G.R. No.

111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity
as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREÑO, respondents.

BELLOSILLO, J.:

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

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

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

On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial
court, finding no more legal obstacle to act on the motion for examination of the garnishees,
directed petitioner on 4 November 1992 to submit his report showing the amount of the
garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into
consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.

On 24 November 1992 private respondent filed a motion to require petitioner to explain why he
should not be cited in contempt of court for failing to comply with the order of 4 November 1992.

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

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

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

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

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

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

Petitioner has well argued his case.

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

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

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

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

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

As a necessary consequence of being public fund, the checks may not be garnished to satisfy
the judgment. 9 The rationale behind this doctrine is obvious consideration of public policy. The
Court succinctly stated in Commissioner of Public Highways v. San Diego  10 that —

The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects, as appropriated by law.

In denying petitioner's motion for reconsideration, the trial court expressed the additional
ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the
issuance of the order of execution, the writ of execution, and the notice of garnishment was
justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our
precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to
judge for itself whether or not the order for the advance execution of a judgment is valid." But
that is invoking only the general rule. We have also established therein the compelling reasons,
as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the
face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the
garnisher. It is worth to note that the ruling referred to the validity of advance execution of
judgments, but a careful scrutiny of that case and similar cases reveals that it was applicable to
a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to
inquire into the validity of the notice of garnishment as he had actual knowledge of the non-
entitlement of private respondent to the checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment
concerning the salary checks of Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the
Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of
garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

Separate Opinions

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

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

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

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

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

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

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

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

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

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

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

public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine National Bank
(PNB) in the account of the Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits of
the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate
Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate object as authorized by the
corresponding legislative appropriation in Commissioner of Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas  5 squarely in point. The said case involved the validity of Circular
No. 21, series of 1969, issued by the Director of Public Schools which directed that "henceforth
no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be
authorized under a power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an immediate member of
the family of the employee concerned, and in all other cases except upon proper authorization
of the Assistant Executive Secretary for Legal and Administrative Matters, with the
recommendation of the Financial Assistant." Private respondent Zafra Financing Enterprise,
which had extended loans to public school teachers in Cebu City and obtained from the
latter promissory notes and special powers of attorney authorizing it to take and collect their
salary checks from the Division Office in Cebu City of the Bureau of Public Schools,
sought, inter alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or
waived in favor of Zafra their future salaries which were still public funds. That assignment or
waiver was contrary to public policy.

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

Padilla, J., concurs.

Separate Opinions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

G.R. No. 167567 : September 22, 2010

SAN MIGUEL CORPORATION, Petitioner, v. BARTOLOME PUZON, JR., Respondent.

DECISION

DEL CASTILLO, J.:

This petition for review assails the December 21, 2004 Decision 1cralaw and March 28, 2005
Resolution2cralawof the Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the
petition before it and denied reconsideration, respectively.

Factual Antecedents

Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of
beer products of petitioner San Miguel Corporation (SMC) for Parañaque City. Puzon purchased
SMC products on credit. To ensure payment and as a business practice, SMC required him to
issue postdated checks equivalent to the value of the products purchased on credit before the
same were released to him. Said checks were returned to Puzon when the transactions covered
by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for
which he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904
(for P309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction.

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in
Parañaque City to reconcile his account with SMC. During that visit Puzon allegedly requested
to see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903 which was
attached to a bond paper together with BPI Check No. 17657 he allegedly immediately left the
office with his accountant, bringing the checks with them.

SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon
ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutor's
Office of Parañaque City.

Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)

The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC]
and [Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the
reconciliation of accounts and the non-payment of beer empties which cannot give rise to a
criminal prosecution for theft."3cralaw Thus, in her July 31, 2001 Resolution,4cralaw she
recommended the dismissal of

the case for lack of evidence. SMC appealed.

On June 4, 2003, the DOJ issued its resolution 5cralaw affirming the prosecutor's Resolution
dismissing the case. Its motion for reconsideration having been denied in the April 23, 2004
DOJ Resolution,6cralaw SMC filed a petition for certiorari with the CA.

