G.R. No. 93397 March 3, 1997 TRADERS ROYAL BANK, petitioner, vs.


PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent; 5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition; 6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981; 7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds; 8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent." . . . 9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI

TORRES, JR., J.: Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981. Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB). In the said petition, TRB stated that: 3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00); 4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of

on its books and to issue a new certificate in the name of petitioner as absolute owner thereof; 10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto attached as Annex "E" and made an integral part hereof; 11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for registration, to wit: "No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder thereof." and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision; 12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent; Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name. On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for

Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent. For its part, Filriters interjected as Special Defenses the following: 11. Respondent is the registered owner of CBCI No. 891; 12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code; 13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance; xxx xxx xxx 14. Subsequently, Alberto Fabella, Senior Vice-PresidentComptroller are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff; xxx xxx xxx 15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769;

D891 in favor of Philfinance. for anyone to make. Corporation [sic] Code. c) CB Circular 769. 1988. c) The CBCI constitutes reserve investment of Filriters against liabilities. D891 to the Filriters Guaranty Assurance Corporation. a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and its assignment or transfer is expressly prohibited by law. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a registered in the name of Filriters. judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank: (a) Declaring the assignment of CBCI No. (b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No. The assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum. The dispositive portion of the decision reads: ACCORDINGLY. Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are payable only to the registered owner (Article II. which requires the affirmative action of the stockholders (Section 40. 17. b) The assignment was executed without any knowledge and consent of the board of directors of Filriters. and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect. b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute owner and that the value of the registered certificates shall be payable only to the registered owner. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 in favor of PhilFinance. and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business. the Regional Trial Court of Manila. 7 In its Decision 8 dated April 29. a) The assignment was executed without consideration and for that reason. the assignment is void from the beginning (Article 1409. c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or substantially all" of the assets of Filriters. Branch XXXIII found the assignment of CBCI No. e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship). a) The CBCI No. There was no attempt to get any clearance or authorization from the Insurance Commissioner. either as corporate or personal act. is immoral and against public policy. d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law.16. . a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCI's. 891 by Filriters is not a regular transaction made in the usual of ordinary course of business. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and such null and void. which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations. an inevitable result known to the officer who executed assignment. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment. Civil Code). Section 1). 18.

The transfer was made under a repurchase agreement dated February 4. 12 In ignoring said argument. its possession of the same is thus free fro any defect of title of prior parties and from any defense available to prior parties among themselves. The suit. TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila. Subsequently. 11 In the appellate court." Petitioner's claimed interest has no basis. 94 Phil. however. D891. Failing to get a favorable judgment. a sister corporation. who signed the deed of assignment purportedly for and on behalf of Filriters. 9 The petitioner assailed the decision of the trial court in the Court of Appeals 10. D891. did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. and (d) to pay the costs.000 as attorney's fees. Inc. . whose name was inscribed thereon. granting Philfinance the right to repurchase the instrument on or before April 27. Said the Court: In the case at bar. dated April 27. which was still registered in the name of Filriters. 769. to guarantee its financing operations. and having acquired the said certificate from Philfinance as a holder in due course. Banaria. D891 to Philippine Underwriters Finance Corporation (Philfinance). 1971. Alfredo O. the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular No. The sum of P10. SO ORDERED. The findings of the fact of the said court are hereby reproduced: The records reveal that defendant Filriters is the registered owner of CBCI No. . For lack of such authority. Que Po Lay. conveying to appellant TRB all its right and the title to CBCI No. the registered owner. refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. series of 1980. D891 from Filriters. Armed with the deed of assignment. petitioner argued that the subject CBCI was a negotiable instrument. Under a deed of assignment dated November 27. resulting in the nullity of the transfer (People v. was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No. Left with no other recourse. TRB now comes to this Court on appeal. D891. Central Bank. better known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness". Obviously. the appellate court that the CBCI is not a negotiable instrument. 640. which provided that any "assignment of registered certificates shall not be valid unless made . to appellant Traders Royal Bank (TRB). Commissioner of Internal Revenue. it executed a deed of assignment. but their appeals likewise failed. 165 SCRA 778). enforce payment of the instrument for the full amount thereof against all parties liable thereon. D891 in its name before the Security and Servicing Department of the Central Bank (CB). having made without consideration. and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. having acquired the certificate through simulation. since it was derived from Philfinance whose interest was inexistent. Filriters transferred CBCI No. When Philfinance failed to buy back the note on maturity date. however. 1981. since the instrument clearly stated that it was payable to Filriters. and it may thus. What happened was Philfinance merely borrowed CBCI No. 1981. Philfinance transferred CBCI No. by the registered owner thereof in person or by his representative duly authorized in writing. D891. the assignment of the certificate from Filriters to Philfinance was fictitious. vs. 1981. and did not conform to Central Bank Circular No. . 769 which has the force and effect of a law. TRB then sought the transfer and registration of CBCI No. 3M Philippines.

