NEGO – 1st Set of Cases

(January 19, 2021)

1. Aglibot v. Santia, G.R. No. 185945, December 5, 2012 - Accommodation

2. Areza v. Express Savings Bank, G.R. No. 176697, September 10, 2014 – Alteration; Sec. 63, 66; 24-hour
clearing; Depositary/collecting bank

3. Bank of the Philippine Islands v. Court of Appeals, G.R. No. 112392, February 29, 2000 –  Sec. 66,
Accommodation; Negligence

4. Equitable Banking Corp. v. Special Steel Products, G.R. No. 175350, June 13, 2012 – Crossed Check

5. Metropolitan Bank and Trust Company v. Chiok, G.R. No. 172652, November 26, 2014 – Manager’s check;
Sec. 49; Equitable assignee

G.R. No. 185945               December 05, 2012

FIDELIZA J. AGLIBOT, Petitioner,
vs.
INGERSOL L. SANTIA, Respondent.

FACTS:

Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of ₱2,500,000.00 to Pacific
Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot).

The loan was evidenced by a Promissory Note dated July 1, 2003, issued by Aglibot in behalf of PLCC, payable
in one year subject to interest at 24% per annum.

Allegedly as a guaranty or security for the payment of the note, Aglibot also issued and delivered to Santia
eleven (11) post-dated personal checks drawn from her own demand account maintained at Metrobank,
Camiling Branch.

Aglibot is a major stockholder of PLCC, with headquarters at 27 Casimiro Townhouse, Casimiro Avenue,
Zapote, Las Piñas, Metro Manila, where most of the stockholders also reside. 4

Upon presentment of the aforesaid checks for payment, they were dishonored by the bank for having been
drawn against insufficient funds or closed account.

Santia thus demanded payment from PLCC and Aglibot of the face value of the checks, but neither of them
heeded his demand. Consequently, eleven (11) Informations for violation of Batas Pambansa Bilang 22 (B.P.
22), corresponding to the number of dishonored checks, were filed against Aglibot before the Municipal Trial
Court in Cities (MTCC), Dagupan City, Branch 3, docketed as Criminal Case Nos. 47664 to 47674.

Each Information, except as to the amount, number and date of the checks, and the reason for the dishonor,
uniformly alleged, as follows:

That sometime in the month of September, 2003 in the City of Dagupan, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, FIDELIZA J. AGLIBOT, did then and
there, willfully, unlawfully and criminally, draw, issue and deliver to one Engr. Ingersol L. Santia, a
METROBANK Check No. 0006766, Camiling Tarlac Branch, postdated November 1, 2003, in the
amount of ₱50,000.00, Philippine Currency, payable to and in payment of an obligation with the
complainant, although the said accused knew fully well that she did not have sufficient funds in or credit
with the said bank for the payment of such check in full upon its presentment, such that when the said
check was presented to the drawee bank for payment within ninety (90) days from the date thereof, the

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 same was dishonored for reason "DAIF", and returned to the complainant, and despite notice of
dishonor, accused failed and/or refused to pay and/or make good the amount of said check within five
(5) days banking days [sic], to the damage and prejudice of one Engr. Ingersol L. Santia in the aforesaid
amount of ₱50,000.00 and other consequential damages.

Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but claimed that she did so in
behalf of PLCC; that before granting the loan, Santia demanded and obtained from her a security for the
repayment thereof in the form of the aforesaid checks, but with the understanding that upon remittance in cash
of the face amount of the checks, Santia would correspondingly return to her each check so paid; but despite
having already paid the said checks, Santia refused to return them to her, although he gave her assurance that
he would not deposit them; that in breach of his promise, Santia deposited her checks, resulting in their
dishonor; that she did not receive any notice of dishonor of the checks; that for want of notice, she could not be
held criminally liable under B.P. 22 over the said checks; and that the reason Santia filed the criminal cases
against her was because she refused to agree to his demand for higher interest.

On August 18, 2006, the MTCC in its Joint Decision decreed as follows:

WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is hereby ACQUITTED of all

counts of the crime of violation of the bouncing checks law on reasonable doubt. However, the said accused is
ordered to pay the private complainant the sum of ₱3,000,000.00 representing the total face value of the eleven
checks plus interest of 12% per annum from the filing of the cases on November 2, 2004 until fully paid,
attorney’s fees of ₱30,000.00 as well as the cost of suit.

On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos. 2006-0559-D to 2006-0569-
D, which further absolved Aglibot of any civil liability towards Santia, to wit:

WHEREFORE, premises considered, the Joint Decision of the court a quo regarding the civil aspect of these
cases is reversed and set aside and a new one is entered dismissing the said civil aspect on the ground of
failure to fulfill, a condition precedent of exhausting all means to collect from the principal debtor.

Santia’s motion for reconsideration was denied in the RTC’s Order dated June 12, 2007. 8 On petition for review
to the CA docketed as CA-G.R. SP No. 100021, Santia interposed the following assignment of errors, to wit:

"In brushing aside the law and jurisprudence on the matter, the Regional Trial Court seriously erred:

1. In reversing the joint decision of the trial court by dismissing the civil aspect of these cases;

2. In concluding that it is the Pacific Lending and Capital Corporation and not the private respondent
which is principally responsible for the amount of the checks being claimed by the petitioner;

3. In finding that the petitioner failed to exhaust all available legal remedies against the principal debtor
Pacific Lending and Capital Corporation;

4. In finding that the private respondent is a mere guarantor and not an accommodation party, and thus,
cannot be compelled to pay the petitioner unless all legal remedies against the Pacific Lending and
Capital Corporation have been exhausted by the petitioner;

5. In denying the motion for reconsideration filed by the petitioner." 9

In its now assailed decision, the appellate court rejected the RTC’s dismissal of the civil aspect of the aforesaid
B.P. 22 cases based on the ground it cited, which is that the "failure to fulfill a condition precedent of exhausting
all means to collect from the principal debtor." The appellate court held that since Aglibot’s acquittal by the
MTCC in Criminal Case Nos. 47664 to 47674 was upon a reasonable doubt 10 on whether the prosecution was
able to satisfactorily establish that she did receive a notice of dishonor, a requisite to hold her criminally liable
under B.P. 22, her acquittal did not operate to bar Santia’s recovery of civil indemnity.

It is axiomatic that the "extinction of penal action does not carry with it the eradication of civil liability, unless the
extinction proceeds from a declaration in the final judgment that the fact from which the civil liability might arise
did not exist. Acquittal will not bar a civil action in the following cases: (1) where the acquittal is based on
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reasonable doubt as only preponderance of evidence is required in civil cases; (2) where the court declared the
accused’s liability is not criminal but only civil in nature[;] and (3) where the civil liability does not arise from or is
not based upon the criminal act of which the accused was acquitted."11 (Citation omitted)

The CA therefore ordered Aglibot to personally pay Santia ₱3,000,000.00 with interest at 12% per annum, from
the filing of the Informations until the finality of its decision. Thereafter, the sum due, to be compounded with the
accrued interest, will in turn be subject to annual interest of 12% from the finality of its judgment until full
payment. It thus modified the MTCC judgment, which simply imposed a straight interest of 12% per annum from
the filing of the cases on November 2, 2004 until the ₱3,000,000.00 due is fully paid, plus attorney’s fees of
₱30,000.00 and the costs of the suit.

Issue

Now before the Court, Aglibot maintains that it was error for the appellate court to adjudge her personally liable
for issuing her own eleven (11) post-dated checks to Santia, since she did so in behalf of her employer, PLCC,
the true borrower and beneficiary of the loan. Still maintaining that she was a mere guarantor of the said debt of
PLCC when she agreed to issue her own checks, Aglibot insists that Santia failed to exhaust all means to collect
the debt from PLCC, the principal debtor, and therefore he cannot now be permitted to go after her subsidiary
liability.

Ruling of the Court

The petition is bereft of merit.

Aglibot cannot invoke the benefit of excussion

The RTC in its decision held that, "It is obvious, from the face of the Promissory Note x x x that the accused-
appellant signed the same on behalf of PLCC as Manager thereof and nowhere does it appear therein that she
signed as an accommodation party."12 The RTC further ruled that what Aglibot agreed to do by issuing her
personal checks was merely to guarantee the indebtedness of PLCC. So now petitioner Aglibot reasserts that as
a guarantor she must be accorded the benefit of excussion – prior exhaustion of the property of the debtor – as
provided under Article 2058 of the Civil Code, to wit:

Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the debtor.

It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal debtor, the
PLCC in this case, must first be exhausted before the guarantor may be held answerable for the debt.13 Thus,
the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and
the latter is unable to pay, "for obviously the ‘exhaustion of the principal’s property’ — the benefit of which the
guarantor claims — cannot even begin to take place before judgment has been obtained."14 This rule is
contained in Article 206215 of the Civil Code, which provides that the action brought by the creditor must be filed
against the principal debtor alone, except in some instances mentioned in Article 205916 when the action may be
brought against both the guarantor and the principal debtor.

The Court must, however, reject Aglibot’s claim as a mere guarantor of the indebtedness of PLCC to Santia for
want of proof, in view of Article 1403(‘’) of the Civil Code, embodying the Statute of Frauds, which provides:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

a) An agreement that by its terms is not to be performed within a year from the making thereof;
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 b) A special promise to answer for the debt, default, or miscarriage of another;

c) An agreement made in consideration of marriage, other than a mutual promise to marry;

d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, or such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

e) An agreement for the leasing of a longer period than one year, or for the sale of real property
or of an interest therein;

f) A representation to the credit of a third person. (Italics ours)

Under the above provision, concerning a guaranty agreement, which is a promise to answer for the debt or
default of another,17 the law clearly requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified,  although under Article 1358 of the Civil Code, a contract of
guaranty does not have to appear in a public document. Contracts are generally obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity are present, and the Statute of
Frauds simply provides the method by which the contracts enumerated in Article 1403(2) may be proved, but it
does not declare them invalid just because they are not reduced to writing. Thus, the form required under the
Statute is for convenience or evidentiary purposes only.

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated therein. This is the obvious rationale why a contract
of guarantee is unenforceable unless made in writing or evidenced by some writing. For as pointed out by
Santia, Aglibot has not shown any proof, such as a contract, a secretary’s certificate or a board resolution, nor
even a note or memorandum thereof, whereby it was agreed that she would issue her personal checks in behalf
of the company to guarantee the payment of its debt to Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself remotely containing an agreement between her and PLCC resembling
her guaranteeing its debt to Santia. And neither is there a showing that PLCC thereafter ratified her act of
"guaranteeing" its indebtedness by issuing her own checks to Santia.

Thus did the CA reject the RTC’s ruling that Aglibot was a mere guarantor of the indebtedness of PLCC, and as
such could not "be compelled to pay [Santia], unless the latter has exhausted all the property of PLCC, and has
resorted to all the legal remedies against PLCC x x x." 22

Aglibot is an accommodation party and therefore liable to Santia

Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange drawn on a bank payable
on demand," while Section 126 of the said law defines a bill of exchange as "an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer."

The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally
and solidarily to pay Santia, and dismissed her claim that she issued her said checks in her official capacity as
PLCC’s manager merely to guarantee the investment of Santia. It noted that she could have issued PLCC’s
checks, but instead she chose to issue her own checks, drawn against her personal account with Metrobank. It
concluded that Aglibot intended to personally assume the repayment of the loan, pointing out that in her
Counter-Affidavit, she even admitted that she was personally indebted to Santia, and only raised payment as her
defense, a clear admission of her liability for the said loan.

The appellate court refused to give credence to Aglibot’s claim that she had an understanding with Santia that
the checks would not be presented to the bank for payment, but were to be returned to her once she had made
cash payments for their face values on maturity. It noted that Aglibot failed to present any proof that she had

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indeed paid cash on the above checks as she claimed. This is precisely why Santia decided to deposit the
checks in order to obtain payment of his loan.

The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate its
loan to Santia by issuing her own post-dated checks in payment thereof. She is what the Negotiable Instruments
Law calls an accommodation party. 23 Concerning the liability of an accommodation party, Section 29 of the said
law provides:

Sec. 29. Liability of an accommodation party. — An accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value notwithstanding such
holder at the time of taking the instrument knew him to be only an accommodation party.

As elaborated in The Phil. Bank of Commerce v. Aruego:24

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the
instrument knew him to be only an accommodation party. In lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the consideration for the
instrument but assumes liability to the other parties thereto because he wants to accommodate another.
x x x.25 (Citation omitted)

The relation between an accommodation party and the party accommodated is, in effect, one of principal and
surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the beginning . The liability is
immediate and direct. It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party.

Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the accommodation party
remains not only primary but also unconditional to a holder for value, such that even if the accommodated party
receives an extension of the period for payment without the consent of the accommodation party , the latter is still
liable for the whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.

The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to the latter on her
checks without the need for Santia to first go after PLCC for the payment of its loan .28 It would have been
otherwise had it been shown that Aglibot was a mere guarantor, except that since checks were issued ostensibly
in payment for the loan, the provisions of the Negotiable Instruments Law must take primacy in application.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED and the Decision dated
March 18, 2008 of the Court of Appeals in CA-G.R. SP No. I 00021 is hereby AFFIRMED.

G.R. No. 176697               September 10, 2014

CESAR V. AREZA and LOLITA B. AREZA, Petitioners,

vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondents.

ALTERATION

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to
reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of Appeals in

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CAG.R. CV No. 83192. The Court of Appeals affirmed with modification the 22 April 2004 Resolution 3 of the
Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886.

The factual antecedents follow.

Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with respondent Express Savings
Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-
000092-3.

They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May
2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager of
respondent Express Savings Bank (the Bank) was present during the transaction and immediately offered the
services of the Bank for the processing and eventual crediting of the said checks to petitioners’ account.4 On the
other hand, Potenciano countered that he was prevailed upon to accept the checks by way of accommodation of
petitioners who were valued clients of the Bank.5

On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks.

On 6 May 2000, Potenciano informed petitioners that the checks they deposited with the Bank were honored. He
allegedly warned petitioners that the clearing of the checks pertained only to the availability of funds and did not
mean that the checks were not infirmed.6 Thus, the entire amount of ₱1,800,000.00 was credited to petitioners’
savings account. Based on this information, petitioners released the two cars to the buyer.

Sometime in July 2000, the subject checks were returned by PVAO to the drawee on the ground that the amount
on the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee
returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was
informed by Equitable-PCI Bank that the drawee dishonored the checks on the ground of material alterations.
Equitable-PCI Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter ruled
in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the
Bank in the amount of ₱1,800,000.00.