Ruling of the Court of Appeals

The CA found that the postdated checks were issued by Puzon merely as a security for the
payment of his purchases and that these were not intended to be encashed. It thus concluded
that SMC did not acquire ownership of the checks as it was duty bound to return the same
checks to Puzon after the transactions covering them were settled. The CA agreed with the
prosecutor that there was no theft, considering that a person cannot be charged with theft for
taking personal property that belongs to himself. It disposed of the appeal as
follows:chanroblesvirtuallawlibrar

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant
petition is hereby DISMISSED. The assailed Resolutions of public respondent, dated 04 June
2003 and 23 April 2004, are AFFIRMED. No costs at this instance.

SO ORDERED.7cralaw

The motion for reconsideration of SMC was denied. Hence, the present petition.
Issues

Petitioner now raises the following issues:chanroblesvirtuallawlibrar

WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG
OTHERS BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS:
ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN
(Php11,510,827.00)

II

WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI

CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN
MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN
(Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE
USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZON'S OBLIGATION.

III

WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS

ISSUED IN PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE
TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY
DATES THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE.

IV

WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE

INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE
REVISED PENAL CODE.8cralaw

Petitioner's Arguments

SMC contends that Puzon was positively identified by its employees to have taken the subject
postdated checks. It also contends that ownership of the checks was transferred to it because
these were issued, not merely as security but were, in payment of Puzon's purchases. SMC
points out that it has established more than sufficient probable cause to justify the indictment of
Puzon for the crime of Theft.

Respondent's Arguments

On the other hand, Puzon contends that SMC raises questions of fact that are beyond the
province of an appeal on certiorari . He also insists that there is no probable cause to charge
him with theft because the subject checks were issued only as security and he therefore
retained ownership of the same.

Our Ruling

The petition has no merit.

Preliminary Matters

At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution
of the first issue raised by SMC of whether respondent stole the subject check, which calls for
the Court to determine whether respondent is guilty of a felony, first requires that the facts be
duly established in the proper forum and in accord with the proper procedure. This issue cannot
be resolved based on mere allegations of facts and affidavits. The same is true with the second
issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his
purchases or were intended merely as security to ensure payment. These issues cannot be
properly resolved in the present petition for review on certiorari which is rooted merely on the
resolution of the prosecutor finding no probable cause for the filing of an information for theft.

The third issue raised by petitioner, on the other hand, would entail venturing into constitutional
matters for a complete resolution. This route is unnecessary in the present case considering
that the main matter for resolution here only concerns grave abuse of discretion and the
existence of probable cause for theft, which at this point is more properly resolved through
another more clear cut route.

Probable Cause for Theft

"Probable cause is defined as such facts and circumstances that will engender a well-founded
belief that a crime has been committed and that the respondent is probably guilty thereof and
should be held for trial."9cralaw On the fine points of the determination of probable
cause, Reyes v. Pearlbank Securities, Inc.10cralaw comprehensively elaborated
that:chanroblesvirtuallawlibrar

The determination of [the existence or absence of probable cause] lies within the discretion of
the prosecuting officers after conducting a preliminary investigation upon complaint of an
offended party. Thus, the decision whether to dismiss a complaint or not is dependent upon the
sound discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, if he finds the
charge insufficient in form or substance or without any ground. Or he may proceed with the
investigation if the complaint in his view is sufficient and in proper form. To emphasize, the
determination of probable cause for the filing of information in court is an executive function, one
that properly pertains at the first instance to the public prosecutor and, ultimately, to the
Secretary of Justice, who may direct the filing of the corresponding information or move for the
dismissal of the case. Ultimately, whether or not a complaint will be dismissed is dependent on
the sound discretion of the Secretary of Justice. And unless made with grave abuse of
discretion, findings of the Secretary of Justice are not subject to review.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the
conduct of preliminary investigations and to leave the Department of Justice ample latitude of
discretion in the determination of what constitutes sufficient evidence to establish probable
cause for the prosecution of supposed offenders. Consistent with this policy, courts do not
reverse the Secretary of Justice's findings and conclusions on the matter of probable cause
except in clear cases of grave abuse of discretion.

In the present case, we are also not sufficiently convinced to deviate from the general rule of
non-interference. Indeed the CA did not err in dismissing the petition for certiorari before it,
absent grave abuse of discretion on the part of the DOJ Secretary in not finding probable cause
against Puzon for theft.

