo rendered its decision dismissing the instant
complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the
complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that
the subject certificates of deposit are non-negotiable despite being clearly negotiable
instruments; (2) that petitioner did not become a holder in due course of the said
certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of
Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank

the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with
interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER"
stamped on the space provided supposedly for the name of the depositor,
the words "has deposited" a certain amount follows. The document further
provides that the amount deposited shall be "repayable to said depositor"
 on the period indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are payable, not to whoever
purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its
depositor Angel dela Cruz as the person who made the deposit and
further engages itself to pay said depositor the amount indicated thereon
at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites for an instrument to become
negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in

money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability.
The parties' bone of contention is with regard to requisite (d) set forth above. It is noted
that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982,
testified in open court that the depositor reffered to in the CTDs is no other than Mr.
Angel de la Cruz.

x x x           x x x          x x x

Atty. Calida:

q In other words Mr. Witness, you are saying that per books
of the bank, the depositor referred (sic) in these certificates
states that it was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that

Angel dela Cruz was the one who cause (sic) the amount.

Atty. Calida:
 q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

x x x           x x x          x x x

On this score, 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.9 In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained. 10 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. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor. And
who, according to the document, is the depositor? It is the "bearer." The documents do
not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of
the documents or, for that matter, whosoever may be the bearer at the time of
presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz
only, it could have with facility so expressed that fact in clear and categorical terms in
the documents, instead of having the word "BEARER" stamped on the space provided
for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof.
Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the
transaction between them would not be in a position to know that the depositor is not
the bearer stated in the CTDs. Hence, the situation would require any party dealing with
the CTDs to go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for resort to extrinsic
evidence is what is sought to be avoided by the Negotiable Instruments Law and calls
for the application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the
answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner
chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For, although petitioner
seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered
as payment for the fuel products or as a security has been dissipated and resolved in
favor of the latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law of
evidence, whenever a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's
credit manager could have easily said so, instead of using the words "to guarantee" in
the letter aforequoted. Besides, when respondent bank, as defendant in the court
below, moved for a bill of particularity therein 17 praying, among others, that petitioner,
as plaintiff, be required to aver with sufficient definiteness or particularity (a) the due
date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff
and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by
De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation
opposed the motion. 18 Had it produced the receipt prayed for, it could have proved, if
such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence
willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation,
et al. vs. Philippine National Bank, et al.  20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we

quote therefrom:

The character of the transaction between the parties is to be

determined by their intention, regardless of what language
was used or what the form of the transfer was. If it was
intended to secure the payment of money, it must be
construed as a pledge; but if there was some other intention,
it is not a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit
of the property as collateral security. It has been said that a
transfer of property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance,
should be treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer, and that
accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that
effect in such a transaction if they are also commonly used
in pledges and mortgages and therefore do not unqualifiedly
indicate a transfer of absolute ownership, in the absence of
clear and unambiguous language or other circumstances
excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la
Cruz (and we even disregard the fact that the amount involved was not disclosed) could
at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be contractually
provided for.

The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As such
holder of collateral security, he would be a pledgee but the requirements therefor and
the effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights, 24 which
inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .

may also be pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not appear
in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner failed
to produce any document evidencing any contract of pledge or guarantee agreement
between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not
legally vest in petitioner any right effective against and binding upon respondent bank.
The requirement under Article 2096 aforementioned is not a mere rule of adjective law
prescribing the mode whereby proof may be made of the date of a pledge contract, but
a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other mode
of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect

as against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount
of its credit or the extent of its lien nor the execution of any public instrument which
could affect or bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the case of
lost negotiable instruments and the issuance of replacement certificates therefor, on the
ground that petitioner failed to raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties and in
the statement of issues submitted by them to the trial court. 29 The issues agreed upon
by them for resolution in this case are:
 1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by

the CTDs against the depositor's loan by virtue of the assignment (Annex
"C").

3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the

CTDs before the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal

authorities, the foregoing enumeration does not include the issue of negligence on the
part of respondent bank. An issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised on
appeal must be within the issues framed by the parties and, consequently, issues not
raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition
of a case are properly raised. Thus, to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact which they
intend to raise at the trial, except such as may involve privileged or impeaching matters.
The determination of issues at a pre-trial conference bars the consideration of other
questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be

considered encompassed by the issues on its right to preterminate and receive the
proceeds of the CTDs would be tantamount to saying that petitioner could raise on
appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates can be premised
on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would
render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions
of the Code of Commerce laying down the rules to be followed in case of lost
instruments payable to bearer, which it invokes, will reveal that said provisions, even
assuming their applicability to the CTDs in the case at bar, are merely permissive and
not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may

be, may apply to the judge or court of competent jurisdiction, asking that
the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the
instrument that a duplicate be issued him. (Emphasis ours.)

x x x           x x x          x x x

The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating
liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the

Code of Commerce, on which petitioner seeks to anchor respondent bank's supposed
negligence, merely established, on the one hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate
of the same, and, on the other, an option in favor of the party liable thereon who, for
some valid ground, may elect to refuse to issue a replacement of the instrument.
Significantly, none of the provisions cited by petitioner categorically restricts or prohibits
the issuance a duplicate or replacement instrument sans compliance with the procedure
outlined therein, and none establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. L-2516             September 25, 1950

ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.

Laurel, Sabido, Almario and Laurel for petitioner.

Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for
respondent.

BENGZON, J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of
First Instance of Manila. The Court of Appeals affirmed the verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday,
November 16, 1946, the check Exhibits A upon the China Banking Corporation for the
sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in
exchange for money which the latter handed in act. On November 18, 1946, the next
business day, the check was presented by Lee Hua Hong to the drawee bank for
payment, but it was dishonored for insufficiency of funds, the balance of the deposit of
Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on
November 16, 1946, appellant went to his (complainant's) office, at 1217 Herran, Paco,
Manila, and asked him to exchange Exhibit A — which he (appellant) then brought with
him — with cash alleging that he needed badly the sum of P4,000 represented by the
check, but could not withdraw it from the bank, it being then already closed; that in view
of this request and relying upon appellant's assurance that he had sufficient funds in the
blank to meet Exhibit A, and because they used to borrow money from each other, even
before the war, and appellant owns a hotel and restaurant known as the North Bay
Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash;
that despite repeated efforts to notify him that the check had been dishonored by the
bank, appellant could not be located any-where, until he was summoned in the City
Fiscal's Office in view of the complaint for estafa filed in connection therewith; and that
appellant has not paid as yet the amount of the check, or any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of
law for decision is whether under the facts found, estafa had been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling
committed "By post dating a check, or issuing such check in payment of an obligation
the offender knowing that at the time he had no funds in the bank, or the funds
deposited by him in the bank were not sufficient to cover the amount of the check, and
without informing the payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held liable. In this
connection, it must be stated that, as explained in People vs. Fernandez (59 Phil.,
615), estafa is committed by issuing either a postdated check or an ordinary check to
accomplish the deceit.