Hence. . In the construction of a bill or note. and that it is a holder in due course of the certificate." Very clearly. xxx xxx xxx Properly understood. Philfinance acquired no title or rights under CBCI No. is similar to a "bond. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. The appellate court ruled that the subject CBCI is not a negotiable instrument. SO ORDERED. but what is the meaning of the words they have used. thus. 202). the intention of the parties is to control. While the writing may be read in the light of surrounding circumstance in order to more perfectly understand the intent and meaning of the parties. the registered owner hereof. it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. no other words are to be added to it or substituted in its stead. there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration. the principal sum of FIVE HUNDRED THOUSAND PESOS. v. whose name is inscribed thereon. 16 : The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing. Thus. from the face of the instrument itself. The pertinent portions of the subject CBCI read: xxx xxx xxx The Central Bank of the Philippines (the Bank) for value received.In sum. 14 This renders the payment by TRB to Philfinance of CBCI. freedom of negotiability is the touchtone relating to the protection of holders in due course. not what the parties may have secretly intended as contradistinguished from what their words express. of if this Certificate of indebtedness be registered. the registered owner. a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund. Jur. It is usually used for the purpose of long term loans. with costs against plaintiff-appellant. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation. 2d. as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. Being equivalent to a bond. 13 Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations have identical corporate officers. thus demanding the application of the doctrine or piercing the veil of corporate fiction. The duty of the court in such case is to ascertain. as actual payment to Filriters. and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. hereby promises to pay bearer. stating that: As worded. 15 A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION." (82 Minn. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Inc. discounting the petitioner's submission that the same is a negotiable instrument. yet as they have constituted the writing to be the only outward and visible expression of their meaning. WHEREFORE. and to no one else. the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031). that is. the registered owner hereof. the instrument is payable only to Filriters. to FILRITERS GUARANTY ASSURANCE CORPORATION. What the parties meant must be determined by what they said. the judgment appealed from is AFFIRMED. Court of Appeals. if it can be legally ascertained. Admittedly. the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation. As held in Caltex (Philippines). 32).

then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters. in accord with existing law. What is more.Thus. 3M Philippines. pierced. there was really no consideration involved. the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers. D891 from Filriters. that it never received any payment for that CBCI sold and that said CBCI was sold without its authority. 165 SCRA 778). to guarantee its (Philfinance's) financing operations. a sister corporation. in fact. Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . 640. if it were to be consistent therewith. Banaria. What happened was Philfinance merely borrowed CBCI No. as the respondent Filriters and Philfinance. they could be subject to. 1980. Alfredo O. was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB. For lack of such authority. the assignment made is a complete nullity. the Court of Appeals should have ruled that such veil of corporate entity was. if the principle of piercing the veil of corporate entity were to be applied in this case. a sister corporation. which purchase now is refused registration by the Central Bank. and the payment by TRB to Philfinance should be construed as payment to Filriters. resulting in the nullity of the transfer (People vs. the transfer of the instrument from Philfinance to TRB was merely an assignment. Commissioner of Internal Revenue. the registered owner of the CBCI as to bar the latter from claiming. vs. . In the case at bar. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank Petitioner now argues that the transfer of the subject CBCI to TRB must upheld. protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 94 Phil. xxx xxx xxx We respectfully submit that. But to do this. Que Po Lay. by the registered owner thereof in person or by his representative duly authorized in writing. for lack of any consideration. considering that the Court of Appeals has held that the CBCI was merely borrowed by Philfinance from Filriters. The pertinent question then is. 769 which has the force and effect of a law. D891 is defective since it acquired the instrument from Filriters fictitiously. 769. who signed the deed of assignment purportedly for and on behalf of Filriters. In sum. though separate corporate entities on paper. to such an extent that injustice. as this merely an equitable remedy. so as to entitle TRB to have the CBCI registered in its name with the Central Bank? The following are the appellate court's pronouncements on the matter: Clearly shown in the record is the fact that Philfinance's title over CBCI No. 18 Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily. Thus. . 17 We disagree with Petitioner. justify wrong. were it not for the existing corporate fiction. on the issued raised by TRB that there was a piercing a veil of corporate entity. Says the petitioner. and may be awarded only in cases when the corporate fiction is used to defeat public convenience. Although the deed of assignment stated that the transfer was for "value received". Published in the Official Gazette on November 19. We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. under which the note was issued. series of 1980. Philfinance acquired no title or rights under CBCI No. otherwise known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness". the court must be sure that the corporate fiction was misused. Petitioner cannot put up the excuse of piercing the veil of corporate entity. Inc. and is not governed by the negotiable instruments law. . have used their corporate fiction to defraud TRB into purchasing the subject CBCI. or distinguished one corporation from a seemingly separate one. as it has. did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter.