The Revised Penal Code provides:chanroblesvirtuallawlibrar

Art. 308. Who are liable for theft. - cralawTheft is committed by any person who, with intent to
gain but without violence against, or intimidation of persons nor force upon things, shall take
personal property of another without the latter's consent.

xxx

"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of
personal property; (2) that said property belongs to another; (3) that the taking be done with
intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the
taking be accomplished without the use of violence or intimidation against persons or force upon
things."11cralaw

Considering that the second element is that the thing taken belongs to another, it is relevant to
determine whether ownership of the subject check was transferred to petitioner. On this point
the Negotiable Instruments Law provides:chanroblesvirtuallawlibrar

Sec. 12. Antedated and postdated - The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires the title thereto as of the date of
delivery. (Underscoring supplied.)chanroblesvirtualawlibrary

Note however that delivery as the term is used in the aforementioned provision means that the
party delivering did so for the purpose of giving effect thereto. 12cralaw Otherwise, it cannot be
said that there has been delivery of the negotiable instrument. Once there is delivery, the
person to whom the instrument is delivered gets the title to the instrument completely and
irrevocably.

If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of
giving effect to the instrument is evident thus title to or ownership of the check was transferred
upon delivery. However, if the check was not given as payment, there being no intent to give
effect to the instrument, then ownership of the check was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of
Puzon. There was no provisional receipt or official receipt issued for the amount of the check.
What was issued was a receipt for the document, a"POSTDATED CHECK SLIP."13cralaw

Furthermore, the petitioner's demand letter sent to respondent states "As per company policies
on receivables, all issuances are to be covered by post-dated checks. However, you have
deviated from this policy by forcibly taking away the check you have issued to us to cover the
December issuance."14cralaw Notably, the term "payment" was not used instead the terms
"covered" and "cover" were used.

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that
the check was given in payment of the obligation of Puzon, the same is contradicted by his
statements in paragraph 4, where he states that "As a standard company operating procedure,
all beer purchases by dealers on credit shall be covered by postdated checks equivalent to the
value of the beer products purchased"; in paragraph 9 where he states that "the
transaction covered by the said check had not yet been paid for," and in paragraph 8 which
clearly shows that partial payment is expected to be made by the return of beer empties, and
not by the deposit or encashment of the check. Clearly the term "cover" was not meant to be
used interchangeably with "payment."

When taken in conjunction with the counter-affidavit of Puzon - where he states that "As the
[liquid beer] contents are paid for, SMC return[s] to me the corresponding PDCs or request[s]
me to replace them with whatever was the unpaid balance." 15cralaw - it becomes clear that both
parties did not intend for the check to pay for the beer products. The evidence proves that the
check was accepted, not as payment, but in accordance with the long-standing policy of SMC to
require its dealers to issue postdated checks to cover its receivables. The check was only
meant to cover the transaction and in the meantime Puzon was to pay for the transaction by
some other means other than the check. This being so, title to the check did not transfer to
SMC; it remained with Puzon. The second element of the felony of theft was therefore not
established. Petitioner was not able to show that Puzon took a check that belonged to another.
Hence, the prosecutor and the DOJ were correct in finding no probable cause for theft.

Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ
in sustaining the dismissal of the case for theft for lack of probable cause.

WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005
Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.

SO ORDERED.

G.R. No. 175350               June 13, 2012

EQUITABLE BANKING CORPORATION, INC. Petitioner,

vs.
SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO, Respondents.
DECISION

DEL CASTILLO, J.:

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 ₱325,976.347

Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.808

Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.849

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
accounts17 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 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 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.

SO ORDERED.

Pasig City, May 4, 1998.45

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 Appeals48

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 Wei55 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
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 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 ₱50,000.00 67 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

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.
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. 85419 March 9, 1993

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

Yngson & Associates for petitioner.chanrobles virtual law library

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.chanrobles
virtual law library

Eduardo G. Castelo for Sima Wei.chanrobles virtual law library

Monsod, Tamargo & Associates for Producers Bank.chanrobles virtual law library

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

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

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

respondent Sima Wei on June 9, 1983; andchanrobles virtual law library

(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn
against the China Banking Corporation, to pay the balance due on the promissory note.

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

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER

HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS
HEREIN.chanroblesvirtualawlibrarychanrobles virtual law library

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE
REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO
HEREIN DEFENDANTS-RESPONDENTS.

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

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

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

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

Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. 3 Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another. 4 Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.chanroblesvirtualawlibrarychanrobles virtual law library

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 190432, April 25, 2017

ASIA BREWERY, INC. AND CHARLIE S. GO, Petitioners, v. EQUITABLE PCI BANK (NOW

BANCO DE ORO-EPCI, INC.), Respondent.