The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies
of the documents given by its depositary bank.7 On the other hand, petitioners maintained that the Bank never
informed them of these developments.

On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was dishonored by the
Bank for the reason "Deposit Under Hold." According to petitioners, the Bank unilaterally and unlawfully put their
account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent a demand letter asking the Bank to
honor their check. The Bank refused to heed their request and instead, closed the Special Savings Account of
the petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings account. The Bank
then withdrew the amount of ₱1,800,000.00 representing the returned checks from petitioners’ savings account.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral
withdrawal from their savings account, petitioners filed a Complaint for Sum of Money with Damages against the
Bank and Potenciano with the RTC of Calamba.

On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The dispositive
portion of the Decision reads:

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 WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of
plaintiffs and against the defendants jointly and severally to pay plaintiffs as follows, to wit:

1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the
account of plaintiffs;

2. ₱500,000.00 as moral damages; and

3. ₱300,000.00 as attorney’s fees.8

The trial court reduced the issue to whether or not the rights of petitioners were violated by respondents when
the deposits of the former were debited by respondents without any court order and without their knowledge and
consent. According to the trial court, it is the depositary bank which should safeguard the right ofthe depositors
over their money. Invoking Article 1977 of the Civil Code, the trial court stated that the depositary cannot make
use of the thing deposited without the express permission of the depositor. The trial court also held that
respondents should have observed the 24-hour clearing house rule that checks should be returned within 24-
hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. In this
case, petitioners deposited the checks in May 2000, and respondents notified them of the problems on the check
three months later or in August 2000. In sum, the trial court characterized said acts of respondents as attended
with bad faith when they debited the amount of ₱1,800,000.00 from the account of petitioners.

Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the Decision of
the RTC on the ground that respondents’ motion for reconsideration did not conform with Section 5, Rule 16 of
the Rules of Court; hence, it was a mere scrap of paper that did not toll the running of the period to appeal.

On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration,
set aside the Pozas Decision, and dismissed the complaint. The trial court awarded respondents their
counterclaim of moral and exemplary damages of ₱100,000.00 each. The trial court first applied the principle of
liberality when it disregarded the alleged absence of a notice of hearing in respondents’ motion for
reconsideration. On the merits, the trial court considered the relationship of the Bank and petitioners with respect
to their savings account deposits as a contract of loan with the bank as the debtor and petitioners as creditors.
As such, Article 1977 of the Civil Code prohibiting the depository from making use of the thing deposited without
the express permission of the depositor is not applicable. Instead, the trial court applied Article 1980 which
provides that fixed, savings and current deposits ofmoney in banks and similar institutions shall be governed by
the provisions governing simple loan. The trial court then opined thatthe Bank had all the right to set-off against
petitioners’ savings deposits the value of their nine checks that were returned.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of damages . The
appellate court made the following ratiocination:

Any argument as to the notice of hearing has been resolved when the pairing judge issued the order on
February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice of hearing shows that
request was addressed to the Clerk of Court and plaintiffs’ counsel for hearing to be set on March 26,
2004.

The core issues in this case revolve on whether the appellee bank had the right to debit the amount of
₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting was done "without
the plaintiffs’ knowledge."

We find that the elements of legal compensation are all present in the case at bar. Hence, applying the
case of the Bank of the Philippine Islands v. Court of Appeals, the obligors bound principally are at the
same time creditors of each other. Appellee bank stands as a debtor of appellant, a depositor. At the
same time, said bank is the creditor of the appellant with respect to the dishonored treasury warrant
checks which amount were already credited to the account of appellants. When the appellants had
withdrawn the amount of the checks they deposited and later on said checks were returned, they
became indebted to the appellee bank for the corresponding amount.

It should be noted that [G]erry Mambuay was the appellants’ walking buyer. As sellers, appellants ought
to have exercised due diligence in assessing his credit or personal background. The 24-hour clearing

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 house rule is not the one that governs in this case since the nine checks were discovered by the drawee
bank to contain material alterations.

Appellants merely allege that they were not informed of any development on the checks returned.
However, this Court believes that the bank and appellants had opportunities to communicate about the
checks considering that several transactions occurred from the time of alleged return of the checks to the
date of the debit.

However, this Court agrees with appellants that they should not pay moral and exemplary damages to
each of the appellees for lack of basis. The appellants were not shown to have acted in bad faith. 9

Petitioners filed the present petition for review on certiorari raising both procedural and substantive issues, to wit:

1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave abuse
of discretion in upholding the legality and/or propriety of the Motion for Reconsideration filed in violation
of Section 5, Rule 15 ofthe Rules on Civil Procedure;

2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in declaring
that the private respondents "had the right to debit the amount of ₱1,800,000.00 from the appellants’
accounts" and the bank’s act of debiting was done with the plaintiff’s knowledge. 10

Before proceeding to the substantive issue, we first resolve the procedural issue raised by petitioners.

Sections 5, Rule 15 of the Rules of Court states:

Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned, and shall
specify the time and date of the hearing which must not be later than ten (10) days after the filing of the motion.

Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the adverse party as
the rules require. Petitioners add that the hearing on the motion for reconsideration was scheduled beyond 10
days from the date of filing.

As held in Maturan v. Araula, 11 the rule requiring that the notice be addressed to the adverse party has
beensubstantially complied with when a copy of the motion for reconsideration was furnished to the counsel of
the adverse party, coupled with the fact that the trial court acted on said notice of hearing and, as prayed for,
issued an order12 setting the hearing of the motion on 26 March 2004.

We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the said motion
for reconsideration was furnished to the counsel of the adverse party. 13

Now to the substantive issues to which procedural imperfection must, in this case, give way.

The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts.

On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the amountof
₱1,800,000.00 was accordingly credited to petitioners’ accounts, prompting them to release the purchased cars
to the buyer.

Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank. Three
months had passed when the Bank was informed by its depositary bank that the drawee had dishonored the
checks on the ground of material alterations.

The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon the savings
account of petitioners with respondent bank. The trial court inits reconsidered decision and the appellate court
were one in declaring that petitioners should bear the loss.

We reverse.

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The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In
this case, before the alteration was discovered, the checks were already cleared by the drawee bank, the
Philippine Veterans Bank. Three months had lapsed before the drawee dishonored the checks and returned
them to Equitable-PCI Bank, the respondents’ depositary bank. And itwas not until 10 months later when
petitioners’ accounts were debited. A question thus arises: What are the liabilities of the drawee, the
intermediary banks, and the petitioners for the altered checks?

LIABILITY OF THE DRAWEE

Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who
accepts the bill. In Philippine National Bank v. Court of Appeals, 14 the payment of the amount of a check implies
not only acceptance but also compliance with the drawee’s obligation.

In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or the altered
tenor of acceptance? There are two divergent intepretations proffered by legal analysts. 15 The first view is
supported by the leading case of National City Bank ofChicago v. Bank of the Republic. 16 In said case, a certain
Andrew Manning stole a draft and substituted his name for that of the original payee. He offered it as payment to
a jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which
collectedthe equivalent amount from the drawee. Upon learning of the alteration, the drawee sought to recover
from the defendant bank the amount of the draft, as money paid by mistake. The court denied recovery on the
ground that the drawee by accepting admitted the existence of the payee and his capacity to endorse. 17 Still, in
Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 18 the court echoed the court’s interpretation in National City
Bank of Chicago, in this wise:

We think the construction placed upon the section by the Illinois court is correct and that it was not the legislative
intent that the obligation of the acceptor should be limited to the tenorof the instrument as drawn by the maker,
as was the rule at common law,but that it should be enforceable in favor of a holder in due course against the
acceptor according to its tenor at the time of its acceptance or certification.

The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the Negotiable
Instruments Law. As stated in the Illinois case: "The court must take the act as it is written and should give to the
words their natural and common meaning . . . ifthe language of the act conflicts with statutes or decisions in
force before its enactment the courts should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act suggests that a change in the common law
was intended. A careful reading thereof, independent of any common-law influence, requires that the words
"according to the tenor of his acceptance" be construed as referring to the instrument as it was at the time it
came into the hands of the acceptor for acceptance, for he accepts no other instrument than the one presented
to him — the altered form — and it alone he engages to pay. This conclusion is in harmony with the law of
England and the continental countries. It makes for the usefulness and currency of negotiable paper without
seriously endangering accepted banking practices, for banking institutions can readily protect themselves
against liability on altered instruments either by qualifying their acceptance or certification or by relying on
forgery insurance and specialpaper which will make alterations obvious. All of the arguments advanced against
the conclusion herein announced seem highly technical in the face of the practical facts that the drawee bank
has authenticated an instrument in a certain form, and that commercial policy favors the protection of anyone
who, in due course, changes his position on the faith of that authentication. 19

The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of
the bill prior to alteration. 20 This view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which statesthat a material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor.
Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its
duty tocharge its client’s account only for bona fide disbursements he had made. If the drawee did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity. 21 The drawee, however, still has recourse to recover
its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did in this
case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

9
A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is
presented for immediate payment over the counter. 22 It is also the bank to which a check is transferred for
deposit in an account at such bank, evenif the check is physically received and indorsed first by another
bank.23 A collecting bank is defined as any bank handling an item for collection except the bank on which the
check is drawn.24

When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank. This
is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or
ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit
the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the amount
of the check or the check has been cleared for deposit. 25

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior
parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting." It
has been repeatedly held that in check transactions, the depositary/collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that
the act of presenting the check for payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the endorsements. 26 If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of
the check.27

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose
of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds
itself out to the public as the expert and the law holds it to a high standard of conduct. 28

As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered
checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its account with EquitablePCI
Bank to be debited, it has the option toseek recourse against the latter in another forum.

24-HOUR CLEARING RULE

Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August
2000 that the drawee bank notified Equitable-PCI that there were material alterations in the checks.

We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it did not
follow the 24-hour clearing period which provides that when a drawee bank fails to return a forged or altered
check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.

Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items
Beyond The Reglementary Clearing Period.- Items which have been the subject of material alteration or items
bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the
period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending
the same.

Antonio Viray, in his book Handbook on Bank Deposits, elucidated:

It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai vs. People’s
Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour
rule under which the drawee bank forever loses the right to claim against presenting/collecting bank if the check
is not returned at the next clearing day orwithin 24 hours. Apparently, the commercial banks felt strict
enforcement of the 24-hour rule is too harsh and therefore made representations and obtained modification of
the rule, which modification is now incorporated in the Manual of Regulations. Since the same commercial banks
controlled the Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules
naturally followed.

10
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the
drawee bank in accordance with long standing and accepted banking practices shall be returned through the
PCHC/local clearing office, as the case may be, not later than the next regular clearing (24-hour). The
modification, however, is that items which have been the subject of material alteration or bearing forged
endorsement may be returned even beyond 24 hours so long that the same is returned within the prescriptive
period fixed by law. The consensus among lawyers is that the prescriptiveperiod is ten (10)years because a
check or the endorsement thereon is a written contract. Moreover, the item need not be returned through the
clearing house but by direct presentation to the presenting bank. 29

In short, the 24-hour clearing ruledoes not apply to altered checks.

LIABILITY OF PETITIONERS

The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co. 30 is in point. A foreigner
purchased several pieces of jewelry from Gold Palace Jewellery using a United Overseas Bank (Malaysia)
issued draft addressed to the Land Bank of the Philippines (LBP). Gold Palace Jewellery deposited the draft in
the company’s account with Far East Bank. Far East Bank presented the draft for clearing to LBP. The latter
cleared the same and Gold Palace Jewellery’s account was credited with the amount stated in the draft.
Consequently, Gold Palace Jewellery released the pieces of jewelries to the foreigner. Three weeks later, LBP
informed Far East Bank that the amount in the foreign draft had been materially altered from ₱300,000.00 to
₱380,000.00. LBP returnedthe check to Far East Bank. Far East Bank refunded LBP the ₱380,000.00 paid by
LBP. Far East Bank initially debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded the
payment of the difference between the amount in the altered draft and the amount debited from Gold Palace
Jewellery.

However, for the reasons already discussed above, our pronouncement in the Far East Bank and Trust
Companycase that "the drawee is liable on its payment of the check according to the tenor of the check at the
time of payment, which was the raised amount"31 is inapplicable to the factual milieu obtaining herein.

We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus:

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far
East, should not have debited the money paid by the drawee bank from respondent company's account. When
Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of
the NIL, became an agent of the former for the collection of the amount in the draft. The subsequent payment by
the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the
drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and,
as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction
is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank
at some future time will call on the payee for the return of the money paid to him on the check.

As the transaction in this case had been closed and the principalagent relationship between the payee and the
collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on
its own and should now be responsible for its own actions. x x x Likewise, Far East cannot invoke the warranty
of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is
precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a
restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East
did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as
provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due
course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far
East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the
amount it refunded to the drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit
the account of Gold Palace, and for doing so, it must return what it had erroneously taken. 32

Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer, the payee,
or either the drawee bank or depositary bank was negligent and such negligence substantially contributed tothe
loss from alteration. In the instant case, no negligence can be attributed to petitioners. We lend credence to their
11
claim that at the time of the sales transaction, the Bank’s branch manager was present and even offered the
Bank’s services for the processing and eventual crediting of the checks. True to the branch manager’s words,
the checks were cleared three days later when deposited by petitioners and the entire amount ofthe checks was
credited to their savings account.

ON LEGAL COMPENSATION

Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should have made a
claim of the amount of ₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the collecting bank
in this case and not from them.

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings account. Under Art.
1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. And the requisites for legal compensation are:

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 consist 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 be 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.

It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-debtor.
Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loans. The bank is the debtorand the
depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank and the depositor is the contract that determines the
rights and obligations of the parties.33

But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank, asthe
depositary and collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the
part of petitioners, legal compensation cannot take place. DAMAGES

The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was informed of the
dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001 when the Bank
informed petitioners that it will debit from their account the altered amount. This delay is tantamount to
negligence on the part of the collecting bank which would entitle petitioners to an award for damages under
Article 1170 of the New Civil Code which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.

The damages in the form of actual or compensatory damages represent the amount debited by the Bank from
petitioners’ account.

We delete the award of moral damages. Contrary to the lower court’s finding, there was no showing that the
Bank acted fraudulently or in bad faith. It may have been remiss in its duty to diligently protect the account of its
depositors but its honest but mistaken belief that petitioners’ account should be debited is not tantamount to bad
faith. We also delete the award of attorney’s fees for it is not a sound public policy to place a premium on the
right to litigate. No damages can becharged to those who exercise such precious right in good faith, even if done
erroneously.34
12
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to
alteration.1âwphi1 Since Philippine Veterans Bank paid the altered amount of the check, it may pass the liability
back as it did, to Equitable-PCI Bank,the collecting bank. The collecting banks, Equitable-PCI Bank and the
Bank, are ultimately liable for the amount of the materially altered check. It cannot further pass the liability back
to the petitioners absent any showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.

Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly and
severally pay petitioners ₱1,800,000.00, representing the amount withdrawn from the latter’s account. We do not
conform with said ruling regarding the finding of bad faith on the part of respondents, as well as its failure
toobserve the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12 February
2007 respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15
January 2004 Decision of the Regional Trial Court of Calamba City, Branch 92 in Civil Case No. B-5886
rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar as it ordered respondents to jointly and
severally pay petitioners ₱1,800,000.00 representing the amount withdrawn from the latter’s account. The award
of moral damages and attorney’s fees are DELETED.

SO ORDERED.

G.R. No. 112392           February 29, 2000

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392
affirming in toto that of the Regional Trial Court of Makati, Branch 139, 2 which dismissed the complaint filed by
petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of money.

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account
No. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch, Continental Bank
Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five
Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. 5 It appears that the
check belonged to a certain Henry who went to the office of private respondent and requested him to deposit the
check in his dollar account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that
as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon
private respondent's presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon,
Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the
withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was
duly initialed by the branch assistant manager, Teresita Lindo. 6

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York
that the said check deposited by private respondent was a counterfeit check 7 because it was "not of the type or
style of checks issued by Continental Bank International." 8 Consequently, Mr. Ariel Reyes, the manager of
petitioner's Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is
private respondent's son, to inform his father that the check bounced. 9 Reyes himself sent a telegram to private
respondent regarding the dishonor of the check. In turn, private respondent's son wrote to Reyes stating that the
check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have
been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town. 10

Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18,
1984, Reyes reminded private respondent of his son's promise and warned that should he fail to return that
amount within seven (7) days, the matter would be referred to the bank's lawyers for appropriate action to

13
protect the bank's interest. 11 This was followed by a letter of the bank's lawyer dated April 8, 1985 demanding
the return of the $2,500.00.12

In reply, private respondent wrote petitioner's counsel on April 20, 1985 13 stating that he deposited the check "for
clearing purposes" only to accommodate Chan. He added:

Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on
October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may
not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its
clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did
not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of
recipient.1âwphi1.nêt

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still
exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the
circumstances.

xxx     xxx     xxx

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount
of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or costs of suit.

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

Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that
"thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without private
respondent's passbook. Thus, private respondent prayed that third party defendant Chan be made to refund to
him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint, whenever it
asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts, private respondent
alone was liable "for the value of the credit given on account of the draft or check deposited." It contended that
private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly
delay the disposition of the main case asserting that private respondent's claim could be ventilated in another
case.

Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the
motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on August 25,
1987 and October 28, 1987 directing private respondent to actively participate in locating Chan. After private
respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without
prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner
could not hold private respondent liable based on the check's face value alone. To so hold him liable "would

14
render inutile the requirement of "clearance" from the drawee bank before the value of a particular foreign check
or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it
was incumbent upon the petitioner to credit the value of the check in question to the account of the private
respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from
the latter's account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not
waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner
should suffer the resultant loss.

On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner
committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting
private respondent's passbook and, before the check was cleared and in crediting the amount indicated therein
in private respondent's account. It stressed that the mere deposit of a check in private respondent's account did
not mean that the check was already private respondent's property. The check still had to be cleared and its
proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and
regulations. Furthermore, petitioner's contention that private respondent warranted the check's genuineness by
endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of
presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless
exercise. After all, these requirements are designed to protect the bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,14 where this Court stated
that a personal check is not legal tender or money, and held that the check deposited in this case must be
cleared before its value could be properly transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this petition for
review on certiorari, raising the following issues:

1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A

GENERAL INDORSER.

2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT

NAPIZA AND RUBEN GAYON.

3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE

WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be
liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):

Sec. 66. Liability of general indorser. — Every indorser who indorses without qualification, warrants to all
subsequent holders in due course —

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b) That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.

Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by
delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be;
(b) that he has a good title to it, and (c) that all prior parties had capacity to contract. 15 In People v.
Maniego,16 this Court described the liabilities of an indorser as follows:

Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the
checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right "to enforce payment of the instrument for the full amount thereof against all
15
 parties liable thereon. Among the "parties liable thereon." Is an indorser of the instrument,  i.e., "a person
placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he
clearly indicated by appropriate words his intention to be bound in some other capacity." Such an
indorser "who indorses without qualification," inter alia "engages that on due presentment, * * (the
instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or any subsequent indorser who may be compelled to pay it." Maniego may also be deemed
an "accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value thereof, and for the purpose of lending his
name to some other person." As such, she is under the law "liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an
accommodation party," although she has the right, after paying the holder, to obtain reimbursement from
the party accommodated, "since the relation between them is in effect that of principal and surety, the
accommodation party being the surety.

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

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

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits
appear:

4. Withdrawals must be made by the depositor personally but in some exceptional circumstances, the
Bank may allow withdrawal by another upon the depositor's written authority duly authenticated; and
neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's
savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank.

5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the
request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must
indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp,
transmission and other charges related to such withdrawals shall be for the account of the depositor and
shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks
and in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability).

6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the manner
above provided, upon presentation of the depositor's savings passbook and with the withdrawal form
supplied by the Bank at the counter. 19

Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency
deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositor's passbook. Private respondent admits he signed a blank
withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the
payee, the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal
slip was in fact a blank one with only private respondent's two signatures affixed on the proper spaces is
buttressed by petitioner's allegation in the instant petition that had private respondent indicated therein the
person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount.
Petitioner contends that "(I)n failing to do so (i.e., naming his authorized agent), he practically authorized any
possessor thereof to write any amount and to collect the same." 20

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the
16
case, petitioner's personnel should have been duly warned that Gayon, who was also employed in petitioner's
Buendia Ave. Extension branch, 21 was not the proper payee of the proceeds of the check. Otherwise, either
Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at
the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw
the amount indicated in the check. Private respondent does not deny having signed such authority. However,
considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's
signature, the unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated
and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under
these facts, there could not have been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented
with the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back." The requirement of presentation of the
passbook when withdrawing an amount cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for
the protection of the bank's interest and as a reminder to the depositor, the withdrawal shall be entered in the
depositor's passbook. The fact that private respondent's passbook was not presented during the withdrawal is
evidenced by the entries therein showing that the last transaction that he made with the bank was on September
3, 1984, the date he deposited the controversial check in the amount of $2,500.00. 22

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:

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

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

In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts
represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The
bank did so without previously clearing the checks with the drawee bank, the Philippine National Bank in New
York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign
department. The Court held that the encashment of the checks without prior clearance is "contrary to normal or
ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were
large." Accordingly, the Court approved the Auditor General's denial of Banco Atlantico's claim for payment of
the value of the checks that was withdrawn by Boncan.

17
Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always having
in mind the fiduciary nature of their relationship." 27 As such, in dealing with its depositors, a bank should exercise
its functions not only with the diligence of a good father of a family but it should do so with the highest degree of
care.28

In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, petitioner's personnel negligently
handled private respondent's account to petitioner's detriment. As this Court once said on this matter:

Negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a
prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart
v. Smith, provides that test by which to determine the existence of negligence in a particular case which
may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a
given case is not determined by reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that. 29

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the
aggregate amount of private respondent's dollar deposits that had yet to be cleared. The bank's ledger on
private respondent's account shows that before he deposited $2,500.00, private respondent had a balance of
only $750.00.30 Upon private respondent's deposit of $2,500.00 on September 3, 1984, that amount was credited
in his ledger as a deposit resulting in the corresponding total balance of $3,250.00. 31 On September 10, 1984,
the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving
a balance $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October
23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. 32 On November 19,
1984 the word "hold" was written beside the balance of $109.92. 33 That must have been the time when Reyes,
petitioner's branch manager, was informed unofficially of the fact that the check deposited was a counterfeit, but
petitioner's Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo
Bank International in New York the following day, November 20, 1984. 34 According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner. 35

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

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

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 37392 is AFFIRMED.

G.R. No. 175350               June 13, 2012

18
 EQUITABLE BANKING CORPORATION, INC. Petitioner,
vs.
SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO, Respondents.

A crossed check with the notation "account payee only" can only be deposited in the named payee’s account. It
is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of
having a good title thereto.

Before the Court is a Petition for Review on Certiorari of the October 13, 2006 Decision of the Court of Appeals
(CA) in CA-G.R. CV No. 62425. The dispositive portion of the assailed Decision reads:

WHEREFORE, premises considered, the May 4, 1998 Decision of the Regional Trial Court of Pasig City, Branch
168, in Civil Case No. 63561, is hereby AFFIRMED.

SO ORDERED.1

Factual Antecedents

Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel products. Its co-
respondent Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder. 2

International Copra Export Corporation (Interco) is its regular customer. 3

Jose Isidoro4 Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the
son-in-law of its majority stockholder.5

Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in
banking6 and is the depository bank of Interco and of Uy.

In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales invoices:

Sales Invoice No. 65042 dated February 14, 1991 for ₱325,976.34 7

Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.80 8

Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.84 9

The due dates for these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the
others). The invoices provided that Interco would pay interest at the rate of 36% per annum in case of delay.

In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July
10, 1991,10 July 16, 1991,11 and July 29, 1991.12 Each check was crossed with the notation "account payee only"
and was drawn against Equitable. The records do not identify the signatory for these three checks, or explain
how Uy, Interco’s purchasing officer, came into possession of these checks.

The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and
claimed that he had good title thereto. 13 He demanded the deposit of the checks in his personal accounts in
Equitable, Account No. 18841-2 and Account No. 03474-0. 14

Equitable acceded to Uy’s demands on the assumption that Uy, as the son-in-law of Interco’s majority
stockholder,15 was acting pursuant to Interco’s orders. The bank also relied on Uy’s status as a valued
client.16 Thus, Equitable accepted the checks for deposit in Uy’s personal accounts 17 and stamped "ALL PRIOR
ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED" on their dorsal portion. 18 Uy promptly
withdrew the proceeds of the checks.

In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to ₱985,234.98. 19 It
reiterated its demand on January 14, 1992. 20 SSPI explained its immediate need for payment as it was

19
experiencing some financial crisis of its own. Interco replied that it had already issued three checks payable to
SSPI and drawn against Equitable. SSPI denied receipt of these checks.

On August 6, 1992, SSPI requested information from Equitable regarding the three checks. The bank refused to
give any information invoking the confidentiality of deposits. 21

The records do not disclose the circumstances surrounding Interco’s and SSPI’s eventual discovery of Uy’s
scheme. Nevertheless, it was determined that Uy, not SSPI, received the proceeds of the three checks that were
payable to SSPI. Thus, on June 30, 1993 (twenty-three months after the issuance of the three checks), Interco
finally paid the value of the three checks to SSPI, plus a portion of the accrued interests. Interco refused to pay
the entire accrued interest of ₱767,345.64 on the ground that it was not responsible for the delay. Thus, SSPI
was unable to collect ₱437,040.35 (at the contracted rate of 36% per annum) in interest income. 22

SSPI and its president, Pardo, filed a complaint for damages with application for a writ of preliminary attachment
against Uy and Equitable Bank. The complaint alleged that the three crossed checks, all payable to the order of
SSPI and with the notation "account payee only," could be deposited and encashed by SSPI only. However, due
to Uy’s fraudulent representations, and Equitable’s indispensable connivance or gross negligence, the restrictive
nature of the checks was ignored and the checks were deposited in Uy’s account. Had the defendants not
diverted the three checks in July 1991, the plaintiffs could have used them in their business and earned money
from them. Thus, the plaintiffs prayed for an award of actual damages consisting of the unrealized interest
income from the proceeds of the checks for the two-year period that the defendants withheld the proceeds from
them (from July 1991 up to June 1993).23

In his personal capacity, Pardo claimed an award of ₱3 million as moral damages from the defendants. He
allegedly suffered hypertension, anxiety, and sleepless nights for fear that the government would charge him for
tax evasion or money laundering. He maintained that defendants’ actions amounted to money laundering and
that it unfairly implicated his company in the scheme. As for his fear of tax evasion, Pardo explained that the
Bureau of Internal Revenue might notice a discrepancy between the financial reports of Interco (which might
have reported the checks as SSPI’s income in 1991) and those of SSPI (which reported the income only in
1993). Since Uy and Equitable were responsible for Pardo’s worries, they should compensate him jointly and
severally therefor.24

SSPI and Pardo also prayed for exemplary damages and attorney’s fees. 25

In support of their application for preliminary attachment, the plaintiffs alleged that the defendants are guilty of
fraud in incurring the obligation upon which the action was brought and that there is no sufficient security for the
claim sought to be enforced in this action. 26

The trial court granted plaintiffs’ application. 27 It issued the writ of preliminary attachment on September 20,
1993,28 upon the filing of plaintiffs’ bond for ₱500,000.00. The sheriff served and implemented the writ against
the personal properties of both defendants.29

Upon Equitable’s motion and filing of a counter-bond, however, the trial court eventually discharged the
attachment30 against it.31

Equitable then argued for the dismissal of the complaint for lack of cause of action. It maintained that interest
income is due only when it is expressly stipulated in writing. Since Equitable and SSPI did not enter into any
contract, Equitable is not liable for damages, in the form of unobtained interest income, to SSPI. 32 Moreover,
SSPI’s acceptance of Interco’s payment on the sales invoices is a waiver or extinction of SSPI’s cause of action
based on the three checks.33

Equitable further argued that it is not liable to SSPI because it accepted the three crossed checks in good
faith.34 Equitable averred that, due to Uy’s close relations with the drawer of the checks, the bank had basis to
assume that the drawer authorized Uy to countermand the original order stated in the check (that it can only be
deposited in the named payee’s account). Since only Uy is responsible for the fraudulent conversion of the
checks, he should reimburse Equitable for any amounts that it may be made liable to plaintiffs. 35

The bank counter-claimed that SSPI is liable to it in damages for the wrongful and malicious attachment of
Equitable’s personal properties. The bank maintained that SSPI knew that the allegation of fraud against the

20
bank is a falsehood. Further, the bank is financially capable to meet the plaintiffs’ claim should the latter receive
a favorable judgment. SSPI was aware that the preliminary attachment against the bank was unnecessary, and
intended only to humiliate or destroy the bank’s reputation. 36

Meanwhile, Uy answered that the checks were negotiated to him; that he is a holder for value of the checks and
that he has a good title thereto. 37 He did not, however, explain how he obtained the checks, from whom he
obtained his title, and the value for which he received them. During trial, Uy did not present any evidence but
adopted Equitable’s evidence as his own.