cannot feign ignorance of Central Bank Circular 769. As it is. give everyone his due. CBCI No. The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate. disregarding. and observe honesty and good faith. After such registration no transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof. Assignment of Registered Certificates. D891 is governed by CB Circular No. there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank. as everyone must. On its face the subject certificates states that it is registered in the name of Filriters. series of 1990 21. or on account hereof. and such registration is noted hereon. the transferee may be designated as the representative of the registered owner. in person. a new Certificate shall be issued to the transferee of the registered owner thereof. there is nothing else which could lead the court under circumstance to disregard their corporate personalities. or crime was committed upon another. 769. In Liddel & Co. and the identity of one shall be maintained as to the other. In the case at bar. the general rule must upheld. 22 This is only fair. there is no showing to the effect that petitioner had any dealings whatsoever with Filriters. or its rights. may not hold the corporation liable. in the exercise of his rights and in the performance of his duties. being a commercial bank. known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness. 19 in the absence of such grounds. Thus: TRANSFER. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority. For this purpose. duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required. the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded. in person or by his representative. despite the petitioners insistence on the contrary. 23 . vs. her. The terms of the CBCI No. This should have put the petitioner on notice. Though it is true that when valid reasons exist. Moreover. D891 contain a provision on its TRANSFER. Inc. The corporate separateness between Filriters and Philfinance remains. thus. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Section 3. and by the registered owner thereof. nor did it make inquiries as to the ownership of the certificate. This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters.. Petitioner. or by his attorney. Central Bank of the Philippines. other than the allegation that Filriters is 90% owned by Philfinance. 3. or if this Certificate is registered as herein authorized. 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. and for all other purpose whether or not this Certificate shall be overdue. and its requirements. For one.fraud. his. duly authorized in writing. Petitioner knew that Philfinance is not registered owner of the CBCI No. act with justice. and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. the person in whose name the same is registered as the absolute owner of this Certificate. D891. Article V of which provides that: Sec. Collector of Internal Revenue. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. for the purpose of receiving payment hereof. — Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department.

in short.000.2 . sir. ACCORDINGLY. SO ORDERED.. G. Q Why do you know this? A Well. Q Do you know this Central Bank Certificate of Indebtedness. sir.00 subject of this case? A Yes.. This was pointed out by Elias Garcia. the Insurance Commission requires this reserve to be invested preferably in government securities or government binds. be taken out of the said funds. Alfredo O. the petition is DISMISSED and the decision appealed from dated January 29. 1990 is hereby AFFIRMED. DECISION REYES. Consequently. without violating the requirements of the law.The transfer made by Filriters to Philfinance did not conform to the said. This is how this CBCI came to be purchased by the company. did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. Petitioner. Puno. in his testimony given before the court on May 30. ERLANDO T.R. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company. Concededly. Central Bank Circular. the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation.T. as there was no consideration for the same. Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully. JJ.. purportedly for and in favor of Filriters. concur. the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further. this was CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No. No. Romero and Mendoza. the sale from Filriters to Philfinance was fictitious. and therefore void and inexistent.: WHEN the payee of the check is not intended to be the true recipient of its proceeds. Regalado. D891 in the face value of P5000. 1986. J. As found by the courts a quo. 170325 September 26. is it payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there any exception? These questions seek answers in this petition for review on certiorari of the Amended Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC). Did you have the knowledge of this CBCI No. vs. 891 was among the CBCI's that were found to be missing. the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank. took no part. Banaria. therefore. which for all intents. the subject CBCI was acquired by Filriters to form part of its legal and capital reserves. 891 before 1981? A Yes. It cannot. is considered part of the law. This is fatal to the petitioner's cause. who had signed the deed of assignment from Filriters to Philfinance. Q Legal reserve for the purpose of what? A Well. RODRIGUEZ and NORMA RODRIGUEZ. CBCI No. you see. Philfinance had no title over the subject certificate to convey the Traders Royal Bank. Respondents. J. As it is. R. Manager-in-Charge of respondent Filriters. and the maintenance of the required reserve fund. Thus. for then. 2008 PHILIPPINE NATIONAL BANK. not without the approval of its Board of Directors. Q Let me take you back further before 1981. which are required by law 24 to be maintained at a mandated level.