DECISION

SERENO, C.J.:

This is a petition for review1 under Rule 45 assailing the Orders2 of the Regional Trial Court
(RTC) of Makati City in Civil Case No. 04-336. The RTC ordered the dismissal of petitioners'
Complaint for lack of cause of action and denied their motion for reconsideration.

Petitioner Asia Brewery, Inc. (ABI) is a corporation organized and existing under the laws of the
Philippines, while petitioner Charlie S. Go (Go) was, at the time of the filing of this Petition, its
assistant vice president for finance.3 Respondent is a banking institution also organized and
existing under the laws of the Philippines. 4

On 23 March 2004, petitioners filed a Complaint5 for payment, reimbursement, or restitution

against respondent before the RTC. On 7 May 2004, the latter filed its Answer (with
Counterclaims),6 in which it also raised the special and/or affirmative defense of lack of cause of
action, among others.

Records show that after an exchange of pleadings between the parties, 7 the RTC issued the
assailed Orders without proceeding to trial. It dismissed the Complaint for lack of cause of
action, and also denied respondent's counterclaims. Respondent did not appeal from that ruling.
Only petitioners moved for reconsideration, but their motion was likewise denied.

ANTECEDENT FACTS

The antecedent facts, as alleged by petitioners, are as follows:

Within the period of September 1996 to July 1998, 10 checks and 16 demand drafts
(collectively, "instruments") were issued in the name of Charlie Go. 8 The instruments, with a
total value of P3,785,257.38, bore the annotation "endorsed by PCI Bank, Ayala Branch, All
Prior Endorsement And/Or Lack of Endorsement Guaranteed."9 All the demand drafts, except
those issued by the Lucena City and Ozamis branches of Allied Bank, were crossed.10

In their Complaint, petitioners narrate:chanRoblesvirtualLawlibrary

10. None of the above checks and demand drafts set out under the First, Second, Third, Fourth,
Fifth and Sixth Causes of Action reached payee, co-plaintiff Charlie S. Go.

11. All of the above checks and demand drafts fell into the hands of a certain Raymond U. Keh,
then a Sales Accounting Manager of plaintiff Asia Brewery, Inc., who falsely, willfully, and
maliciously pretending to be the payee, co-plaintiff Charlie S. Go, succeeded in opening
accounts with defendant Equitable PCI Bank in the name of Charlie Go and thereafter deposited
the said checks and demand drafts in said accounts and withdrew the proceeds thereof to the
damage and prejudice of plaintiff Asia Brewery, Inc.11
Raymond Keh was allegedly charged with and convicted of theft and ordered to pay the value of
the checks, but not a single centavo was collected, because he jumped bail and left the country
while the cases were still being tried. 12

In demanding payment from respondent, petitioners relied on Associated Bank v. CA,13 in which
this Court held "the possession of check on a forged or unauthorized indorsement is wrongful,
and when the money is collected on the check, the bank can be held for moneys had and
received."14

In its Answer, respondent interpreted paragraphs 10 and 11 of the Complaint as an admission

that the instruments had not been delivered to the payee, petitioner Go. 15 It argued that the
Complaint failed to state a cause of action and that petitioners had no cause of action against it,
because 1) the Complaint failed to indicate that ABI was a party to any of the instruments; 16 and
2) Go never became the holder or owner of the instruments due to nondelivery and, hence, did
not acquire any right or interest. 17 Respondent also opined that the claims were only
enforceable against the drawers of the checks and the purchasers of the demand drafts, and
not against it as a mere "presentor bank," because the nondelivery to Go was analogous to
payment to a wrong party.18

Respondent argued that Development Bank of Rizal v. Sima Wei19 was squarely applicable to

the case and cited these portions of the Decision therein:20
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another. Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.