Ruling of the Regional Trial Court 38

The RTC clarified that SSPI’s cause of action against Uy and Equitable is for quasi-delict. SSPI is not seeking to
enforce payment on the undelivered checks from the defendants, but to recover the damage that it sustained
from the wrongful non-delivery of the checks.39

The crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did not authorize anyone to
receive payment in its behalf, Uy clearly had no title to the checks and Equitable had no right to accept the said
checks from Uy. Equitable was negligent in permitting Uy to deposit the checks in his account without verifying
Uy’s right to endorse the crossed checks. The court reiterated that banks have the duty to scrutinize the checks
deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard
because banks hold themselves out to the public as experts in the field. Thus, the trial court found Equitable’s
explanation regarding Uy’s close relations with the drawer unacceptable. 40

Uy’s conversion of the checks and Equitable’s negligence make them liable to compensate SSPI for the actual
damage it sustained. This damage consists of the income that SSPI failed to realize during the delay. 41 The trial
court then equated this unrealized income with the interest income that SSPI failed to collect from Interco. Thus,
it ordered Uy and Equitable to pay, jointly and severally, the amount of ₱437,040.35 to SSPI as actual
damages.42

It also ordered the defendants to pay exemplary damages of ₱500,000.00, attorney’s fees amounting to
₱200,000.00, as well as costs of suit.43

The trial court likewise found merit in Pardo’s claim for moral damages. It found that Pardo suffered anxiety,
sleepless nights, and hypertension in fear that he would face criminal prosecution. The trial court awarded Pardo
the amount of ₱3 million in moral damages.44

The dispositive portion of the trial court’s Decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special Steel Products, Inc., and Augusto L.
Pardo and against defendants Equitable Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering
defendants to jointly and severally pay plaintiffs the following:

1. ₱437,040.35 as actual damages;

2. ₱3,000,000.00 as moral damages to Augusto L. Pardo;

3. ₱500,000.00 as exemplary damages;

4. ₱200,000.00 as attorney’s fees; and

5. Costs of suit.

Defendant EBC’s counterclaim is hereby DISMISSED for lack of factual and legal basis.

Likewise, the crossclaim filed by defendant EBC against defendant Jose Isidoro Uy and the crossclaim filed by
defendant Jose Isidoro Uy against defendant EBC are hereby DISMISSED for lack of factual and legal basis.

Pasig City, May 4, 1998.45

21
The trial court denied Equitable’s motion for reconsideration in its Order dated November 19, 1998. 46

Only Equitable appealed to the CA,47 reiterating its defenses below.

Appealed Ruling of the Court of Appeals 48

The appellate court found no merit in Equitable’s appeal.

It affirmed the trial court’s ruling that SSPI had a cause of action for quasi-delict against Equitable. 49 The CA
noted that the three checks presented by Uy to Equitable were crossed checks, and strictly made payable to
SSPI only. This means that the checks could only be deposited in the account of the named payee. 50 Thus, the
CA found that Equitable had the responsibility of ensuring that the crossed checks are deposited in SSPI’s
account only. Equitable violated this duty when it allowed the deposit of the crossed checks in Uy’s account. 51

The CA found factual and legal basis to affirm the trial court’s award of moral damages in favor of Pardo. 52

It likewise affirmed the award of exemplary damages and attorney’s fees in favor of SSPI. 53

Issues

1. Whether SSPI has a cause of action against Equitable for quasi-delict;

2. Whether SSPI can recover, as actual damages, the stipulated 36% per annum interest from Equitable;

3. Whether speculative fears and imagined scenarios, which cause sleepless nights, may be the basis for the
award of moral damages; and

4. Whether the attachment of Equitable’s personal properties was wrongful.

Our Ruling

SSPI’s cause of action

This case involves a complaint for damages based on quasi-delict. SSPI asserts that it did not receive prompt
payment from Interco in July 1991 because of Uy’s wilful and illegal conversion of the checks payable to SSPI,
and of Equitable’s gross negligence, which facilitated Uy’s actions. The combined actions of the defendants
deprived SSPI of interest income on the said moneys from July 1991 until June 1993. Thus, SSPI claims
damages in the form of interest income for the said period from the parties who wilfully or negligently withheld its
money from it.

Equitable argues that SSPI cannot assert a right against the bank based on the undelivered checks. 54 It cites
provisions from the Negotiable Instruments Law and the case of Development Bank of Rizal v. Sima Wei 55 to
argue that a payee, who did not receive the check, cannot require the drawee bank to pay it the sum stated on
the checks.

Equitable’s argument is misplaced and beside the point. SSPI’s cause of action is not based on the three
checks. SSPI does not ask Equitable or Uy to deliver to it the proceeds of the checks as the rightful payee. SSPI
does not assert a right based on the undelivered checks or for breach of contract. Instead, it asserts a cause of
action based on quasi-delict. A quasi-delict is an act or omission, there being fault or negligence, which causes
damage to another. Quasi-delicts exist even without a contractual relation between the parties. The courts below
correctly ruled that SSPI has a cause of action for quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained
the notation "account payee only." This creates a reasonable expectation that the payee alone would receive the
proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and
no other.56 At the very least, the nature of crossed checks should place a bank on notice that it should exercise
more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has

22
authorized the holder to deposit the same in a different account. It is well to remember that "[t]he banking system
has become an indispensable institution in the modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained an [sic] ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and, above all, trust and confidence. In this
connection, it is important that banks should guard against injury attributable to negligence or bad faith on its
part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and
confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are required of it." 57

Equitable did not observe the required degree of diligence expected of a banking institution under the existing
factual circumstances.

The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should
have put the bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the
same in its behalf, or indorsed it to him. Considering however, that the named payee does not have an account
with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that he had a good title
to the three checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a
thoughtless disregard of consequences without exerting any effort to avoid them." 58

Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco,
made it safe to assume that the drawer authorized Uy to countermand the order appearing on the check. In
other words, Equitable theorizes that Interco reconsidered its original order and decided to give the proceeds of
the checks to Uy.59 That the bank arrived at this conclusion without anything on the face of the checks to support
it is demonstrative of its lack of caution. It is troubling that Equitable proceeded with the transaction based only
on its knowledge that Uy had close relations with Interco. The bank did not even make inquiries with the drawer,
Interco (whom the bank considered a "valued client"), to verify Uy’s representation. The banking system is
placed in peril when bankers act out of blind faith and empty promises, without requiring proof of the assertions
and without making the appropriate inquiries. Had it only exercised due diligence, Equitable could have saved
both Interco and the named payee, SSPI, from the trouble that the bank’s mislaid trust wrought for them.

Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks
questionable is outrageous. These are crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uy’s name does not appear anywhere on the crossed checks. Equitable, not knowing the
named payee on the check, had no way of verifying for itself the alleged genuineness of the indorsement to Uy.
The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uy’s
relationship to Interco’s majority stockholder will not justify disregarding what is clearly ordered on the checks.

Actual damages

For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable
with Uy to compensate SSPI for the damages it suffered.

Among the compensable damages are actual damages, which encompass the value of the loss sustained by the
plaintiff, and the profits that the plaintiff failed to obtain. 60 Interest payments, which SSPI claims, fall under the
second category of actual damages.

SSPI computed its claim for interest payments based on the interest rate stipulated in its contract with Interco. It
explained that the stipulated interest rate is the actual interest income it had failed to obtain from Interco due to
the defendants’ tortious conduct.

The Court finds the application of the stipulated interest rate erroneous.

SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was
not Interco’s fault, but that of the defendants’. If that is the case, then Interco is not in delay (at least not after
issuance of the checks) and the stipulated interest payments in their contract did not become operational. If
Interco is not liable to pay for the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot

23
lose something that it was not entitled to in the first place. Thus, SSPI’s claim that it was entitled to interest
income at the rate stipulated in its contract with Interco, as a measure of its actual damage, is fallacious.

More importantly, the provisions of a contract generally take effect only among the parties, their assigns and
heirs.61 SSPI cannot invoke the contractual stipulation on interest payments against Equitable because it is
neither a party to the contract, nor an assignee or an heir to the contracting parties.

Nevertheless, it is clear that defendants’ actions deprived SSPI of the present use of its money for a period of
two years. SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July
1991 to June 1993. SSPI should recover interest at the legal rate of 6% per annum, 62 this being an award for
damages based on quasi-delict and not for a loan or forbearance of money.

Moral damages

Both the trial and appellate courts awarded Pardo ₱3 million in moral damages. Pardo claimed that he was
frightened, anguished, and seriously anxious that the government would prosecute him for money laundering
and tax evasion because of defendants’ actions. 63 In other words, he was worried about the repercussions that
defendants’ actions would have on him.

Equitable argues that Pardo’s fears are all imagined and should not be compensated. The bank points out that
none of Pardo’s fears panned out. 64

Moral damages are recoverable only when they are the proximate result of the defendant’s wrongful act or
omission.65 Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the
three checks. It does not matter that the things he was worried and anxious about did not eventually materialize.
It is rare for a person, who is beset with mounting problems, to sift through his emotions and distinguish which
fears or anxieties he should or should not bother with. So long as the injured party’s moral sufferings are the
result of the defendants’ actions, he may recover moral damages.

The Court, however, finds the award of ₱3 million excessive. Moral damages are given not to punish the
defendant but only to give the plaintiff the means to assuage his sufferings with diversions and recreation. 66 We
find that the award of ₱50,000.0067 as moral damages is reasonable under the circumstances.

Equitable to recover amounts from Uy

Equitable then insists on the allowance of their cross-claim against Uy. The bank argues that it was Uy who was
enriched by the entire scheme and should reimburse Equitable for whatever amounts the Court might order it to
pay in damages to SSPI.68

Equitable is correct. There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another. 69 In the instant case, the fraudulent scheme concocted by
Uy allowed him to improperly receive the proceeds of the three crossed checks and enjoy the profits from these
proceeds during the entire time that it was withheld from SSPI. Equitable, through its gross negligence and
mislaid trust on Uy, became an unwitting instrument in Uy’s scheme. Equitable’s fault renders it solidarily liable
with Uy, insofar as respondents are concerned. Nevertheless, as between Equitable and Uy, Equitable should
be allowed to recover from Uy whatever amounts Equitable may be made to pay under the judgment. It is clear
that Equitable did not profit in Uy’s scheme. Disallowing Equitable’s cross-claim against Uy is tantamount to
allowing Uy to unjustly enrich himself at the expense of Equitable. For this reason, the Court allows Equitable’s
cross-claim against Uy.

Preliminary attachment

Equitable next assails as error the trial court’s dismissal of its counter-claim for wrongful preliminary attachment.
It maintains that, contrary to SSPI’s allegation in its application for the writ, there is no showing whatsoever that
Equitable was guilty of fraud in allowing Uy to deposit the checks. Thus, the trial court should not have issued
the writ of preliminary attachment in favor of SSPI. The wrongful attachment compelled Equitable to incur
expenses for a counter-bond, amounting to ₱30,204.26, and caused it to sustain damage, amounting to ₱5
million, to its goodwill and business credit. 70

24
SSPI submitted the following affidavit in support of its application for a writ of preliminary attachment:

I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:

1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is our family corporation, Special
Steel Products, Inc., of which I am the president and majority stockholder; I caused the preparation of
the foregoing Complaint, the allegations of which I have read, and which I hereby affirm to be true and
correct out of my own personal knowledge;

2. The corporation and I have a sufficient cause of action against defendants Isidoro Uy alias Jolly Uy
and Equitable Banking Corporation, who are guilty of fraud in incurring the obligation upon which this
action is brought, as particularly alleged in the Complaint, which allegations I hereby adopt and
reproduce herein;

3. There is no sufficient security for our claim in this action and that the amount due us is as much as the
sum for which the order is granted above all legal counterclaims;

4. We are ready and able to put up a bond executed to the defendants in an amount to be fixed by the
Court[,] conditioned on the payment of all costs[,] which may be adjudged to defendants[,] and all
damages[,] which they may sustain by reason of the attachment of the court, should [the court] finally
adjudge that we are not entitled thereto.71

The complaint (to which the supporting affidavit refers) cites the following factual circumstances to justify
SSPI’s application:

6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an account with EQUITABLE
BANK as already alleged, thru its connivance with defendant UY in his fraudulent scheme to defraud
SPECIAL STEEL, or at least thru its gross negligence EQUITABLE BANK consented to or allowed the
opening of Account No. 18841-2 at its head office and Account No. 03474-0 at its Ermita Branch in the
name of SPECIAL STEEL without the latter’s knowledge, let alone authority or consent, but obviously on
the bases of spurious or falsified documents submitted by UY or under his authority, which
documents EQUITABLE BANK did not bother to verify or check their authenticity with SPECIAL
STEEL.72

xxxx

9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK about the fraudulent
transactions involving the aforesaid checks, which could not have been perpetrated without its
indispensable participation and cooperation, or gross negligence, and therein solicited its cooperation in
securing information as to the anomalous and irregular opening of the false accounts maintained in
SPECIAL STEEL’s name, but EQUITABLE BANK malevolently shirking from its responsibility to prevent
the further perpetration of fraud, conveniently, albeit unjustifiably, invoked the confidentiality of the
deposits and refused to give any information, and accordingly denied SPECIAL STEEL’s valid request,
thereby knowingly shielding the identity of the ma[le]factors involved [in] the unlawful and fraudulent
transactions.73

The above affidavit and the allegations of the complaint are bereft of specific and definite allegations of fraud
against Equitable that would justify the attachment of its properties. In fact, SSPI admits its uncertainty whether
Equitable’s participation in the transactions involved fraud or was a result of its negligence. Despite such
uncertainty with respect to Equitable’s participation, SSPI applied for and obtained a preliminary attachment of
Equitable’s properties on the ground of fraud. We believe that such preliminary attachment was wrongful. "[A]
writ of preliminary attachment is too harsh a provisional remedy to be issued based on mere abstractions of
fraud. Rather, the rules require that for the writ to issue, there must be a recitation of clear and concrete factual
circumstances manifesting that the debtor practiced fraud upon the creditor at the time of the execution of their
agreement in that said debtor had a preconceived plan or intention not to pay the creditor." 74 No proof was
adduced tending to show that Equitable had a preconceived plan not to pay SSPI or had knowingly participated
in Uy’s scheme.