It is argued, however, that as the check had been made payable to "cash" and had not
been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged.
Based on the proposition that "by uniform practice of all banks in the Philippines a check
so drawn is invariably dishonored," the following line of reasoning is advanced in
support of the argument:

. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from
the appellant, he did so with full knowledge that it would be dishonored upon
presentment. In that sense, the appellant could not be said to have acted
fraudulently because the complainant, in so accepting the check as it was drawn,
must be considered, by every rational consideration, to have done so fully aware
of the risk he was running thereby." (Brief for the appellant, p. 11.)

We are not aware of the uniformity of such practice. Instances have undoubtedly
occurred wherein the Bank required the indorsement of the drawer before honoring a
check payable to "cash." But cases there are too, where no such requirement had been
made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order
of "cash" is a check payable to bearer, and the bank may pay it to the person presenting
it for payment without the drawer's indorsement.

A check payable to the order of cash is a bearer instrument. Bacal vs. National

City Bank of New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De
Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts
Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App.,
1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga.
App., 465; 87 S. E., 713.

Where a check is made payable to the order of "cash", the word cash "does not
purport to be the name of any person", and hence the instrument is payable to
bearer. The drawee bank need not obtain any indorsement of the check, but may
pay it to the person presenting it without any indorsement. . . . (Zollmann, Banks
and Banking, Permanent Edition, Vol. 6, p. 494.)

Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the
right to demand identification and /or assurance against possible complications, — for
instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c)
raising of the amount payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer — or of some other person known to it — be
obtained. But where the Bank is satisfied of the identity and /or the economic standing
of the bearer who tenders the check for collection, it will pay the instrument without
further question; and it would incur no liability to the drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check is in

the ordinary form, and is payable to bearer, so that no indorsement is required, a
bank, to which it is presented for payment, need not have the holder identified,
and is not negligent in falling to do so. . . . (Michie on Banks and Banking,
Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for

payment need not necessarily have the holder identified and ordinarily may not
be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3 If the
bank has no reasonable cause for suspecting any irregularity, it will be protected
in paying a bearer check, "no matter what facts unknown to it may have occurred
prior to the presentment." 1 Morse, Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check without further
inquiry, it is entirely reasonable for the bank to insist that holder give satisfactory
proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally
unconnected with its dishonor. The Court of Appeals declared that it was returned
unsatisfied because the drawer had insufficient funds — not because the drawer's
indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty imposed on the
appellant, the writ of certiorari is denied and the decision of the Court of Appeals is
hereby affirmed, with costs.

Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.

G.R. No. 89252 May 24, 1993

RAUL SESBREÑO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.

Salva, Villanueva & Associates for Delta Motors Corporation.

Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:

On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the
amount of P300,000.00 with the Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32) days, would
mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following
documents to petitioner:

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496

of one (1) Delta Motors Corporation Promissory Note ("DMC PN") No.
2731 for a term of 32 days at 17.0% per annum;

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the
sale of DMC PN No. 2731 to petitioner, with the notation that the said
security was in custodianship of Pilipinas Bank, as per Denominated
Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of
petitioner's investment), with petitioner as payee, Philfinance as drawer,
and Insular Bank of Asia and America as drawee, in the total amount of
P304,533.33.

On 13 March 1981, petitioner sought to encash the postdated checks issued by

Philfinance. However, the checks were dishonored for having been drawn against
insufficient funds.

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by
private respondent Pilipinas Bank ("Pilipinas"). It reads as follows:

PILIPINAS BANK
Makati Stock Exchange Bldg.,
 Ayala Avenue, Makati,
Metro Manila

February 9, 19
———————
VALUE DATE

TO Raul Sesbreño

April 6, 1981
———————
MATURITY D

NO. 10805

DENOMINATED CUSTODIAN RECEIPT

This confirms that as a duly Custodian Bank, and upon instruction of

PHILIPPINE UNDERWRITES FINANCE CORPORATION, we have in our
custody the following securities to you [sic] the extent herein indicated.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33

UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by you or your

duly authorized representative at any time during regular banking hours.

Upon your written instructions we shall undertake physical delivery of the

above securities fully assigned to you should this Denominated
Custodianship Receipt remain outstanding in your favor thirty (30) days
after its maturity.

PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent

Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his
placement with Philfinance in the amount reflected in the DCR No. 10805 had remained
unpaid and outstanding, and that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the original of the DMC PN No.
2731 and found: that the security had been issued on 10 April 1980; that it would
mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance
as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and
that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did
not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August
1981,2 again asking private respondent Pilipinas for physical delivery of the original of
DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's demand letters to
Philfinance for written instructions, as has been supposedly agreed upon in "Securities
Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not
provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor
any other instrument in respect thereof, to petitioner.

Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta
for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however,
denied any liability to petitioner on the promissory note, and explained in turn that it had
previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN
No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.

In the meantime, Philfinance, on 18 June 1981, was placed under the joint management
of the Securities and exchange commission ("SEC") and the Central Bank. Pilipinas
delivered to the SEC DMC PN No. 2731, which to date apparently remains in the
custody of the SEC.4

As petitioner had failed to collect his investment and interest thereon, he filed on 28
September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu
City, Branch 21, against private respondents Delta and Pilipinas. 5 The trial court, in a
decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of
merit and for lack of cause of action, with costs against petitioner.

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a

Decision dated 21 March 1989, the Court of Appeals denied the appeal and held: 6

Be that as it may, from the evidence on record, if there is anyone that

appears liable for the travails of plaintiff-appellant, it is Philfinance. As
correctly observed by the trial court:

This act of Philfinance in accepting the investment of plaintiff

and charging it against DMC PN No. 2731 when its entire
face value was already obligated or earmarked for set-off or
compensation is difficult to comprehend and may have been
motivated with bad faith. Philfinance, therefore, is solely and
legally obligated to return the investment of plaintiff, together
with its earnings, and to answer all the damages plaintiff has
suffered incident thereto. Unfortunately for plaintiff,
 Philfinance was not impleaded as one of the defendants in
this case at bar; hence, this Court is without jurisdiction to
pronounce judgement against it. (p. 11, Decision)

WHEREFORE, finding no reversible error in the decision appealed from,

the same is hereby affirmed in toto. Cost against plaintiff-appellant.

Petitioner moved for reconsideration of the above Decision, without success.

Hence, this Petition for Review on Certiorari.