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

x x x x

However, insofar as the other respondents are concerned, petitioner Bank has no privity with
them. Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which could have been
violated by said respondents. Petitioner Bank has therefore no cause of action against said
respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have
a cause of action against her co-respondents, if the allegations in the complaint are found to be
true.
The RTC agreed with respondent that Development Bank v. Sima Wei was applicable.21 It ruled
that petitioners could not have any cause of action against respondent, because the instruments
had never been delivered; and that the cause of action pertained to the drawers of the checks
and the purchasers of the demand drafts.22 As to the propriety of a direct suit against
respondent, the trial court found that the former exercised diligence in ascertaining the true
identity of Charlie Go, although he later turned out to be an impostor. This was unlike the finding
in Associated Bank v. CA23 where the collecting bank allowed a person who was clearly not the
payee to deposit the checks and withdraw the amounts.24

ISSUES

Petitioners argue that the trial court seriously erred in dismissing their Complaint for lack of
cause of action. They maintain that the allegations were sufficient to establish a cause of action
in favor of Go.25 They insist that the allegation that the instruments were payable to Go was
sufficient to establish a cause of action. 26 According to them, the fact that the instruments never
reached the payee did not mean that there was no delivery, because delivery can be either
actual or constructive.27 They point out that Section 16 of the Negotiable Instruments Law even
provides for a presumption of delivery. 28 They further argue that the defense of lack of delivery
is personal to the maker or drawer, and that respondent was neither. 29 Petitioners emphasize
that all the instruments were crossed (except those issued by the Lucena and Ozamis branches
of Allied Bank) and bore the annotation by respondent that: "[A]ll prior endorsement and/or lack
of endorsement guaranteed." In this light, the bank was allegedly estopped from claiming
nondelivery.30

Petitioners observe that there was no other reason given for the dismissal of the case aside
from lack of cause of action. They stress that not a single witness or documentary evidence was
presented in support of the affirmative defense.31

COURT'S RULING

A reading of the Order dated 30 January 2008 reveals that the RTC dismissed the Complaint for
lack of cause of action prior to trial. At that time, this Court, in the 2003 case Bank of America
NT&SA v. CA,32 had already emphasized that lack or absence of cause of action is not a ground
for the dismissal of a complaint; and that the issue may only be raised after questions of fact
have been resolved on the basis of stipulations, admissions, or evidence presented.

In this case, the trial court proceeded to rule in favor of the dismissal simply because it believed
that the facts of another case were "[o]n all fours [with] the instant controversy." 33 It was gravely
erroneous, and deeply alarming, for the RTC to have reached such a conclusion without first
establishing the facts of the case pending before it. It must be noted that the documents
submitted to it were mere photocopies that had yet to be examined, proven, authenticated, and
admitted.

We are compelled to correct this glaring and serious error committed by the trial court.
Accordingly, we grant the petition.

Failure to state a cause of action is not the same as lack of cause of action; the terms are not
interchangeable. It may be observed that lack of cause of action is not among the grounds that
may be raised in a motion to dismiss under Rule 16 of the Rules of Court. The dismissal of a
Complaint for lack of cause of action is based on Section 1 of Rule 33, which
provides:chanRoblesvirtualLawlibrary
Section 1. Demurrer to evidence. - After the plaintiff has completed the presentation of his
evidence, the defendant may move for dismissal on the ground that upon the facts and the law
the plaintiff has shown no right to relief. If his motion is denied he shall have the right to present
evidence. If the motion is granted but on appeal the order of dismissal is reversed he shall be
deemed to have waived the right to present evidence. (Emphasis supplied)
If the Complaint fails to state a cause of action, a motion to dismiss must be made before a
responsive pleading is filed; and the issue can be resolved only on the basis of the allegations in
the initiatory pleading.34 On the other hand, if the Complaint lacks a cause of action, the motion
to dismiss must be filed after the plaintiff has rested its case. 35

In the first situation, the veracity of the allegations is immaterial; however, in the second
situation, the judge must determine the veracity of the allegations based on the evidence
presented.36
In PNB v. Spouses Rivera,37 this Court upheld the CA ruling that the trial court therein erred in
dismissing the Complaint on the ground of lack of cause of action. We said that "dismissal due
to lack of cause of action may be raised any time after the questions of fact have been resolved
on the basis of stipulations, admissions, or evidence presented by the plaintiff." 38 In the case at
bar, the action has not even reached the pretrial stage.