25
That the plaintiffs eventually obtained a judgment in their favor does not detract from the wrongfulness of the
preliminary attachment.1âwphi1 While "the evidence warrants [a] judgment in favor of [the] applicant, the proofs
may nevertheless also establish that said applicant’s proffered ground for attachment was inexistent or specious,
and hence, the writ should not have issued at all x x x." 75

For such wrongful preliminary attachment, plaintiffs may be held liable for damages. However, Equitable is
entitled only to such damages as its evidence would allow, 76 for the wrongfulness of an attachment does not
automatically warrant the award of damages. The debtor still has the burden of proving the nature and extent of
the injury that it suffered by reason of the wrongful attachment. 77

The Court has gone over the records and found that Equitable has duly proved its claim for, and is entitled to
recover, actual damages. In order to lift the wrongful attachment of Equitable’s properties, the bank was
compelled to pay the total amount of ₱30,204.26 in premiums for a counter-bond. 78 However, Equitable failed to
prove that it sustained damage to its "goodwill and business credit" in consequence of the alleged wrongful
attachment. There was no proof of Equitable’s contention that respondents’ actions caused it public
embarrassment and a bank run.

WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed October 13, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 62425 is MODIFIED by:

1. REDUCING the award of actual damages to respondents to the rate of 6% per annum of the value of
the three checks from July 1991 to June 1993 or a period of twenty-three months;

2. REDUCING the award of moral damages in favor of Augusto L. Pardo from ₱3,000,000.00 to ₱
50,000.00; and

3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim against Jose Isidoro Uy,
alias Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable Banking Corporation the
amounts that the latter will pay to respondents.

Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporation’s counterclaim for
damages against Special Steel Products, Inc. This Court ORDERS Special Steel Products, Inc. to PAY
Equitable Banking Corporation actual damages in the total amount of ₱30,204.36, for the wrongful preliminary
attachment of its properties.

The rest of the assailed Decision is AFFIRMED.

SO ORDERED.

G.R. No. 172652               November 26, 2014

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
WILFRED N. CHIOK, Respondent.

The three consolidated petitions herein all assail the Decision 1 of the Court of Appeals in CA-G.R. CV No. 77508
dated May 5, 2006, and the Resolution2 in the same case dated November 6, 2006.

Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He usually buys
dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the sale. Chiok pays
Nuguid either in cash or manager’s check, to be picked up by the latter or deposited in the latter’s bank account.
Nuguid delivers the dollars either on the same day or on a later date as may be agreed upon between them, up
to a week later. Chiok and Nuguid had been dealing in this manner for about six to eight years, with their
transactions running into millions of pesos. For this purpose, Chiok maintained accounts with petitioners
Metropolitan Bank and Trust Company (Metrobank) and Global Business Bank, Inc. (Global Bank), the latter
being then referred to as the Asian Banking Corporation (Asian Bank). Chiok likewise entered into a Bills
Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in favor of, or negotiated to,
Chiok may be purchased by Asian Bank. Upon such purchase, Chiok receives a discounted cash equivalent of
the amount of the check earlier than the normal clearing period.
26
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust Company (SBTC)
Manager’s Check (MC) No. 037364 in the amount of ₱25,500,000.00 issued in the name of Chiok, and credited
the same amount to the latter’s Savings Account No. 2-007-03-00201-3.

On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of ₱7,550,000.00 and MC No.
025939 in the amount of ₱10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo B. Nuguid.
The two Asian Bank manager’s checks, with a total value of ₱18,455,350.00 were issued pursuant toChiok’s
instruction and was debited from his account. Likewise upon Chiok’s application, Metrobank issued Cashier’s
Check (CC) No. 003380 in the amount of ₱7,613,000.00 in the name of Gonzalo Bernardo. The same was
debited from Chiok’s Savings Account No. 154-42504955. The checks bought by Chiok for payee Gonzalo
Bernardo are therefore summarized as follows:

Drawee
Amount (P) Source of fund
Bank/Check No.
Asian Bank MC No. 7,550,000.00
025935 Chiok’s Asian Bank Savings
Asian Bank MC No. 10,905,350.00 Account No. 2-007-03-00201-3,
025939 which had been credited with the
(aggregate value value of SBTC MC No. 037364
of (₱25,500,000.00) when the latter was purchased by
Asian Bank MCs: Asian Bank from Chiok pursuant to their BPLA.
18,455,350.00)
Metrobank CC No. 7,613,000.00 Chiok’s Metrobank Savings
003380 Account No. 154-425049553
TOTAL 26,068,350.00  

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC No.
003380), with an aggregate value of ₱26,068,350.00 in Nuguid’s account with Far East Bank & Trust Company
(FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Nuguid was supposed to
deliver US$1,022,288.50,4 the dollar equivalent of the three checks as agreed upon, in the afternoon of the same
day. Nuguid, however, failed to do so, prompting Chiok to request that payment on the three checks be stopped.
Chiok was allegedly advised to secure a court order within the 24-hour clearing period. On the following day,
July 6, 1995, Chiok filed a Complaint for damages with application for ex parte restraining order and/or
preliminary injunction with the Regional Trial Court (RTC) of Quezon City against the spouses Gonzalo and
Marinella Nuguid, and the depositary banks, Asian Bank and Metrobank, represented by their respective
managers, Julius de la Fuente and Alice Rivera. The complaint was docketed as Civil Case No. Q-95-24299 and
was raffled to Branch 96. The complaint was later amended 5 to include the prayer of Chiok to be declared the
legal owner of the proceeds of the subject checks and to be allowed to withdraw the entire proceeds thereof.

On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO) directing the spouses
Nuguid to refrain from presenting the said checks for payment and the depositary banks from honoring the
sameuntil further orders from the court.6

Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO. Metrobank claimed that
when it received the TRO on July 6, 1995, it refused to honor CC No. 003380 and stopped payment thereon.
However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed
Metrobank that the TRO was issued a day after the check was presented for payment. Thus, according to Paz,
the transaction was already consummated and FEBTC had already validly accepted the same. In another letter,
FEBTC informed Metrobank that "the restraining order indicates the name of the payee of the check as
GONZALO NUGUID, but the check isin fact payable to GONZALO BERNARDO. We believe there is a defect in
the restraining order and as such should not bind your bank." 7 Alice Rivera of Metrobank replied to said letters,
reiterating Metrobank’s position tocomply with the TRO lest it be cited for contempt by the trial court. However,
as would later be alleged in Metrobank’s Answer before the trial court, Metrobank eventually acknowledged the
check when it became clear that nothing more can be done to retrieve the proceeds of the check. Metrobank
furthermore claimed that since it is the issuer of CC No. 003380, the check is its primary obligation and should
not be affected by any prior transaction between the purchaser (Chiok) and the payee (Nuguid).

27
In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank before the Philippine
Clearing House Corporation (PCHC) Arbitration Committee for the collection of the value of Asian Bank MC No.
025935 and 025939, which FEBTC had allegedly allowed Nuguid to withdraw on July 5, 1995, the same day the
checks were deposited. The case was docketed as Arbicom Case No. 95-082. The PCHC Arbitration Committee
later relayed, in a letter dated August 4, 1995, its refusal to assume jurisdiction over the case on the ground that
any step it may take might be misinterpreted as undermining the jurisdiction of the RTC over the case or a
violation of the July 6, 1995 TRO.

On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary prohibitory injunction:

WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of ₱26,068,350.00, to be executed in
favor of the defendants under the condition that the same shall answer for whatever damages they may sustain
by reason of this injunction should the Court ultimately determine that he was not entitled thereto, let a writ of
preliminary prohibitory injunction issue restraining and preventing during the pendency of the case:

a) Defendant Asian Bank frompaying Manager’s Checks No. 025935 in the amount of ₱7,550,000.00
and No. 025939 in the amount of ₱10,905,350.00; and

b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in the amount of ₱7,613,000.00.

The application for preliminary mandatory injunctionis hereby denied and the order issued on July 7, 1995
directing defendant Metro Bank (Annapolis, Greenhills Branch) to allow the plaintiff to withdraw the proceeds of
Cashier’s Check No. 003380 in the amount of ₱7,613,000.00 is hereby set aside.

The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro Bank in contempt of court filed last July
13, 1995 is hereby denied for lack of legal basis.

The writ of preliminary prohibitory injunction and a copy of this order shall be served on the defendants by
Deputy Sheriff Jose Martinez of this Branch.8

Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on July 26, 1995.

Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop Payment Order on SBTC MC
No. 037364 (payable to Chiok in the amount of ₱25,500,000.00) on the basis of an Affidavit of Loss &
Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss & Undertaking, Tan claims that she
purchased SBTC MC No. 037364 from SBTC, but the manager’s check got lost on that day. Asian Bank argued
that Chiok would therefore be liable for the dishonor of the manager’s check under the terms of the BPLA, which
provides for recourse against the seller (Chiok) of the check when it is dishonored by the drawee (SBTC) for any
reason, whether valid or not.

On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-95-24299. On February6,
1996, the RTC initially denied FEBTC’s intervention in the case. On Motion for Reconsideration, however, the
RTC, on April 15, 1996, reversed itself and allowed the same.

In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate withdrawal of the proceeds of
Asian Bank MC Nos. 025935 and 025939 on the ground that, as manager’schecks, they were the direct
obligations of Asian Bank and were accepted in advance by Asian Bank by the mere issuance thereof. FEBTC
presented the checks for payment on July 5, 1995 through the PCHC. Asian Bank, as admitted in its Answer
before the RTC, received the same on that day. Consequently, Asian Bank was deemed to have confirmed and
booked payment of the subject checks in favor of FEBTC or, at the latest, during the first banking hour of July 6,
1995, when payment should have been made. FEBTC claimed that Asian Bank exhibited bad faith when, in
anticipation of the TRO, it opted to float the checks until it received the TRO at 12:00 noon of July 6, 1995 to
justify the nonpayment thereof.

In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much more dollars than
what was required for the three checks at the time of payment. By way of special affirmative defense, the
spouses Nuguid also claims that since the subject checks had already been paid to him, Chiok is no longer
entitled to an injunction (to hold the payment of the subject checks), and Civil Case No. Q-95-24299 has already
become moot.
28
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which states:

WHEREFORE, judgment is rendered:

1. Declaring as permanent the writ of preliminary injunction issued under the Order of July 25, 1995;

2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:

a.) The amount of ₱34,691,876.71 (less the attorney’s fees of ₱255,000.00 which shall remain
with Global Business Bank, Inc.), plus interest at the legal rate of 12%/p.a. from September 30,
1999 until fully paid;

b.) The amount of ₱215,000.00, representing the excess amount debited from the plaintiff’s
deposit in his account with Global Business Bank, Inc. on July 7, 1995, plus interest of 12%/p.a.
from July 7, 1995, until fully paid;

c.) Attorney’s fees equivalentof 5% of the total amount due; and

3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:

a. The amount of his deposit of ₱7,613,000.00, plus interest of 12%/p.a. from July 5, 1995 until
said amount is fully paid; and

b. Attorney’s fees of 5%of the total amount due;

4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly and severally with Global
Business Bank, Inc. and Metropolitan Bank & Trust Company, Inc. for the respective attorney’s fees;

5. Dismissing the complaint-in-interventionof BPI for lack of merit;

6. Ordering the defendantsand the intervenorto pay, jointly and severally, the costs of suit. 9

(Emphases supplied.)

The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According to the RTC, Nuguid’s claim
that Chiok was still liable for seven dishonored China Banking Corporation (CBC) checks with a total worth of
₱72,984,020.00 is highly doubtful since such claim was not presented as a counterclaim in the case.
Furthermore, the court ruled that the certification of CBC stating the reasons 10 for the stop payment order "are
indicative of Chiok’s non-liability to Nuguid." The RTC further noted that there was a criminal case filed by Chiok
against Nuguid on March 29, 1996 for estafa and other deceit on account of Nuguid’s alleged failure to return the
originals of the seven CBC checks.11

The RTC went on to rule that manager’s checks and cashier’s checks may be the subject of a Stop Payment
Order from the purchaser on the basis of the payee’s contractual breach. As explanation for this ruling, the RTC
adopted its pronouncements when it issued the July 25, 1995 Order:

Defendant Nuguid’s argument that the injunction could render manager’s and cashier’schecks unworthy of the
faith they should have and could impair their nature as independent undertakings of the issuing banks is
probably an undistinguished simplification. While the argument may be applicable to such checks in general, it
does not adequately address the situation, as here, when specific manager’s and cashier’s checks are already
covered by reciprocal undertakings between their purchaser and their payee, in which the latter allegedly failed
to perform. The agreement herein was supposedly one in which Nuguid would deliver the equivalent amount in
US dollars ($1,022,288.23) "on the same date" that the plaintiff purchased and delivered the manager’s and
cashier’s checks (₱26,068,350.00). Assuming that such a reciprocity was true, the purchaser should have the
legal protection of the injunctive writ (which, after all, the legal departments of the issuing banks themselves
allegedly advised the plaintiff to obtain), since the usual order or instruction to stop payment available in case of
ordinary checks did not avail. This was probably the reason that Asian Bank has expressly announced in its own
comment/opposition of July 14, 1995 that it was not opposing the application for the prohibitory injunction.

29
The dedication of such checks pursuantto specific reciprocal undertakings between their purchasers and payees
authorizes rescission by the former to prevent substantial and material damage to themselves, which authority
includes stopping the payment of the checks. 12 According to the RTC, both manager’s and cashier’s checks are
still subject to regular clearing under the regulations of the Bangko Sentral ng Pilipinas. Since manager’s and
cashier’s checks are the subject of regular clearing, they may consequently be refused for cause by the drawee,
which refusal is in fact provided for in the PCHC Rule Book.

The RTC found the argument by BPI that the manager’s and cashier’s checks are pre-cleared untenable under
Section 60 of the New Central Bank Act and Article 1249 of the Civil Code, which respectively provides:

Section 60. Legal Character. – Checks representing demand deposits do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor; Provided, however,
that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery
to the creditor of cash in an amount equal to the amount credited to his account.