After consideration of the allegations contained and issues raised in the pleadings, the
Court resolved to give due course to the petition and required the parties to file their
respective memoranda.7

Petitioner reiterates the assignment of errors he directed at the trial court decision, and
contends that respondent court of Appeals gravely erred: (i) in concluding that he
cannot recover from private respondent Delta his assigned portion of DMC PN No.
2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN
No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of
petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance,
and private respondents Delta and Pilipinas, considering that the three (3) entities
belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo
Silverio, Sr.8

There are at least two (2) sets of relationships which we need to address: firstly, the
relationship of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in
respect of Pilipinas. Actually, of course, there is a third relationship that is of critical
importance: the relationship of petitioner and Philfinance. However, since Philfinance
has not been impleaded in this case, neither the trial court nor the Court of Appeals
acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary
for present purposes to deal with this third relationship, except to the extent it
necessarily impinges upon or intersects the first and second relationships.

I.

We consider first the relationship between petitioner and Delta.

The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in

respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold
"without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals said
on this point:

Nor could plaintiff-appellant have acquired any right over DMC PN No.
2731 as the same is "non-negotiable" as stamped on its face (Exhibit "6"),
negotiation being defined as the transfer of an instrument from one person
 to another so as to constitute the transferee the holder of the instrument
(Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue
on the instrument in his own name and cannot demand or receive
payment (Section 51, id.)9

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note
had been validly transferred, in part to him by assignment and that as a result of such
transfer, Delta as debtor-maker of the Note, was obligated to pay petitioner the portion
of that Note assigned to him by the payee Philfinance.

Delta, however, disputes petitioner's contention and argues:

(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable"
stamp across the face of the Note10 and because maker Delta and payee
Philfinance intended that this Note would be offset against the outstanding
obligation of Philfinance represented by Philfinance PN No. 143-A issued
to Delta as payee;

(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and

(3) assuming (arguendo only) that the partial assignment in favor of

petitioner was valid, petitioner took the Note subject to the defenses
available to Delta, in particular, the offsetting of DMC PN No. 2731 against
Philfinance PN No. 143-A.11

We consider Delta's arguments seriatim.

Firstly, it is important to bear in mind that the negotiation of a negotiable instrument

must be distinguished from the assignment or transfer of an instrument whether that be
negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument
under the relevant statute may be negotiated either by indorsement thereof coupled with
delivery, or by delivery alone where the negotiable instrument is in bearer form. A
negotiable instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the
instrument:

The words "not negotiable," stamped on the face of the bill of lading, did

not destroy its assignability, but the sole effect was to exempt the bill from
the statutory provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the assignee taking subject
to the equities between the original parties.12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped
"non-transferable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and
which should be quoted in full:

April 10, 1980

Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.

Attention: Mr. Alfredo O. Banaria

SVP-Treasurer

GENTLEMEN:

This refers to our outstanding placement of P4,601,666.67 as evidenced

by your Promissory Note No. 143-A, dated April 10, 1980, to mature on
April 6, 1981.

As agreed upon, we enclose our non-negotiable Promissory Note No.

2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be
offsetted [sic] against your PN No. 143-A upon co-terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr. Eric
Castillo.

Very Truly Yours,

(Sgd.)
Florencio B. Biagan
Senior Vice President13

We find nothing in his "Letter of Agreement" which can be reasonably construed as a

prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of
Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or transferee of the Note who parted
with valuable consideration in good faith and without notice of such prohibition. It is not
disputed that petitioner was such an assignee or transferee. Our conclusion on this
point is reinforced by the fact that what Philfinance and Delta were doing by their
exchange of their promissory notes was this: Delta invested, by making a money market
placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but
promptly, on the same day, borrowed back the bulk of that placement, i.e.,
P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC
PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.

Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No.

2731 had been effected without the consent of Delta, we note that such consent was
not necessary for the validity and enforceability of the assignment in favor of
petitioner.14 Delta's argument that Philfinance's sale or assignment of part of its rights to
DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's)
consent, is quite mistaken. Conventional subrogation, which in the first place is never
lightly inferred,15 must be clearly established by the unequivocal terms of the
substituting obligation or by the evident incompatibility of the new and old obligations on
every point.16 Nothing of the sort is present in the instant case.

It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN
No. 2731 to Philfinance, an entity engaged in the business of buying and selling debt
instruments and other securities, and more generally, in money market transactions.
In Perez v. Court of Appeals,17 the Court, speaking through Mme. Justice Herrera, made
the following important statement:

There is another aspect to this case. What is involved here is a money

market transaction. As defined by Lawrence Smith "the money market is a
market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with
each other but through a middle manor a dealer in the open market." It
involves "commercial papers" which are instruments "evidencing
indebtness of any person or entity. . ., which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or
without recourse". The fundamental function of the money market device
in its operation is to match and bring together in a most impersonal
manner both the "fund users" and the "fund suppliers." The money market
is an "impersonal market", free from personal considerations. "The market
mechanism is intended to provide quick mobility of money and securities."

The impersonal character of the money market device overlooks the

individuals or entities concerned. The issuer of a commercial paper in the
money market necessarily knows in advance that it would be
expenditiously transacted and transferred to any investor/lender without
need of notice to said issuer. In practice, no notification is given to the
borrower or issuer of commercial paper of the sale or transfer to the
investor.

xxx xxx xxx

There is need to individuate a money market transaction, a relatively novel

institution in the Philippine commercial scene. It has been intended to
 facilitate the flow and acquisition of capital on an impersonal basis. And as
specifically required by Presidential Decree No. 678, the investing public
must be given adequate and effective protection in availing of the credit of
a borrower in the commercial paper market. 18 (Citations omitted; emphasis
supplied)

We turn to Delta's arguments concerning alleged compensation or offsetting between

DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time
Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9 February
1981, no compensation had as yet taken place and indeed none could have taken
place. The essential requirements of compensation are listed in the Civil Code as
follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at

the same time a principal creditor of the other;

(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to the debtor.
(Emphasis supplied)

On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due.
This was explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with
Philfinance, where Delta acknowledged that the relevant promissory notes were "to be
offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."

As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine
(49) days before the "co-terminal maturity" date, that is to say, before any compensation
had taken place. Further, the assignment to petitioner would have prevented
compensation had taken place between Philfinance and Delta, to the extent of
P304,533.33, because upon execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be creditors and debtors of each other in
their own right to the extent of the amount assigned by Philfinance to petitioner. Thus,
we conclude that the assignment effected by Philfinance in favor of petitioner was a
valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the
extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to
him only on 14 July 1981, 19 that is, after the maturity not only of the money market
placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN
No. 143-A. In other words, petitioner notified Delta of his rights as assignee after
compensation had taken place by operation of law because the offsetting instruments
had both reached maturity. It is a firmly settled doctrine that the rights of an assignee
are not any greater that the rights of the assignor, since the assignee is merely
substituted in the place of the assignor 20 and that the assignee acquires his rights
subject to the equities — i.e., the defenses — which the debtor could have set up
against the original assignor before notice of the assignment was given to the debtor.
Article 1285 of the Civil Code provides that:

Art. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
gave his consent, that he reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous
to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may

set up the compensation of all credits prior to the same and also later
ones until he had knowledge of the assignment. (Emphasis supplied)

Article 1626 of the same code states that: "the debtor who, before having knowledge of
the assignment, pays his creditor shall be released from the obligation." In Sison
v. Yap-Tico,21 the Court explained that:

[n]o man is bound to remain a debtor; he may pay to him with whom he
contacted to pay; and if he pay before notice that his debt has been
assigned, the law holds him exonerated, for the reason that it is the duty of
the person who has acquired a title by transfer to demand payment of the
debt, to give his debt or notice.22

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14
July 1981, DMC PN No. 2731 had already been discharged by compensation. Since the
assignor Philfinance could not have then compelled payment anew by Delta of DMC PN
No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from collecting
from Delta the portion of the Note assigned to him.