In Pamaran v. Bank of Commerce,39 petitioners came directly to this Court and raised the issue
of whether the trial court had erred in dismissing its Complaint only upon a motion to dismiss by
way of affirmative defenses raised in the Answer of the defendant therein. The Court ruled
then:chanRoblesvirtualLawlibrary
Not only did the RTC Olongapo disregard the allegations in the Complaint, it also failed to
consider that the Bankcom's arguments necessitate the examination of the evidence that
can be done through a full-blown trial. The determination of whether Rosa has a right over
the subject house and of whether Bankcom violated this right cannot be addressed in a mere
motion to dismiss. Such determination requires the contravention of the allegations in the
Complaint and the full adjudication of the merits of the case based on all the evidence adduced
by the parties. (Emphasis supplied)
In the same manner, the arguments raised by both of the parties to this case require an
examination of evidence. Even a determination of whether there was "delivery" in the legal
sense necessitates a presentation of evidence. It was erroneous for the RTC to have concluded
that there was no delivery, just because the checks did not reach the payee. It failed to consider
Section 16 of the Negotiable Instruments Law, which envisions instances when instruments may
have been delivered to a person other than the payee. The provision
states:chanRoblesvirtualLawlibrary
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote party other than a holder
in due course, the delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case may he; and, in such
case, the delivery may be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property in the instrument. But where the instrument is in
the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed. And where the instrument is no longer in
the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved. (Emphasis supplied)
Hence, in order to resolve whether the Complaint lacked a cause of action, respondent must
have presented evidence to dispute the presumption that the signatories validly and intentionally
delivered the instrument.

Even assuming that the trial court merely used the wrong terminology, that it intended to dismiss
the Complaint on the ground of failure to state a cause of action, the Complaint would still have
to be reinstated.
The test to determine whether a complaint states a cause of action against the defendants is
this: admitting hypothetically the truth of the allegations of fact made in the complaint, may a
judge validly grant the relief demanded in the complaint? 40

We believe that petitioner met this test.

A cause of action has three elements: 1) the legal right of the plaintiff; 2) the correlative
obligation of the defendant not to violate the right; and 3) the act or omission of the defendant in
violation of that legal right.41 In the case at bar, petitioners alleged in their Complaint as follows:

1) They have a legal right to be paid for the value of the instruments.
18. In the said case of Associated Bank vs. Court of Appeals, it was held that the "weight of
authority is to the effect that 'the possession of a check on a forged or unauthorized
indorsement is wrongful, and when the money is collected on the check, the bank can be held
for moneys had and received.' The proceeds are held for the rightful owner of the payment and
may be recovered by him. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check and collected without
indorsement at all. The act of the bank amounts to conversion of the check."42
2) Respondent has a correlative obligation to pay, having guaranteed all prior endorsements.
15. All of the commercial checks and demand drafts mentioned in the First, Second, Third,
Fourth, Fifth and Sixth Causes of Action were endorsed by PCI-Bank-Ayala Branch All Prior
Endorsement And/Or Lack of Endorsement Guaranteed.43
3) Respondent refused to pay despite demand.
17. In a letter dated 19 November 2003 which was duly received by defendant Equitable PCI
Bank, Legal Services Division, on December 17, 2003, plaintiff Charlie S. Go, relying on the
decision in Associated Bank v. Court of Appeals, 208 SCRA 465, demanded from defendant
Equitable PCI Bank payment, reimbursement or restitution of the value of the commercial
checks and demand drafts mentioned in the First Second. Third, Fourth, Fifth and Sixth Causes
of Action. x x x

x x x x

19. Instead of acceding to plaintiffs' valid and justifiable demand, defendant Equitable PCI Bank
refused x x x.44
It is of no moment that respondent denies that it has any obligation to pay. In determining the
presence of the elements, the inquiry is confined to the four corners of the complaint. 45 In fact,
even if some of the allegations are in the form of conclusions of law, the elements of a cause of
action may still be present.46

The Court believes that it need not delve into the issue of whether the instruments have been
delivered, because it is a matter of defense that would have to be proven during trial on the
merits. In Aquino v. Quiazon,47 we held that if the allegations in a complaint furnish sufficient
basis on which the suit may be maintained, the complaint should not be dismissed regardless of
the defenses that may be raised by the defendants. 48 In other words, "[a]n affirmative defense,
raising the ground that there is no cause of action as against the defendants poses a question
of fact that should be resolved after the conduct of the trial on the merits." 49

WHEREFORE, the petition is GRANTED. The Order dated 30 January 2008 issued by Judge
Benjamin T. Pozon and the Order dated 23 November 2009 issued by Judge Winlove Dumayas
in Civil Case No. 04-336 are REVERSED and SET ASIDE. The Complaint is REINSTATED,
and the case is ordered REMANDED to the Regional Trial Court of Makati City for further
proceedings. Let the records of the case be likewise remanded to the court a quo.

SO ORDERED.