Art. 1249. The payment of debts inmoney shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory
notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. The RTC went on
to rule that due to the timely service of the TRO and the injunction, the value of the three checks remained with
Global Bank and Metrobank. 13 The RTC concluded that since Nuguid did not have a valid title to the proceeds of
the manager’s and cashier’s checks, Chiok is entitled to be paid back everything he had paid to the drawees for
the checks.14

With respect to Global Bank, the RTC ruled that the entire amount of ₱34,691,876.71 it recovered from SBTC
from the September 15, 1997 PCHC Decision, as reflected in the September 29, 1999 Charge Slip No. 114977,
less the sum of ₱225,000.00 awarded by the arbitration committee’s decision as attorney’s fees, should be
paidto Chiok, with interest at 12% per annum from September 30, 1999 until full payment. The RTC likewise
ordered Global Bank to pay Chiok the amount of ₱215,390.00, an amount debited from Chiok’s account as
payment for outstanding bills purchase. 15

With respect to Metrobank, the RTC ruled that it should pay Chiok ₱7,613,000.00, the amount paid by Chiok to
purchase the CC, plus interest of 12 percent per annum from July 5,1995 until full payment. The RTC explained
this finding as follows:

The same conclusion is true with respect to Metro Bank, with whom the funds amounting to ₱7,613,000.00 for
the purchase of CC No. 003380 has remained. According to Chiok, Metro Bank used such funds in its
operations.

In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for Metro Bank, but in lieu ofher
testimony, the parties agreed to stipulate on the following as her testimony, to wit:

1. That Metro Bank paid the amount of CC No. 003280;

2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in force;

3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380; and

4. That the PCHC Rule book was the authority on the rules and regulations on the clearing operations of
banks.

The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an open defiance of the TRO of
July 6, 1995. Metro Bank’s Branch Manager Alice Rivera, through her letter of July 10, 1995 to FEBTC as the
collecting bank, returned the CC to FEBTC in compliance with the TRO which was received about 12:10 noon of
July 6, 1999. Hence, Metro Bank should not have paid because the TRO was served within the 24-hour period
to clear checks. Moreover, the payment, being made on third clearing, was unjustified for violating existing
regulations, particularly paragraph 1 of the Clearing House Operating Memo (CHOM), effective September 1,
30
1984, which prohibited the reclearing of a check after its first presentation if it was returned for the reason of
"stop payment" or "closed account."

It also seems that Metro Bank paid the CC without first checking whether, in fact, any actual payment of the 3
checks had been made on July 5, 1995 to the payee when the checks were deposited in payee’s account with
FEBTC on July 5, 1995. The records show no such payment was ever made to render the TRO of July 6, 1995
or the writ of preliminary injunction applied for moot and academic.

Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction hearing of July 24, 1995 – stated
that the payment of the 3 checks consisted of the accounting entry made at the PCHC during the presenting
process by debiting the respective accounts of the drawees and crediting the account of collecting bank FEBTC.
Yet, as already found hereinabove, such process was reversed due to the return by the drawees of the checks
which they dishonored on account of the TRO.

Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked in what form was the withdrawal of
the amounts of the checks made by Nuguid on July 5, 1995, that is, whether:- 1) cash withdrawal; or 2) credit to
Nuguid’s account; or 3) draft issued to Nuguid. His reply was that only the bank’s branch which serviced the
payee’s account could provide the answer. Yet, BPI did not present any competent personnel from the branch
concerned to enlighten the Court on this material point.

This amount of ₱7,613,000.00, having remained with Metro Bank since the service of the TRO of July 6, 1995
and the writ of preliminary injunction issued under the Order of July 25, 1998, should be returned to Chiok with
interest of 12%/p.a. from July 7, 1995 until full payment. 16

(Citations omitted.)

The RTC likewise denied BPI’s complaint-in-intervention to recover the value of the three checks from drawees
Global Bank and Metrobank for lack of merit. The RTC, after reprimanding Global Bank and Metrobank for siding
with BPI on this issue, held that BPI, as a mere collecting bank of the payee with a void title to the checks, had
no valid claim as to the amounts of such checks. The RTC explained:

Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely performing collection services as an
agent of Nuguid, the payee. If, as found hereinbefore, Nuguid could not have legal title to the 3 checks, it follows
that BPI could not stake any claim for title better than Nuguid’s own void title. Consequently, BPI has no right to
claim the amounts of the 3 checks from the drawee-banks.

Secondly: The purpose of the delivery of the 3 checks to BPI – which was not even accompanied by Nuguid’s
endorsement – was solely for deposit in the account of payee Nuguid. Assuming, for the sake of argument, that
BPI as the collecting bank paid the value of the checks – of which fact there has been no proof whatsoever –
BPI was nonetheless, at best, a mere transferee whose title was no better than the void title of the transferor,
payee Nuguid. Under such circumstance, BPI has no legal basis to demand payment of the amounts of the 3
checks from the draweebanks.

Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without indorsement, was not
considered a holder of the instrument since it was neither a payee nor an indorsee. It would become so only
when and if the indorsement is actually made, and only as of then, but not before, is the issue whether BPI was
a holder in due course or not is determined.

Consequently, any alleged payment by BPI as the collecting bank, through the supposed though unproved
withdrawal of the amounts of the 3 checks by Nuguid upon the deposit of the checks on July 5, 1995, is not the
payment which discharges liability under the 3 checks because BPI is neither the party primarily liable northe
drawee.

Such a payment, if true, is akin to, if it is not, drawing against uncollected deposits (DAUD). In such a case, BPI
was in duty bound to send the 3 checks to the PCHC for clearing pursuant to Section 1603.c.1 of the BSP
Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note herein that Global Bank and Metro
Bank returned the checks through the PCHC on July 6, 1995, well within the 24-hour clearing period, in
compliance with the TRO of July 6, 1995. Finally: As earlier noted and discussed, there is no evidence of any

31
prior valid payment by the collecting bank to support its claim of the amounts of the 3 checks against the
defendant banks.17 (Citation omitted.)

The RTC held Global Bank and Metrobank liable for attorney’s fees equivalent to 5% of the total amountdue
them, while the spouses Nuguid were held solidarily liable for said fees.

Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI filed separate notices of
appeal, which were approved in the Order 18 dated April 3, 2003. Chiok filed a Motion to Dismiss against the
appeal of Global Bank, on the ground that the latter had ceased to operate as a banking institution.

On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid pursuant to Section 1(e),
Rule 50 of the Rules of Court, on account of their failure to file their appellant’s brief. In the same Resolution, the
Court of Appeals denied Chiok’s Motion to Dismiss.

On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC Decision with
modifications. The fallo of the Decision reads:

WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon City
is AFFIRMED with the following MODIFICATIONS:

1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee
Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Manager’s Check
Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled.

2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-03-00201-3 with:

a) The amount of ₱25,500,000.00, plus interest at 4% from September 29, 1999 until withdrawn
by plaintiff-appellee;

b) The amount of ₱215,390.00, plus interest at 4% from July 7, 1995 until withdrawn by plaintiff-
appellee.

3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No. 154-42504955 the
amount of ₱7,613,000.00, with interest at 6% [per annum] from July 12, 1995 until the same is
withdrawn;

4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay attorney’s fees
equivalent to 5% of the total amount due to plaintiff-appellee from both depository banks, as well as the
costs of suit.19

According to the Court of Appeals, Article 1191 of the Civil Code provides a legal basis of the right of purchasers
of MCs and CCs to make a stop payment order on the ground of the failure of the payee to perform his
obligation to the purchaser. The appellate court ruled that such claim was impliedly incorporated in Chiok’s
complaint. The Court of Appeals held:

By depositing the subject checks to the account of Nuguid, Chiok had already performed his obligation under the
contract, and the subsequent failure of Nuguid to comply with what was incumbent upon him gave rise to an
action for rescission pursuant to Article 1191 of the Civil Code, which states:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

32
xxxx

Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE RESTRAINING ORDER/INJUNCTION"

when the action was really one for rescission and damages, it is an elementary rule of procedure that what
controls or determines the nature of the action is not the caption of the complaint but the allegations contained
therein. And even without the prayer for a specific remedy, proper relief may nevertheless be granted by the
court if the facts alleged in the complaint and the evidence introduced so warrant.

That Chiok had intended rescission isevident from his prayer to be declared the legal owner of the proceeds of
the subject checks and to be allowed to withdraw the same. Therefore, the argument of BPI that the obligation
on the part of Nuguid to deliver the dollars still subsists is untenable. Article 1385 of the same Code provides
that rescission creates the obligation to return the things which were the object of the contract, together with their
fruits, and the price with its interest. The object of the contract herein to buy foreign currency is the peso-value of
the dollars bought but in the form of negotiable instruments – Manager’s Check/Cashier’s Check. Hence,
respecting the negotiation thereof, and in order to afford complete relief to Chiok, there arose the necessity for
the issuance of the injunction restraining the payment of the subject checks with the end in view of the eventual
return of the proceeds to give effect to Article 1385. In other words, the injunctive relief was necessary in order
not to render ineffectual the judgment in the instant case. We quote with approval the following disquisition of the
trial court, to wit:

xxxx

There is no question about the nature of manager’s and cashier’s checks being as good as cash, being primary
obligations of the issuing bank and accepted in advanceby their mere issuance. But even as such nature of
unconditional commitment to pay on the part of the issuing bank may be conceded, the Court opines that the
injunctive relief cannot be denied to a party who purchased the manager’s or cashier’s check to stop its payment
to the payee in a suit against the payee and the issuing banks upon a claim that the payee himself had not
performed his reciprocal obligation for which the issuance and delivery of the self-same manager’sor cashier’s
check were, in the first place, made x x x.

It bears stressing that the subject checks would not have been issued were it not for the contract between Chiok
and Nuguid. Therefore, they cannot be disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of transactions necessary to consummate
the contract. Taken in this light, it cannot be argued that the issuing banks are bound to honor only their
unconditional undertakings on the subject checks vis-à-vis the payee thereof regardless of the failed transaction
between the purchaser of the checks and the payee on the ground that the banks were not privy to the said
transaction.

Lest it be forgotten, the purchase of the checks was funded by the account of Chiok with the banks. As such, the
banks were equally obligated to treat the account of their depositor with meticulous care bearing in mind the
fiduciary nature of their relationship with the depositor. Surely, the banks would not allow their depositor to sit
idly by and watch the dissipation of his livelihood considering that the business of foreign currency exchange is a
highly volatile undertaking where the probability of losing or gaining is counted by the ticking of the clock. With
the millions of money involved in this transaction, Chiok could not afford to be complacent and his vigilance for
his rights could not have been more opportune under the circumstances. 20 (Citations omitted.)

The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-in-intervention, which sought to
recover from Global Bank the amounts allegedly paid to Nuguid. The Court of Appeals pointed out that BPI failed
to prove the alleged withdrawal by Nuguid of the proceeds of the two manager’s checks, as BPI’s representative,
Jessy A. Degaños, failed to answer the question on the form of the alleged withdrawal. Furthermore, BPI failed
to prove that it was a holder in due course of the subject manager’s checks, for two reasons: (1) the checks were
not indorsed to it by Nuguid; and (2) BPI never presented its alleged bills purchase agreement with Nuguid. 21

The Court of Appeals likewise modified the order by the RTC for Global Bank and Metrobank to pay Chiok. The
Court of Appeals held that Chiok’s cause of action against Global Bank is limited to the proceeds of the two
manager’s checks. Hence, Global Bank was ordered to credit Chiok’s Savings Account No. 2-007-03-00201-3
with the amount of ₱25,500,000.00, the aggregate value of the two managers’ checks, instead of the entire
₱34,691,876.71 recovered from SBTC from the September 15, 1997 PCHC Decision. The interest was also
reduced from 12% per annum to that imposed upon savings deposits, which was established during the trial as
4% per annum.22
33
As regards Metrobank, the appellate court noted that there was no evidence as to the interest rate imposed
upon savings deposits at Metrobank. Metrobank was ordered to credit the amount of ₱7,613,000.00 to Chiok’s
Savings Account No. 154-42504955, with interest at 6% per annum. 23

Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006 Court of Appeals’ Decision.
On November 6, 2006, the Court of Appeals denied the Motions for Reconsideration.

Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No. 175394) filed with this Court
separate Petitions for Review on Certiorari. In Resolutions dated February 21, 2007 24 and March 12, 2007,25 this
Court resolved to consolidate the three petitions. Metrobank submitted the following issues for the consideration
of this Court:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT "IT IS
LEGALLY POSSIBLE FOR A PURCHASER OF A MANAGER’S CHECK OR CASHIER’S CHECK TO
STOP PAYMENT THEREON THROUGH A COURT ORDER ON THE GROUND OF THE PAYEE’S
ALLEGED BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO AN ABSENCE OF
CONSIDERATION THEREFOR."

(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR CASHIER’S CHECK, "IN VIEW OF
THE PECULIAR CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A STOP PAYMENT
ORDER BY THE PURCHASER THEREOF THROUGH A COURT ORDER, WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HEREIN "HAD
KNOWLEDGE OF CIRCUMSTANCES THAT WOULD DEFEAT THE TITLE OF THE PAYEE TO THE
CHECKS" WITHOUT, HOWEVER, CITING ANY SPECIFIC EVIDENCE WHICH WOULD PROVE THE
EXISTENCE OF SUCH KNOWLEDGE. (C) WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN SUSTAINING THE TRIAL COURT’S ORDER FOR PETITIONER HEREIN "TO
PAY (TO CHIOK) THE VALUE OF CASHIER’S CHECK NO. 003380 IN THE AMOUNT OF
₱7,613,000.00, WHICH WAS DEBITED AGAINST CHIOK’S SAVINGS ACCOUNT # 154-42504955 ON
THE OBSERVATION THAT THE PAYMENT TO FEBTC BY METROBANK OF CC NO. 003380ON
JULY 12, 1995 WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995." 26

BPI, on the other hand, presented the following issues:

I.

Whether or not the Court of Appeals detracted from well-settled concepts and principles in commercial law
regarding the nature, causes, and effects of a manager’s check and cashier’s checkin ruling that [the] power of
the court can be invoked by the purchaser [Chiok] in a proper action, which the Court su[b]stantially construed
as a rescissory action or the power to rescind obligations under Article 1191 of the Civil Code.

II.

Whether or not the Honorable Court of Appeals erred in ruling that where a purchaser invokes rescission due to
an alleged breach of the payee’s contractual obligation, it is deemed as "peculiar circumstance" which justifies a
stop payment order issued by the purchaser or a temporary restraining order/injunction from a Court to prevent
payment of a Manager’s Check or a Cashier’s Check.

III.

Whether or not the Honorable Court of Appeals erred in ruling that judicial admissions in the pleadings of
Nuguid, BPI, Asian Bank, Metrobank and even Chiok himself that Nuguid had withdrawn the proceeds of the
checks will not defeat Chiok’s "substantial right" to restrain the drawee bank from paying BPI, the collecting bank
or presenting bank in this case who paid the value of the Cashier’s/Manager’s Checks to the payee. 27

Finally, Global Bank rely upon the following grounds in its petition with this Court:

A.

34
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER GLOBAL BANK HAD NO
JUSTIFICATION FOR ITS RIGHT OF RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING
THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS PURCHASE AGREEMENT.