It bears some emphasis that petitioner could have notified Delta of the assignment or
sale was effected on 9 February 1981. He could have notified Delta as soon as his
money market placement matured on 13 March 1981 without payment thereof being
made by Philfinance; at that time, compensation had yet to set in and discharge DMC
PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR")
No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could,
in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731.
Because petitioner failed to do so, and because the record is bare of any indication that
Philfinance had itself notified Delta of the assignment to petitioner, the Court is
compelled to uphold the defense of compensation raised by private respondent Delta.
Of course, Philfinance remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.

II.

We turn now to the relationship between petitioner and private respondent Pilipinas.
Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta
when Pilipinas issued DCR No. 10805 with the following words:

Upon your written instruction, we [Pilipinas] shall undertake physical

delivery of the above securities fully assigned to you —.23

The Court is not persuaded. We find nothing in the DCR that establishes an obligation
on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption
of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We read the
DCR as a confirmation on the part of Pilipinas that:

(1) it has in its custody, as duly constituted custodian bank, DMC PN No.
2731 of a certain face value, to mature on 6 April 1981 and payable to the
order of Philfinance;

(2) Pilipinas was, from and after said date of the assignment by

Philfinance to petitioner (9 February 1981), holding that Note on behalf
and for the benefit of petitioner, at least to the extent it had been assigned
to petitioner by payee Philfinance;24

(3) petitioner may inspect the Note either "personally or by authorized

representative", at any time during regular bank hours; and

(4) upon written instructions of petitioner, Pilipinas would physically deliver

the DMC PN No. 2731 (or a participation therein to the extent of
P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."

Thus, we find nothing written in printers ink on the DCR which could reasonably be read
as converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to
petitioner, either upon maturity thereof or any other time. We note that both in his
complaint and in his testimony before the trial court, petitioner referred merely to the
obligation of private respondent Pilipinas to effect the physical delivery to him of DMC
PN No. 2731.25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary
obligation to pay the amount represented by a portion of the Note assigned to him by
Philfinance, appears to be a new theory constructed only after the trial court had ruled
against him. The solidary liability that petitioner seeks to impute Pilipinas cannot,
however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary
liability only when the law or the nature of the obligation requires solidarity," The record
here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part
of Pilipinas. Petitioner has not pointed to us to any law which imposed such liability
upon Pilipinas nor has petitioner argued that the very nature of the custodianship
assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN
No. 2731.

We do not, however, mean to suggest that Pilipinas has no responsibility and liability in
respect of petitioner under the terms of the DCR. To the contrary, we find, after
prolonged analysis and deliberation, that private respondent Pilipinas had breached its
undertaking under the DCR to petitioner Sesbreño.

We believe and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was
initially Philfinance; the obligation of the depository was owed, however, to petitioner
Sesbreño as beneficiary of the custodianship or depository agreement. We do not
consider that this is a simple case of a stipulation pour autri. The custodianship or
depositary agreement was established as an integral part of the money market
transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the vendor. Indeed, the
constituting of the depositary or custodianship agreement was equivalent to constructive
delivery of the Note (to the extent it had been sold or assigned to petitioner) to
petitioner. It will be seen that custodianship agreements are designed to facilitate
transactions in the money market by providing a basis for confidence on the part of the
investors or placers that the instruments bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds should they have need of
them. The depositary in a contract of deposit is obliged to return the security or the thing
deposited upon demand of the depositor (or, in the presented case, of the beneficiary)
of the contract, even though a term for such return may have been established in the
said contract.26 Accordingly, any stipulation in the contract of deposit or custodianship
that runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as
against such beneficiary-placer.

We believe that the position taken above is supported by considerations of public policy.
If there is any party that needs the equalizing protection of the law in money market
transactions, it is the members of the general public whom place their savings in such
market for the purpose of generating interest revenues. 27 The custodian bank, if it is not
related either in terms of equity ownership or management control to the borrower of the
funds, or the commercial paper dealer, is normally a preferred or traditional banker of
such borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against the placer
of funds. The providers of such funds must be safeguarded from the impact of
stipulations privately made between the borrowers or dealers and the custodian banks,
and disclosed to fund-providers only after trouble has erupted.

In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security
deposited with it when petitioner first demanded physical delivery thereof on 2 April
1981. We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731
had not yet matured and therefore, compensation or offsetting against Philfinance PN
No. 143-A had not yet taken place. Instead of complying with the demand of the
petitioner, Pilipinas purported to require and await the instructions of Philfinance, in
obvious contravention of its undertaking under the DCR to effect physical delivery of the
Note upon receipt of "written instructions" from petitioner Sesbreño. The ostensible term
written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30]
days after its maturity") was not a defense against petitioner's demand for physical
surrender of the Note on at least three grounds: firstly, such term was never brought to
the attention of petitioner Sesbreño at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil
Code noted above. Indeed, in principle, petitioner became entitled to demand physical
delivery of the Note held by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for
damages sustained by arising out of its breach of duty. By failing to deliver the Note to
the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and
unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas
itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is
of no moment for present purposes. Prima facie, the damages suffered by petitioner
consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner
but lost by him by reason of discharge of the Note by compensation, plus legal interest
of six percent (6%) per annum containing from 14 March 1981.

The conclusion we have reached is, of course, without prejudice to such right of
reimbursement as Pilipinas may have vis-a-vis Philfinance.

III.

The third principal contention of petitioner — that Philfinance and private respondents
Delta and Pilipinas should be treated as one corporate entity — need not detain us for
long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never
acquired either by the trial court nor by the respondent Court of Appeals. Petitioner
similarly did not seek to implead Philfinance in the Petition before us.

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas
have been organized as separate corporate entities. Petitioner asks us to pierce their
separate corporate entities, but has been able only to cite the presence of a common
Director — Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3)
companies. Petitioner has neither alleged nor proved that one or another of the three (3)
concededly related companies used the other two (2) as mere alter egos or that the
corporate affairs of the other two (2) were administered and managed for the benefit of
one. There is simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner. 28

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of
Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such Decision
and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private
respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in
the amount of P304,533.33, plus legal interest thereon at the rate of six percent
(6%) per annum counted from 2 April 1981. As so modified, the Decision and
Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to
costs.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,

vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.

Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.

Eduardo G. Castelo for Sima Wei.

Monsod, Tamargo & Associates for Producers Bank.

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a
complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat,
Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation
for short) and the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02 on a promissory

note executed by respondent Sima Wei on June 9, 1983; and

(2) To enforce payment of two checks executed by Sima Wei, payable to

petitioner, and drawn against the China Banking Corporation, to pay the
balance due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a
common ground that the complaint states no cause of action. The trial court granted the
defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which
the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review
by Certiorari, assigning the following as the alleged errors of the Court of Appeals: 1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE

PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST
DEFENDANTS-RESPONDENTS HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION

13, RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE
DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a promissory note, engaging to pay the
petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with
interest at 32% per annum. Sima Wei made partial payments on the note, leaving a
balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed
checks payable to petitioner Bank drawn against China Banking Corporation, bearing
respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for
the amount of P500,000.00. The said checks were allegedly issued in full settlement of
the drawer's account evidenced by the promissory note. These two checks were not
delivered to the petitioner-payee or to any of its authorized representatives. For reasons
not shown, these checks came into the possession of respondent Lee Kian Huat, who
deposited the checks without the petitioner-payee's indorsement (forged or otherwise)
to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan
City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung, President of
Plastic Corporation, that the transaction was legal and regular, instructed the cashier of
Producers Bank to accept the checks for deposit and to credit them to the account of
said Plastic Corporation, inspite of the fact that the checks were crossed and payable to
petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the
complaint as aforestated.

The main issue before Us is whether petitioner Bank has a cause of action against any
or all of the defendants, in the alternative or otherwise.

A cause of action is defined as an act or omission of one party in violation of the legal
right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2)
correlative obligation of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.2

The normal parties to a check are the drawer, the payee and the drawee bank. Courts
have long recognized the business custom of using printed checks where blanks are
provided for the date of issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to issue a check is to
properly fill up the blanks and sign it. However, the mere fact that he has done these
does not give rise to any liability on his part, until and unless the check is delivered to
the payee or his representative. A negotiable instrument, of which a check is, is not only
a written evidence of a contract right but is also a species of property. Just as a deed to
a piece of land must be delivered in order to convey title to the grantee, so must a
negotiable instrument be delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the Negotiable Instruments Law, which governs checks,
provides in part:

Every contract on a negotiable instrument is incomplete and revocable

until delivery of the instrument for the purpose of giving effect thereto. . . .

Thus, the payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him.3 Delivery of an instrument means transfer of possession, actual
or constructive, from one person to another. 4 Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the instrument.
Moreover, such delivery must be intended to give effect to the instrument.

The allegations of the petitioner in the original complaint show that the two (2) China
Bank checks, numbered 384934 and 384935, were not delivered to the payee, the
petitioner herein. Without the delivery of said checks to petitioner-payee, the former did
not acquire any right or interest therein and cannot therefore assert any cause of
action, founded on said checks, whether against the drawer Sima Wei or against the
Producers Bank or any of the other respondents.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the
promissory note, and the alternative defendants, including Sima Wei, on the two
checks. On appeal from the orders of dismissal of the Regional Trial Court, petitioner
Bank alleged that its cause of action was not based on collecting the sum of money
evidenced by the negotiable instruments stated but on quasi-delict — a claim for
damages on the ground of fraudulent acts and evident bad faith of the alternative
respondents. This was clearly an attempt by the petitioner Bank to change not only the
theory of its case but the basis of his cause of action. It is well-settled that a party
cannot change his theory on appeal, as this would in effect deprive the other party of his
day in court.5

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is
freed from liability to petitioner Bank under the loan evidenced by the promissory note
agreed to by her. Her allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have earlier explained, these
checks were never delivered to petitioner Bank. And even granting, without admitting,
that there was delivery to petitioner Bank, the delivery of checks in payment of an
obligation does not constitute payment unless they are cashed or their value is impaired
through the fault of the creditor.6 None of these exceptions were alleged by respondent
Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved from liability
on the promissory note by some other cause, petitioner Bank has a right of action
against her for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank has no privity
with them. Since petitioner Bank never received the checks on which it based its action
against said respondents, it never owned them (the checks) nor did it acquire any
interest therein. Thus, anything which the respondents may have done with respect to
said checks could not have prejudiced petitioner Bank. It had no right or interest in the
checks which could have been violated by said respondents. Petitioner Bank has
therefore no cause of action against said respondents, in the alternative or otherwise. If
at all, it is Sima Wei, the drawer, who would have a cause of action against her
co-respondents, if the allegations in the complaint are found to be true.

With respect to the second assignment of error raised by petitioner Bank regarding the
applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to
discuss the same in view of Our finding that the petitioner Bank did not acquire any right
or interest in the checks due to lack of delivery. It therefore has no cause of action
against the respondents, in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals dismissing the
petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned.
On the first cause of action, the case is REMANDED to the trial court for a trial on the
merits, consistent with this decision, in order to determine whether respondent Sima
Wei is liable to the Development Bank of Rizal for any amount under the promissory
note allegedly signed by her.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

G.R. No. 148864               August 21, 2003

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C.

EVANGELISTA, Petitioners,
vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND
DEVELOPMENT CORP. and the REGISTER OF DEEDS OF
BULACAN, Respondents.

DECISION

PUNO, J.:

Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the
decision of the Court of Appeals dismissing their petition.

Petitioners filed a complaint1 for annulment of titles against respondents, Mercator

Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation,
and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners
of five (5) parcels of land2 contained in the Real Estate Mortgage3 executed by them and
Embassy Farms, Inc. ("Embassy Farms"). They alleged that they executed the Real
Estate Mortgage in favor of Mercator Financing Corporation ("Mercator") only as officers
of Embassy Farms. They did not receive the proceeds of the loan evidenced by a
promissory note, as all of it went to Embassy Farms. Thus, they contended that the
mortgage was without any consideration as to them since they did not personally obtain
any loan or credit accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void. 4 With the void mortgage, they assailed
the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the
highest bidder in the public auction, the issuance of the transfer certificates of title to it,
the subsequent sale of the same parcels of land to respondent Lydia P. Salazar
("Salazar"), and the transfer of the titles to her name, and lastly, the sale and transfer of
the properties to respondent Lamecs Realty & Development Corporation ("Lamecs").

Mercator admitted that petitioners were the owners of the subject parcels of land. It,
however, contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor
of defendant Mercator Finance Corporation ‘for and in consideration of certain loans,
and/or other forms of credit accommodations obtained from the Mortgagee (defendant
Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR
THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS,
Philippine Currency and to secure the payment of the same and those others that the
MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.’" 5 It contended that
since petitioners and Embassy Farms signed the promissory note 6 as co-makers, aside
from the Continuing Suretyship Agreement7 subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes 8 restructuring
the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to
their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged
properties are valid.

Respondents Salazar and Lamecs asserted that they are innocent purchasers for value
and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the
prior ownership of petitioners of the subject parcels of land, but alleged that they are the
present registered owner. Both respondents likewise assailed the long silence and
inaction by petitioners as it was only after a lapse of almost ten (10) years from the
foreclosure of the property and the subsequent sales that they made their claim. Thus,
Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. 9

During pre-trial, the parties agreed on the following issues:

a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of
defendant Mercator Finance Corp. is null and void;

b. Whether or not the extra-judicial foreclosure proceedings undertaken on

subject parcels of land to satisfy the indebtedness of Embassy Farms, Inc. is
(sic) null and void;

c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of
Lydia Salazar and that executed by the latter in favor of defendant Lamecs
Realty and Development Corp. are null and void;

d. Whether or not the parties are entitled to damages. 10

After pre-trial, Mercator moved for summary judgment on the ground that except as to
the amount of damages, there is no factual issue to be litigated. Mercator argued that
petitioners had admitted in their pre-trial brief the existence of the promissory note, the
continuing suretyship agreement and the subsequent promissory notes restructuring the
loan, hence, there is no genuine issue regarding their liability. The mortgage,
foreclosure proceedings and the subsequent sales are valid and the complaint must be
dismissed.11

Petitioners opposed the motion for summary judgment claiming that because their
personal liability to Mercator is at issue, there is a need for a full-blown trial. 12
The RTC granted the motion for summary judgment and dismissed the complaint. It
held:

A reading of the promissory notes show (sic) that the liability of the signatories thereto
are solidary in view of the phrase "jointly and severally." On the promissory note
appears (sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and
another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is
crystal clear then that the plaintiffs-spouses signed the promissory note not only as
officers of Embassy Farms, Inc. but in their personal capacity as well(.) Plaintiffs(,) by
affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the
amount of indebtedness. That the principal contract of loan is void for lack of
consideration, in the light of the foregoing is untenable. 13

Petitioners’ motion for reconsideration was denied for lack of merit. 14 Thus, petitioners
went up to the Court of Appeals, but again were unsuccessful. The appellate court held:

The appellants’ insistence that the loans secured by the mortgage they executed were
not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and
misplaced. The fact that they signed the subject promissory notes in the(ir) personal
capacities and as officers of the said debtor corporation is manifest on the very face of
the said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming
arguendo that they did not, the appellants lose sight of the fact that third persons who
are not parties to a loan may secure the latter by pledging or mortgaging their own
property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a
mortgage over their own property in order to secure the purported corporate debt of
Embassy Farms, Inc., the appellants undeniably assumed the personality of persons
interested in the fulfillment of the principal obligation who, to save the subject realities
from foreclosure and with a view towards being subrogated to the rights of the creditor,
were free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code of
the Philippines).15 (emphases in the original)

The appellate court also observed that "if the appellants really felt aggrieved by the
foreclosure of the subject mortgage and the subsequent sales of the realties to other
parties, why then did they commence the suit only on August 12, 1997 (when the
certificate of sale was issued on January 12, 1987, and the certificates of title in the
name of Mercator on September 27, 1988)?" Petitioners’ "procrastination for about nine
(9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e
may even venture to say that the complaint was not worth the time of the courts." 16

A motion for reconsideration by petitioners was likewise denied for lack of merit. 17 Thus,
this petition where they allege that:

The court a quo erred and acted with grave abuse of discretion amounting to lack or
excess of jurisdiction in affirming in toto the May 4, 1998 order of the trial court granting
respondent’s motion for summary judgment despite the existence of genuine issues as
to material facts and its non-entitlement to a judgment as a matter of law, thereby
deciding the case in a way probably not in accord with applicable decisions of this
Honorable Court.18

we affirm.

Summary judgment "is a procedural technique aimed at weeding out sham claims or
defenses at an early stage of the litigation." 19 The crucial question in a motion for
summary judgment is whether the issues raised in the pleadings are genuine or
fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A
genuine issue means "an issue of fact which calls for the presentation of evidence, as
distinguished from an issue which is fictitious or contrived so as not to constitute a
genuine issue for trial."20 To forestall summary judgment, it is essential for the non-
moving party to confirm the existence of genuine issues where he has substantial,
plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of
evidence upon which a reasonable finding of fact could return a verdict for the non-
moving party. The proper inquiry would therefore be whether the affirmative defenses
offered by petitioners constitute genuine issue of fact requiring a full-blown trial. 21

In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not
deny that they obtained a loan from Mercator. They merely claim that they got the loan
as officers of Embassy Farms without intending to personally bind themselves or their
property. However, a simple perusal of the promissory note and the continuing
suretyship agreement shows otherwise. These documentary evidence prove that
petitioners are solidary obligors with Embassy Farms.

The promissory note22 states:

For value received, I/We jointly and severally promise to pay to the order of
MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT
HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS &
78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows:

September 16, 1982 - P154,267.87

October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87

x x x           x x x          x x x
The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania
C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista
below it.

The Continuing Suretyship Agreement23 also proves the solidary obligation of

petitioners, viz:

(Embassy Farms, Inc.)

Principal

(Eduardo B. Evangelista)
Surety

(Epifania C. Evangelista)
Surety

(Mercator Finance Corporation)

Creditor

To: MERCATOR FINANCE COPORATION

(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA

and EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and
severally unconditionally guarantees (sic) to MERCATOR FINANCE
COPORATION (hereinafter called Creditor), the full, faithful and prompt
payment and discharge of any and all indebtedness of EMBASSY
FARMS, INC. (hereinafter called Principal) to the Creditor.

x x x           x x x          x x x

(3) The obligations hereunder are joint and several and independent of the
obligations of the Principal. A separate action or actions may be brought
and prosecuted against the Surety whether or not the action is also
brought and prosecuted against the Principal and whether or not the
Principal be joined in any such action or actions.

x x x           x x x          x x x

The agreement was signed by petitioners on February 16, 1982. The promissory
notes24 subsequently executed by petitioners and Embassy Farms, restructuring their
loan, likewise prove that petitioners are solidarily liable with Embassy Farms.

Petitioners further allege that there is an ambiguity in the wording of the promissory note
and claim that since it was Mercator who provided the form, then the ambiguity should
be resolved against it.
Courts can interpret a contract only if there is doubt in its letter. 25 But, an examination of
the promissory note shows no such ambiguity. Besides, assuming arguendo that there
is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:

SECTION 17. Construction where instrument is ambiguous. – Where the language of

the instrument is ambiguous or there are omissions therein, the following rules of
construction apply:

x x x           x x x          x x x

(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.

Petitioners also insist that the promissory note does not convey their true intent in
executing the document.1âwphi1 The defense is unavailing. Even if petitioners intended
to sign the note merely as officers of Embassy Farms, still this does not erase the fact
that they subsequently executed a continuing suretyship agreement. A surety is one
who is solidarily liable with the principal.26 Petitioners cannot claim that they did not
personally receive any consideration for the contract for well-entrenched is the rule that
the consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. A surety is bound
by the same consideration that makes the contract effective between the principal
parties thereto.27 Having executed the suretyship agreement, there can be no dispute on
the personal liability of petitioners.