B.

THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL BANK LIABLE FOR
INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT:

1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;

2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND

3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST. 28

Before delving into the merits of these cases, we shall first dispose of a procedural development during their
pendency with the Court.

Joint Manifestation and Motion allegedly filed by Metrobank, Global Bank and respondent Chiok

On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed by petitioners Metrobank,
Global Bank, and respondent Chiok, which reads:

PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS BANK, INC., and
RESPONDENT WILFRED N. CHIOK, by their respective counsels, unto this Honorable Court, respectfully state
that after a thorough consideration, the parties herein have decided to forego their respective claims against
each other, including, past, present and/or contingent, in relation to the above referenced cases.

PRAYER

WHEREFORE, it is respectfully prayed that no further action be taken by this Honorable Court on the foregoing
petitions, that the instant proceedings be declared CLOSED and TERMINATED, and that an Order be rendered
dismissing the above-referenced cases with prejudice.

In the above Joint Manifestation and Motion, respondent Chiok was not represented by his counsel of record,
Cruz Durian Alday and Cruz-Matters, but was assisted by Espiritu Vitales Espiritu Law Office, with Atty. Cesar D.
Vitales as signatory, by way of special appearance and assistance.

On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment on the Joint Manifestation
and Motion filed by its copetitioners Metrobank, Global Bank, and respondent Chiok. The Resolution reads:

Considering the joint manifestation and motion of petitioners Metropolitan Bank and Trust Company and Global
Business Bank, Inc., and respondent, that after a thorough consideration, they have decided to forego their
respective claims against each other, including past, present and/or contingent, in these cases and praying that
the instant proceedings in G.R. Nos. 172652 and 175394 be declared closed and terminated, the Court resolves
to require petitioner Bank of the Philippine Islands to COMMENT thereon within ten (10) days from notice thereof
x x x.

On September 12, 2013, respondent Chiok, this time assisted by his counsel of record, Cruz Durian Alday &
Cruz-Matters, filed a Motion for Reconsideration of our Resolution dated June 19, 2013. The signatory to the
Motion for Reconsideration, Atty. Angel Cruz, grossly misread our Resolution requiring BPI to comment on the
Joint Manifestation and Motion, and apparently contemplated that we are already granting said Motion. Atty.
Cruz objected to the Joint Manifestation and Motion, labeling the same as tainted with fraud. According to Atty.
Cruz, Espiritu Vitales and Espiritu’s failure to give prior notice to him is in violation of Canon 8 of the Code of
Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank be ordered to submit a document
of their settlement showing the amounts paid to Chiok, and for the June19, 2013 Resolution of this Court be
reconsidered and set aside.

35
On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion, opposing the samefor being an
implied procedural shortcut to a Compromise Agreement. It averred that while the courts encourage parties to
amicably settle cases, such settlements are strictly scrutinized by the courts for approval. BPI also pointed out
that the Joint Manifestation and Motion was not supported by any required appropriate Board Resolution of
Metrobank and Global Bank granting the supposed signatories the authority to enter into a compromise. BPI
prayed that the Joint Manifestation and Motion of Metrobank, Global Bank, and Chiok be denied, and to render a
full Decision on the merits reversing the Decision of the Court of Appeals.

On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion for Reconsideration on behalf of
Chiok, praying that said Motion be expunged from the records for failure of Atty. Cruz to indicate the number and
date of issue of his MCLE Certificate of Compliance or Certificate of Exemption for the immediately preceding
compliance period.

As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz Durian Alday & Cruz-
Matters. The requisites of a proper substitution of counsel of record are stated and settled in jurisprudence:

No substitution of counsel of record is allowed unless the following essential requisites of a valid substitution of
counsel concur: (1) there must be a written request for substitution; (2) it must be filed with the written consent of
the client; (3) it must be with the written consent of the attorney to be substituted; and (4) in case the consent of
the attorney to be substituted cannot be obtained, there must be at least a proof of notice that the motion for
substitution was served on him in the manner prescribed by the Rules of Court. 29 (Citation omitted.)

Therefore, while we should indeed require Atty. Cruz to indicate the number and date of issue of his MCLE
Certificate of Compliance or Certificate of Exemption for the immediately preceding compliance period, he is
justified in pointing out the violation of Canon 8 30 of the Code of Professional Responsibility, Rule 8.02 of which
provides:

Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the professional employment of another
lawyer; however, it is the right of any lawyer, without fear or favor, to give proper advice and assistance to those
seeking relief against unfaithful or neglectful counsel.

We should also give weight to the opposition of BPI to the supposed compromise agreement. As stated above,
the consolidated petitions filed by Metrobank, BPI, and Global Bank all assail the Decision of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the same case dated November 6,
2006. BPI itself has a claim against Global Bank, which appear to be intimately related to issues brought forth in
the other consolidated petitions.

Furthermore, the failure of the parties to the Joint Manifestation and Motion to declare with particularity the terms
of their agreement prevents us from approving the same so as to allow it to attain the effect of res judicata. A
judicial compromise is not a mere contract between the parties. Thus, we have held that:

A compromise agreement intended to resolve a matter already under litigation is a judicial compromise. Having
judicial mandate and entered as its determination of the controversy, such judicial compromise has the force and
effect of a judgment. It transcends its identity as a mere contract between the parties, as it becomes a judgment
that is subject to execution in accordance with the Rules of Court. Thus, a compromise agreement that has been
made and duly approved by the court attains the effect and authority of res judicata, although no execution may
be issued unless the agreement receives the approval of the court where the litigation is pending and
compliance with the terms of the agreement is decreed. 31 (Citation omitted.)

We are therefore constrained to deny the Joint Manifestation and Motion filed with this Court on May 28, 2013
and to hereby decide the consolidated petitions on their merits.

The Court’s ruling on the merits of these consolidated petitions

Whether or not payment of manager’s and cashier’s checks are subject to the condition that the payee thereof
should comply with his obligations to the purchaser of the checks

The legal effects of a manager’s check and a cashier’s check are the same. A manager’s check, like a cashier’s
check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity, and
36
honor behind its issuance. By its peculiar character and general use in commerce, a manager’s check or a
cashier’s check is regarded substantially to be as good as the money it represents. 32 Thus, the succeeding
discussions and jurisprudence on manager’s checks, unless stated otherwise, are applicable to cashier’s
checks, and vice versa. The RTC effectively ruled that payment of manager’s and cashier’s checks are subject
to the condition that the payee thereof complies with his obligations to the purchaser of the checks:

The dedication of such checks pursuant to specific reciprocal undertakings between their purchasers and
payees authorizes rescission by the former to prevent substantial and material damage to themselves, which
authority includes stopping the payment of the checks.

Moreover, it seems to be fallacious to hold that the unconditional payment of manager’s and cashier’s checks is
the rule. To begin with, both manager’sand cashier’s checks are still subject to regular clearing under the
regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the BSP manual for banks and intermediaries,
which provides, among others, in its Section 1603.1, c, as follows:

xxxx

c. Items for clearing. All checks and documents payable on demand and drawn against a bank/branch, institution
or entity allowed to clear may be exchanged through the Clearing Office inManila and the Regional Clearing
Units in regional clearing centers designated by the Central Bank x x x. 33

The RTC added that since manager’s and cashier’s checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee, which refusal is in fact provided for in Section 20 of the Rule
Book of the PCHC:

Sec. 20 – REGULAR RETURN ITEM PROCEDURE

20.1 Any check/item sent for clearing through the PCHC on which payment should be refused by the Drawee
Bank in accordance with long standing and accepted banking practices, such as but not limited to the fact that:

(a) it bears the forged or unauthorized signature of the drawer(s); or

(b) it is drawn against a closed account; or

(c) it is drawn against insufficient funds; or

(d) payment thereof has been stopped; or

(e) it is post-dated or stale-dated; and

(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially altered;

shall be returned through the PCHC not later than the next regular clearing for local exchanges and the
acceptance of said return by the Sending Bank shall be mandatory.

It goes without saying that under the aforecited clearing rule[,] the enumeration of causes to return checks is not
exclusive but may include other causes which are consistent with long standing and accepted banking practices.
The reason of plaintiffs can well constitute such a justifiable cause to enjoin payment. 34

The RTC made an error at this point. While indeed, it cannot be said that manager’s and cashier’s checks are
pre-cleared, clearing should not be confused with acceptance. Manager’s and cashier’s checks are still the
subject of clearing to ensure that the same have not been materially altered or otherwise completely
counterfeited. However, manager’s and cashier’s checks are pre-accepted by the mere issuance thereof by the
bank, which is both its drawer and drawee. Thus, while manager’s and cashier’s checks are still subject to
clearing, they cannot be countermanded for being drawn against a closed account, for being drawn against
insufficient funds, or for similar reasons such as a condition not appearing on the face of the check. Long
standing and accepted banking practicesdo not countenance the countermanding of manager’s and cashier’s
checks on the basis of a mere allegation of failure of the payee to comply with its obligations towards the

37
purchaser. On the contrary, the accepted banking practice is that such checks are as good as cash. Thus, in
New Pacific Timber & Supply Company, Inc. v. Hon. Seneris, 35 we held:

It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash.
Moreover, since the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all
intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such
situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance. Said certification "implies that the check is drawn upon sufficient funds in the hands of the drawee,
that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue good, and this
agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to
enable the holder to use it as money." When the holder procures the check to be certified, "the check operates
as an assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under
Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount
credited to his account" shall apply in this case. x x x. (Emphases supplied, citations omitted.)

Even more telling is the Court’s pronouncement in Tan v. Court of Appeals, 36 which unequivocally settled the
unconditional nature of the credit created by the issuance of manager’s or cashier’s checks:

A cashier’s check is a primary obligation of the issuing bank and accepted in advanceby its mere issuance. By
its very nature, a cashier’s check is the bank’s order to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A cashier’s check by its peculiar character and general use in
the commercial world is regarded substantially to be as good asthe money which it represents. In this case,
therefore, PCIB by issuing the check created an unconditional creditin favor of any collecting bank. (Emphases
supplied, citations omitted.)

Furthermore, under the principle of ejusdem generis, where a statute describes things of a particular class or
kind accompanied by words of a generic character, the generic word willusually be limited to things of a similar
nature with those particularly enumerated, unless there be something in the context of the statute which would
repel such inference.37 Thus, any long standing and accepted banking practice which can be considered as a
valid cause to return manager’s or cashier’s checks should be of a similar nature to the enumerated cause
applicable to manager’s or cashier’s checks: material alteration. As stated above, an example ofa similar cause
is the presentation of a counterfeit check.

Whether or not the purchaser of manager’s and cashier’s checks has the right to have the checks cancelled by
filing an action for rescission of its contract with the payee

The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank to pay Chiok for the
amounts of the subject manager’s and cashier’s checks. However, since it is clear to the appellate court that the
payment of manager’s and cashier’s checks cannot be considered to be subject to the condition the payee
thereof complies with his obligations to the purchaser of the checks, the Court of Appeals provided another legal
basis for such liability – rescission under Article 1191 of the Civil Code:

WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon City
is AFFIRMED with the following MODIFICATIONS:

1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee Wilfred N.
Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Manager’s Check Nos. 025935 and
025939 and Cashier’s Check No. 003380 are ordered cancelled. 38

According to the Court of Appeals, while such rescission was not mentioned in Chiok’s Amended Complaint, the
same was evident from his prayer to be declared the legal owner of the proceeds of the subject checks and to
be allowed to withdraw the same. Since rescission creates the obligation to return the things which are the
object of the contract, together with the fruits, the price and the interest, 39 injunctive relief was necessary to
restrain the payment of the subject checks with the end in view of the return of the proceeds to Chiok. 40

38
Thus, as it was construed by the Court of Appeals, the Amended Complaint of Chiok was in reality an action for
rescission of the contract to buy foreign currency between Chiok and Nuguid. The Court of Appeals then
proceeded to cancel the manager’s and cashier’s checks as a consequence of the granting of the action for
rescission, explaining that "the subject checks would not have been issued were it not for the contract between
Chiok and Nuguid. Therefore, they cannot be disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of transactions necessary to consummate
the contract."41

We disagree with the above ruling.

The right to rescind invoked by the Court of Appeals is provided by Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.

The cause of action supplied by the above article, however, is clearly predicated upon the reciprocity of the
obligations of the injured party and the guilty party. Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed simultaneously such that the performance
of one is conditioned upon the simultaneous fulfillment of the other. 42 When Nuguid failed to deliver the agreed
amount to Chiok, the latter had a cause of action against Nuguid to ask for the rescission of their contract. On
the other hand, Chiok did not have a cause of action against Metrobank and Global Bank that would allow him to
rescind the contracts of sale of the manager’s or cashier’s checks, which would have resulted in the crediting of
the amounts thereof back to his accounts.

Otherwise stated, the right of rescission 43 under Article 1191 of the Civil Code can only be exercised in
accordance with the principle of relativity of contracts under Article 1131 of the same code, which provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of
law. x x x.

In several cases, this Court has ruled that under the civil law principle of relativity of contracts under Article 1131,
contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he
is aware of such contract and has acted with knowledge thereof. 44 Metrobank and Global Bank are not parties to
the contract to buy foreign currency between Chiok and Nuguid. Therefore, they are not bound by such contract
and cannot be prejudiced by the failure of Nuguid to comply with the terms thereof.

Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to enjoin said
banks from honoring the subject manager’s and cashier’s checks. It is elementary that "(a)n injunction should
never issue when an action for damages would adequately compensate the injuries caused. The very foundation
of the jurisdiction to issue the writ of injunction rests in the fact that the damages caused are irreparable and that
damages would not adequately compensate." 45 Chiok could have and should have proceeded directly against
Nuguid to claim damages for breach of contract and to have the very account where he deposited the subject
checks garnished under Section 7(d) 46 and Section 8,47 Rule 57 of the Rules of Court. Instead, Chiok filed an
action to enjoin Metrobank and Global Bank from complying with their primary obligation under checks in which
they are liable as both drawer and drawee.

It is undisputed that Chiok personally deposited the subject manager’s and cashier’s checks to Nuguid’s
account.1âwphi1 If the intention of Chiok was for Nuguid to be allowed to withdraw the proceeds of the checks
39
after clearing, he could have easily deposited personal checks, instead of going through the trouble of
purchasing manager’s and cashier’s checks. Chiok therefore knew, and actually intended, that Nuguid will be
allowed to immediately withdraw the proceeds of the subject checks. The deposit of the checks which were
practically as good as cash was willingly and voluntarily made by Chiok, without any assurance that Nuguid will
comply with his end of the bargain on the same day. The explanation for such apparently reckless action was
admitted by Chiok in the Amended Complaint itself:

That plaintiff [Chiok] due to the numberof years (five to seven years) of business transactions with defendant
[Nuguid] has reposed utmost trust and confidence on the latterthat their transactions as of June 1995 reaches
millions of pesos. x x x.48 (Emphases supplied.)