Lastly, the parol evidence rule does not apply in this case. 28 We held in Tarnate v. Court
of Appeals,29 that where the parties admitted the existence of the loans and the
mortgage deeds and the fact of default on the due repayments but raised the contention
that they were misled by respondent bank to believe that the loans were long-term
accommodations, then the parties could not be allowed to introduce evidence of
conditions allegedly agreed upon by them other than those stipulated in the loan
documents because when they reduced their agreement in writing, it is presumed that
they have made the writing the only repository and memorial of truth, and whatever is
not found in the writing must be understood to have been waived and abandoned.

IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.

SO ORDERED.

Panganiban, and Sandoval-Gutierrez, JJ., concur.

Corona, and Carpio-Morales, JJ., on official leave.
G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal

capacity as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREÑO, respondents.

BELLOSILLO, J.:

RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals
Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of
Cebu City. After trial judgment was rendered ordering the defendants to pay P11,000.00
to the plaintiff, private respondent herein. The decision having become final and
executory, on motion of the latter, the trial court ordered its execution. This order was
questioned by the defendants before the Court of Appeals. However, on 15 January
1992 a writ of execution was issued.

On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la

Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then
detailed. The notice directed petitioner not to disburse, transfer, release or convey to
any other person except to the deputy sheriff concerned the salary checks or other
checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. 1 On 10
March 1992 private respondent filed a motion before the trial court for examination of
the garnishees.

On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus
the trial court, finding no more legal obstacle to act on the motion for examination of the
garnishees, directed petitioner on 4 November 1992 to submit his report showing the
amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from
receipt 2 taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of
the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner to explain
why he should not be cited in contempt of court for failing to comply with the order of 4
November 1992.

On the other hand, on 19 January 1993 petitioner moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, credit,
property or anything of value belonging to Mabanto, Jr., except his salary and RATA
checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to
him. He further claimed that, as such, they were still public funds which could not be
subject to garnishment.

On 9 March 1993 the trial court denied both motions and ordered petitioner to
immediately comply with its order of 4 November 1992. 3 It opined that the checks of
Mabanto, Jr., had already been released through petitioner by the Department of
Justice duly signed by the officer concerned. Upon service of the writ of garnishment,
petitioner as custodian of the checks was under obligation to hold them for the judgment
creditor. Petitioner became a virtual party to, or a forced intervenor in, the case and the
trial court thereby acquired jurisdiction to bind him to its orders and processes with a
view to the complete satisfaction of the judgment. Additionally, there was no sufficient
reason for petitioner to hold the checks because they were no longer government funds
and presumably delivered to the payee, conformably with the last sentence of Sec. 16
of the Negotiable Instruments Law.

With regard to the contempt charge, the trial court was not morally convinced of
petitioner's guilt. For, while his explanation suffered from procedural infirmities
nevertheless he took pains in enlightening the court by sending a written explanation
dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground
that the notice should have been sent to the Finance Officer of the Department of
Justice. Petitioner insists that he had no authority to segregate a portion of the salary of
Mabanto, Jr. The explanation however was not submitted to the trial court for action
since the stenographic reporter failed to attach it to the record. 4

On 20 April 1993 the motion for reconsideration was denied. The trial court explained
that it was not the duty of the garnishee to inquire or judge for himself whether the
issuance of the order of execution, writ of execution and notice of garnishment was
justified. His only duty was to turn over the garnished checks to the trial court which
issued the order of execution. 5

Petitioner raises the following relevant issues: (1) whether a check still in the hands of
the maker or its duly authorized representative is owned by the payee before physical
delivery to the latter: and, (2) whether the salary check of a government official or
employee funded with public funds can be subject to garnishment.

Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr.,
because they were not yet delivered to him, and that petitioner as garnishee has no
legal obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.'s
judgment debt. The thesis of petitioner is that the salary checks still formed part of
public funds and therefore beyond the reach of garnishment proceedings.

Petitioner has well argued his case.

Garnishment is considered as a species of attachment for reaching credits belonging to

the judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on
the phrase "belonging to the judgment debtor" since it is the focal point in resolving the
issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
receives his compensation in the form of checks from the Department of Justice through
petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the
Negotiable Instruments Law, every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the instrument
by the maker or drawer with intent to transfer title to the payee and recognize him as
the holder thereof.7

According to the trial court, the checks of Mabanto, Jr., were already released by the
Department of Justice duly signed by the officer concerned through petitioner and upon
service of the writ of garnishment by the sheriff petitioner was under obligation to hold
them for the judgment creditor. It recognized the role of petitioner as custodian of the
checks. At the same time however it considered the checks as no longer government
funds and presumed delivered to the payee based on the last sentence of Sec. 16 of
the Negotiable Instruments Law which states: "And where the instrument is no longer in
the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed." Yet, the presumption is not conclusive because the last
portion of the provision says "until the contrary is proved." However this phrase
was deleted by the trial court for no apparent reason. Proof to the contrary is its own
finding that the checks were in the custody of petitioner. Inasmuch as said checks had
not yet been delivered to Mabanto, Jr., they did not belong to him and still had the
character of public funds. In Tiro v. Hontanosas  8 we ruled that —

The salary check of a government officer or employee such as a teacher

does not belong to him before it is physically delivered to him. Until that
time the check belongs to the government. Accordingly, before there is
actual delivery of the check, the payee has no power over it; he cannot
assign it without the consent of the Government.

As a necessary consequence of being public fund, the checks may not be garnished to
satisfy the judgment. 9 The rationale behind this doctrine is obvious consideration of
public policy. The Court succinctly stated in Commissioner of Public Highways v. San
Diego  10 that —
 The functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public funds from
their legitimate and specific objects, as appropriated by law.

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

WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April
1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET
ASIDE. The notice of garnishment served on petitioner dated 3 February 1992 is
ordered DISCHARGED.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of
various Departments all over the country are prepared in Manila not at the end of the
payroll period, but days before it to ensure that they reach the employees concerned not
later than the end of the payroll period. As to the employees in the provinces or cities,
the checks are sent through the heads of the corresponding offices of the Departments.
Thus, in the case of Prosecutors and Assistant Prosecutors of the Department of
Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as
the case may be, who shall then deliver the checks to the payees.

Involved in the instant case are the salary and RATA checks of then Assistant City
Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now
Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these checks
were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.

The ponencia failed to indicate the payroll period covered by the salary check and the
month to which the RATA check corresponds.

I respectfully submit that if these salary and RATA checks corresponded, respectively,
to a payroll period and to a month which had already lapsed at the time the notice of
garnishment was served, the garnishment would be valid, as the checks would then
cease to be property of the Government and would become property of Mabanto. Upon
the expiration of such period and month, the sums indicated therein were deemed
automatically segregated from the budgetary allocations for the Department of Justice
under the General Appropriations Act.

It must be recalled that the public policy against execution, attachment, or garnishment
is directed to public funds.

Thus, in the case of Director of the Bureau of Commerce and Industry

vs. Concepcion 1 where the core issue was whether or not the salary due from the
Government to a public officer or employee can, by garnishment, be seized before
being paid to him and appropriated to the payment of his judgment debts, this Court
held:

A rule, which has never been seriously questioned, is that money in the
hands of public officers, although it may be due government employees, is
not liable to the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue of its sovereignty,
may not be sued in its own courts except by express authorization by the
Legislature, and to subject its officers to garnishment would be to permit
indirectly what is prohibited directly. Another reason is that moneys
sought to be garnished, as long as they remain in the hands of the
disbursing officer of the Government, belong to the latter, although the
defendant in garnishment may be entitled to a specific portion thereof.
And still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.

The United States Supreme Court, in the leading case of Buchanan vs.
Alexander ([1846], 4 How., 19), in speaking of the right of creditors of
seamen, by process of attachment, to divert the public money from its
legitimate and appropriate object, said:
 To state such a principle is to refute it. No government can
sanction it. At all times it would be found embarrassing, and
under some circumstances it might be fatal to the public
service. . . . So long as money remains in the hands of a
disbursing officer, it is as much the money of the United
States, as if it had not been drawn from the treasury. Until
paid over by the agent of the government to the person
entitled to it, the fund cannot, in any legal sense, be
considered a part of his effects." (See, further, 12 R.C.L., p.
841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs.
Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs.
Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied)

The authorities cited in the ponencia are inapplicable. Garnished or levied on therein

were public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine
National Bank (PNB) in the account of the Irrigation Service Unit in Republic vs.
Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal
Bank vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public
Highways with the PNB under a current account, which may be expended only for their
legitimate object as authorized by the corresponding legislative appropriation
in Commissioner of Public Highways vs. Diego. 4

Neither is Tiro vs. Hontanosas  5 squarely in point. The said case involved the validity of
Circular No. 21, series of 1969, issued by the Director of Public Schools which directed
that "henceforth no cashier or disbursing officer shall pay to attorneys-in-fact or other
persons who may be authorized under a power of attorney or other forms of authority to
collect the salary of an employee, except when the persons so designated and
authorized is an immediate member of the family of the employee concerned, and in all
other cases except upon proper authorization of the Assistant Executive Secretary for
Legal and Administrative Matters, with the recommendation of the Financial Assistant."
Private respondent Zafra Financing Enterprise, which had extended loans to public
school teachers in Cebu City and obtained from the latter promissory notes and special
powers of attorney authorizing it to take and collect their salary checks from the Division
Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the
Circular. It is clear that the teachers had in fact assigned to or waived in favor of Zafra
their future salaries which were still public funds. That assignment or waiver was
contrary to public policy.

I would therefore vote to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.

Padilla, J., concurs.

Separate Opinions
DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of
various Departments all over the country are prepared in Manila not at the end of the
payroll period, but days before it to ensure that they reach the employees concerned not
later than the end of the payroll period. As to the employees in the provinces or cities,
the checks are sent through the heads of the corresponding offices of the Departments.
Thus, in the case of Prosecutors and Assistant Prosecutors of the Department of
Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as
the case may be, who shall then deliver the checks to the payees.

Involved in the instant case are the salary and RATA checks of then Assistant City
Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now
Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these checks
were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.

The ponencia failed to indicate the payroll period covered by the salary check and the
month to which the RATA check corresponds.

I respectfully submit that if these salary and RATA checks corresponded, respectively,
to a payroll period and to a month which had already lapsed at the time the notice of
garnishment was served, the garnishment would be valid, as the checks would then
cease to be property of the Government and would become property of Mabanto. Upon
the expiration of such period and month, the sums indicated therein were deemed
automatically segregated from the budgetary allocations for the Department of Justice
under the General Appropriations Act.

It must be recalled that the public policy against execution, attachment, or garnishment
is directed to public funds.

Thus, in the case of Director of the Bureau of Commerce and Industry

vs. Concepcion 1 where the core issue was whether or not the salary due from the
Government to a public officer or employee can, by garnishment, be seized before
being paid to him and appropriated to the payment of his judgment debts, this Court
held:

A rule, which has never been seriously questioned, is that money in the
hands of public officers, although it may be due government employees, is
not liable to the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue of its sovereignty,
may not be sued in its own courts except by express authorization by the
Legislature, and to subject its officers to garnishment would be to permit
indirectly what is prohibited directly. Another reason is that moneys
sought to be garnished, as long as they remain in the hands of the
disbursing officer of the Government, belong to the latter, although the
defendant in garnishment may be entitled to a specific portion thereof.
 And still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.

The United States Supreme Court, in the leading case of Buchanan vs.
Alexander ([1846], 4 How., 19), in speaking of the right of creditors of
seamen, by process of attachment, to divert the public money from its
legitimate and appropriate object, said:

To state such a principle is to refute it. No government can

sanction it. At all times it would be found embarrassing, and
under some circumstances it might be fatal to the public
service. . . . So long as money remains in the hands of a
disbursing officer, it is as much the money of the United
States, as if it had not been drawn from the treasury. Until
paid over by the agent of the government to the person
entitled to it, the fund cannot, in any legal sense, be
considered a part of his effects." (See, further, 12 R.C.L., p.
841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs.
Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs.
Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied)

The authorities cited in the ponencia are inapplicable. Garnished or levied on therein

were public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine
National Bank (PNB) in the account of the Irrigation Service Unit in Republic vs.
Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal
Bank vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public
Highways with the PNB under a current account, which may be expended only for their
legitimate object as authorized by the corresponding legislative appropriation
in Commissioner of Public Highways vs. Diego. 4

Neither is Tiro vs. Hontanosas  5 squarely in point. The said case involved the validity of
Circular No. 21, series of 1969, issued by the Director of Public Schools which directed
that "henceforth no cashier or disbursing officer shall pay to attorneys-in-fact or other
persons who may be authorized under a power of attorney or other forms of authority to
collect the salary of an employee, except when the persons so designated and
authorized is an immediate member of the family of the employee concerned, and in all
other cases except upon proper authorization of the Assistant Executive Secretary for
Legal and Administrative Matters, with the recommendation of the Financial Assistant."
Private respondent Zafra Financing Enterprise, which had extended loans to public
school teachers in Cebu City and obtained from the latter promissory notes and special
powers of attorney authorizing it to take and collect their salary checks from the Division
Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the
Circular. It is clear that the teachers had in fact assigned to or waived in favor of Zafra
their future salaries which were still public funds. That assignment or waiver was
contrary to public policy.
I would therefore vote to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.

Padilla, J., concurs.