As between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who
made it possible by his act of confidence must bear the loss. 49 Evidently, it was the utmost trust and confidence
reposed by Chiok to Nuguid that caused this entire debacle, dragging three banks into the controversy, and
having their resources threatened because of an alleged default in a contract they were not privy to.

Whether or not the peculiar circumstances of this case justify the deviation from the general principles on
causes and effects of manager’s and cashier’s checks

The Court of Appeals, while admitting that the general principles on the causes and effects of manager’s and
cashier’s checks do not allow the countermanding of such checks on the basis of an alleged failure of
consideration of the payee to the purchaser, nevertheless held that the peculiar circumstances of this case
justify a deviation from said general principles, applying the aforementioned case of Mesina. The Court of
Appeals held:

At the core of the appeal interposed by the intervenor BPI, as well as the depository banks, Global Bank and
Metrobank, is the issue of whether or not it is legally possible for a purchaser of a Manager’s Check or Cashier’s
Check to stop payment thereon through a court order on the ground of the payee’s alleged breach of contractual
obligation amounting to an absence of consideration therefor.

In view of the peculiar circumstances of this case, and in the interest of substantial justice, We are constrained to
rule in the affirmative.

xxxx

In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal brief, the Supreme Court had
the occasion to rule that general principles on causes and effects of a cashier’s check, i.e., that it cannot be
countermanded in the hands of a holder in due course and that it is a bill of exchange drawn by the bank against
itself, cannot be applied without considering that the bank was aware of facts (in this case, the cashier’s check
was stolen) that would not entitle the payee thereof to collect on the check and, consequently, the bank has the
right to refuse payment when the check is presented by the payee.

While the factual milieu of the Mesinacase is different from the case at bench, the inference drawn therein by the
High Court is nevertheless applicable. The refusal of Nuguid to deliver the dollar equivalent of the three checks
in the amount of $1,022,288.50 in the afternoon of July 5, 1995 amounted to a failure of consideration that would
not entitle Nuguid to collect on the subject checks.

xxxx

Let it be emphasized that in resolving the matter before Us, We do not detract from well-settled concepts and
principles in commercial law regarding the nature, causes and effects of a manager’s check and cashier’s check.
Such checks are primary obligations of the issuing bank and accepted in advance by the mere issuance thereof.
They are a bank’s order to pay drawn upon itself, committing in effect its total resources, integrity, and honor. By
their peculiar character and general use in the commercial world, they are regarded substantially as good as the
money they represent. However, in view of the peculiar circumstances of the case at bench, We are constrained
to set aside the foregoing concepts and principles in favor of the exercise of the right to rescind a contract upon
the failure of consideration thereof. 50 (Emphases ours, citations omitted.)

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In deviating from general banking principles and disposing the case on the basis of equity, the courts a quo
should have at least ensured that their dispositions were indeed equitable. This Court observes that equity was
not served in the dispositions below wherein Nuguid, the very person found to have violated his contract by not
delivering his dollar obligation, was absolved from his liability, leaving the banks who are not parties to the
contract to suffer the losses of millions of pesos.

The Court of Appeals’ reliance in the 1986 case of Mesina was likewise inappropriate. In Mesina, respondent
Jose Go purchased from Associated Bank a cashier’s check for ₱800,000.00, payable to bearer. 51 Jose Go
inadvertently left the check on the top desk of the bank manager

when he left the bank. The bank manager entrusted the check for safekeeping to a certain bank official named
Albert Uy, who then had a certain Alexander Lim as visitor. Uy left his deskto answer a phone call and to go to
the men’s room. When Uy returned to his desk, Lim was gone. Jose Go inquired for his check from Uy, but the
check was nowhereto be found. At the advice of Uy, Jose Go accomplished a Stop Payment Order and
executed an affidavit of loss. Uy reported the loss to the police. Petitioner Marcelo Mesina tried to encash the
check with Prudential Bank, but the check was dishonored by Associated Bank by sending it back to Prudential
Bank with the words "Payment Stopped" stamped on it. When the police asked Mesina how he came to possess
the check, he said it was paid to him by Alexander Lim in a "certain transaction "but refused to elucidate further.
Associated Bank filed an action for Interpleader against Jose Go and Mesina to determine which of them is
entitled to the proceeds of the check. It was in the appeal on said interpleader case that this Court allowed the
deviation from the general principles on cashier’s checks on account of the bank’s awareness of certain facts
that would prevent the payee to collect on the check.

There is no arguing that the peculiar circumstances in Mesina indeed called for such deviation on account of the
drawee bank’s awareness of certain relevant facts. There is, however, no comparable peculiar circumstance in
the case at bar that would justify applying the Mesina disposition. In Mesina, the cashier’s check was stolen
while it was in the possession of the drawee bank. In the case at bar, the manager’s and cashier’s checks were
personally deposited by Chiok in the account of Nuguid. The only knowledge that can be attributed to the
drawee banks is whatever was relayed by Chiok himself when he asked for a Stop Payment Order. Chiok
testified on this matter, to wit:

Q: Now, Mr. witness, since according to you the defendant failed to deliver [this] amount of
₱1,023,288.23 what action have you undertaken to protect your interest Mr. witness?

A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.

Q: Prior to that matter that you sought the advise of your lawyer, Atty. Espiritu insofar as the issuing bank
is concerned, namely, Asian Bank, what did you do in order to protect your interest? A: I immediately call
the bank asking them if what is the procedure for stop payment and the bank told me that you have to
secure a court order as soon as possible before the clearing of these checks. 52 (Emphasis supplied.)

Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the manager’s checks. As
such, Global Bank may not be held liable on account of the knowledge of whatever else Chiok told them when
he asked for the procedure to secure a Stop Payment Order. On the other hand, there was no mention that
Metrobank was ever notified of the alleged failure of consideration. Only Asian Bank was notified of such fact.
Furthermore, the mere allegation of breach on the part of the payee of his personal contract with the purchaser
should not be considered a sufficient cause to immediately nullify such checks, thereby eroding their integrity
and honor as being as good as cash.

In view of all the foregoing, we resolve that Chiok’s complaint should be denied insofar as it prayed for the
withdrawal of the proceeds of the subject manager’s and cashier’s checks. Accordingly, the writ of preliminary
prohibitory injunction enjoining Metrobank and Global Bank from honoring the subject manager’s and cashier’s
checks should be lifted.

Since we have ruled that Chiok cannot claim the amounts of the checks from Metrobank and Global Bank, the
issue concerning the setting off of Global Bank’s judgment debt to Chiok with the outstanding obligations of
Chiok is hereby mooted. We furthermore note that Global Bank had not presented 53 such issue as a
counterclaim in the case at bar, preventing us from ruling on the same.

41
BPI’s right to the proceeds of the manager’s checks from Global Bank

While our ruling in Mesinais inapplicable to the case at bar, a much more relevant case as regards the effect of a
Stop Payment Order upon a manager’s check would be Security Bank and Trust Company v. Rizal Commercial
Banking Corporation,54 which was decided by this Court in 2009. In said case, SBTC issued a manager’s check
for ₱8 million, payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the manager’s check was deposited by Continental Manufacturing
Corporation (CMC) in its current account with Rizal Commercial Banking Corporation (RCBC). RCBC
immediately honored the manager’s check and allowed CMC to withdraw the same. GCDC issued a Stop
Payment Order to SBTC on the next day, claiming that the check was released to a third party by mistake. SBTC
dishonored and returned the manager’s check to RCBC. The check was returned back and forth between the
two banks, resulting in automatic debits and credits in each bank’s clearing balance. RCBC filed a complaint for
damages against SBTC. When the case reached this Court, we held:

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a
manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank itself. It stands on the
same footing as a certified check, which is deemed to have been accepted by the bank that certified it. As the
bank’s own check, a manager’s check becomes the primary obligation of the bank and is accepted in advance
by the act of its issuance.

In this case, RCBC, in immediately crediting the amount of ₱8 million to CMC’s account, relied on the integrity
and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was
payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value
of the questioned check.

In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated
December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central
Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution
No. 2202. In its pertinent portion, said Memorandum reads:

MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting,
as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected deposits
representing manager’s/cashier’s/treasurer’s checks, treasury warrants, postal money orders and duly funded
"on us" checks which may be permitted at the discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits.

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate
drawings on uncollected deposits of manager’s checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject manager’s check, only exercised a prerogative expressly granted to it
bythe Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the manager’s check and the relative rights of the parties thereto. SBTC’s liability as
drawer remains the same— by drawing the instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both,
according to its tenor.55 (Emphases supplied, citations omitted.)

As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager’s and cashier’s checks
asthey are regarded in commercial transactions when it immediately credited their amounts to Nuguid’s account.

The Court of Appeals, however, sustained the dismissal of BPI’s complaint-in-intervention to recover the
amounts of the manager’s checks from Global Bank on account of BPI’s failure to prove the supposed
withdrawal by Nuguid of the value of the checks:

42
BPI’s cause of action against Asian Bank (now Global Bank) is derived from the supposed withdrawal by Nuguid
of the proceeds of the two Manager’s Checks it issued and the refusal of Asian Bank to make good the same.
That the admissions in the pleadings to the effect that Nuguid had withdrawn the said proceeds failed to satisfy
the trial court is understandable. Such withdrawal is an essential fact that, if properly substantiated, would have
defeated Chiok’s right to an injunction. BPI could so easily have presented withdrawal slips or, with Nuguid’s
consent, statements of account or the passbook itself, which would indubitably show that money actually
changed hands at the crucial period before the issuance of the TRO. But it did not. 56

We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of Court, admissions in
pleadings are judicial admissions and do not require proof:

Section 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by showing that
it was made through palpable mistake or that no such admission was made.

Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject checks. 57 This statement by
Nuguid is certainly against his own interest as he can be held liable for said amounts. Unfortunately, Nuguid
allowed his appeal with the Court of Appeals to lapse, without taking steps to have it reinstated. This course of
action, which is highly unlikely if Nuguid had not withdrawn the value of the manager’s and cashier’s checks
deposited into his account, likewise prevents us from ordering Nuguid to deliver the amounts of the checks to
Chiok. Parties who did not appeal will not be affected by the decision of an appellate court rendered to appealing
parties.58

Another reason given by the Court of Appeals for sustaining the dismissal of BPI’s complaint-in-intervention was
that BPI failed to prove that it was a holder in due course with respect to the manager’s checks. 59

We agree with the finding of the Court of Appeals that BPI is not a holder in due course with respect to
manager’s checks. Said checks were never indorsed by Nuguid to FEBTC, the predecessor-in-interest of BPI,
for the reason that they were deposited by Chiok directly to Nuguid’s account with FEBTC. However, inview of
our ruling that Nuguid has withdrawn the value of the checks from his account, BPI has the rights of an equitable
assignee for value under Section 49 of the Negotiable Instruments Law, which provides:

Section 49. Transfer without indorsement; effect of. – Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in the transferee suchtitle as the transferor had
therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made.

As an equitable assignee, BPI acquires the instrument subject to defenses and equities available among prior
parties60 and, in addition, the right to have the indorsement of Nuguid. Since the checks in question are
manager’s checks, the drawer and the drawee thereof are both Global Bank. Respondent Chiok cannot be
considered a prior party as he is not the check’s drawer, drawee, indorser, payee or indorsee. Global Bank is
consequently primarily liable upon the instrument, and cannot hide behind respondent Chiok’s defenses. As
discussed above, manager’s checks are pre-accepted. By issuing the manager’s check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards its payment. 61

Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, representing the aggregate face value
of MC No. 025935 and MC No. 025939. Since Global Bank was merely following the TRO and preliminary
injunction issued by the RTC, it cannot be held liable for legal interest during the time said amounts are in its
possession. Instead, we are adopting the formulation of the Court of Appeals that the amounts be treated as
savings deposits in Global Bank. The interest rate, however, should not be fixed at 4% as determined by the
Court of Appeals, since said rates have fluctuated since July 7, 1995, the date Global Bank refused to honor the
subject manager’s checks. Thus, Global Bank should pay BPI interest based on the rates it actually paid its
depositors from July 7, 1995 until the finality of this Decision, in accordance with the same compounding rules it
applies to its depositors. The legal rate of6% per annum shall apply after the finality of this Decision. 62

We have to stress that respondent Chiok is not left without recourse. Respondent Chiok’s cause of action to
recover the value of the checks is against Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of
Appeals to lapse, without taking steps to have it reinstated. As stated above, parties who did not appeal will not
be affected by the decision of the appellate court rendered to appealing parties. 63 Moreover, since Nuguid was
43
not impleaded as a party to the present consolidated cases, he cannot be bound by our judgment herein.
Respondent Chiok should therefore pursue his remedy against Nuguid in a separate action to recover the
amounts of the checks.

Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein to respondent Chiok for
attorney’s fees equivalent to 5% of the total amount due remains valid, computed from the amounts stated in
said Decision. This is a consequence of the finality of the Decision of the Court of Appeals with respect to him.

WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with this Court on May 28,
2013.

The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision of the Court of Appeals in
CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the same case dated November 6, 2006 are
hereby REVERSED AND SET ASIDE, and a new one is issued ordering the DENIAL of the Amended Complaint
in Civil Case No. Q-95-24299 in Branch 96 of the Regional Trial Court of Quezon City for lack of merit. The Writ
of Preliminary Prohibitory Injunction enjoining Asian Banking Corporation (now Global Business Bank, Inc.) from
honoring MC No. 025935 and MC No. 025939, and Metropolitan Bank & Trust Company from honoring CC No.
003380, is hereby LIFTED and SET ASIDE.

Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands, as successor-in-interest of
Far East Bank & Trust Company, the amount of ₱18,455,350.00, representing the aggregate face value of MC
No. 025935 and MC No. 025939, with interest based on the rates it actually paid its depositors from July 7, 1995
until the finality of this Decision, in accordance with the same compounding rules it applies to its depositors.

The petition in G.R. No. 175394 is hereby rendered MOOT.

The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Decision and Resolution of the
Court of Appeals in CAG.R. CV No. 77508 remain VALID and SUBSISTING, computed from the amounts
adjudged by the Court of Appeals, without prejudice to any further action that may be filed by Wilfred N. Chiok.

44