PNB closed the current account of PEMSLA. namely.804. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. the spouses issued sixty nine (69) checks.The Facts The facts as borne by the records are as follows: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB). As was customary. spouses Rodriguez incurred losses from the rediscounting transactions. 810624-6 under the account name Erlando and/or Norma Rodriguez). 2000. The spouses were engaged in the informal lending business. the obligation should be considered as discharged.4 Petitioner PNB eventually found out about these fraudulent acts. PEMSLA regularly granted loans to its members. They maintained savings and demand/checking accounts. hence. In return. were deposited as usual to the PEMSLA savings account. RTC Disposition Alarmed over the unexpected turn of events. and PNBig Demand Deposit (Checking/Current Account No. The PEMSLA checks.345. in the total amount of P2. The officers carried this out by forging the indorsement of the named payees in the checks. They sought to recover the value of their checks that were deposited to the PEMSLA savings account amounting to P2. actually did not intend for the named payees to receive the proceeds of the checks. The spouses contended that because PNB credited the checks to the PEMSLA account even without indorsements.345. were deposited by the spouses to their account. PNB moved to dismiss the complaint on the ground of lack of cause of action. the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. Amelia Avenue Branch. treasurer of PEMSLA and bank teller in the PNB Branch. PNB argued that the claim for damages should come from the payees of the checks. The bank contended that spouses Rodriguez. For the period November 1998 to February 1999. In its Answer. the spouses Rodriguez filed a civil complaint for damages against PEMSLA. the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed.00. and not from spouses Rodriguez. the payees were considered as . on the other hand.00. PNB paid the wrong payees. To subvert this policy. the makers. Cebu City. In line with their business." The corresponding Rodriguez checks. Thus. Meanwhile. because the PEMSLA checks given as payment were returned. the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. PNB violated its contractual obligation to them as depositors. Consequently. it should bear the loss. Jr. some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. It appears that this became the usual practice for the parties.804. the MultiPurpose Cooperative of Philnabankers (MCP). they had a discounting3 arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA). These were payable to forty seven (47) individual payees who were all members of PEMSLA. Rodriguez). PEMSLA was likewise a client of PNB Amelia Avenue Branch. The amounts were duly debited from the Rodriguez account. and petitioner PNB.. To put a stop to this scheme. 810480-4 under the account name Erlando T. Since there was no demand from the said payees. As a result. however. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. the spouses would replace the postdated checks with their own checks issued in the name of the members. without the knowledge or consent of the latter. PNBig Demand Deposits (Checking/Current Account No. In an Order dated January 12. It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. an association of PNB employees. They took out loans in the names of unknowing members.5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees. The association maintained current and savings accounts with petitioner bank. Naturally. This was an irregular procedure made possible through the facilitation of Edmundo Palermo. the RTC denied PNB’s motion to dismiss.

as follows: 1. PEMSLA allegedly issued post-dated checks to its qualified members who had applied for loans. unearned income in the amount of P4. Rather.00. Based . Other claims and counterclaims are hereby dismissed. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters.000. All counterclaims and cross-claims were dismissed.00.00 in the PNBig Demand Deposit Checking/Current Account No. However. the CA reversed and set aside the RTC disposition. (c) Exemplary damages in the amount of P500. Checking/Current Account No. Defendant is hereby ordered to pay the plaintiffs the total amount of P2.570. In a Decision7 dated July 22. the cross-defendants should be ordered to reimburse PNB the amount it shall pay. to PEMSLA. 3. After trial. According to plaintiff-appellee Erlando Rodriguez’ testimony. the Court hereby renders judgment. The CA concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA.467. It also appears that the teller who accepted the said checks was PEMSLA’s officer.000.000. The logical conclusion. We thus find no breach of contract on the part of the defendant-appellant."fictitious payees" as defined under the Negotiable Instruments Law (NIL). 2004.000. (d) Attorney’s fees in the amount of P150. Rodriguez and/or Norma Rodriguez. but instead. which was not pushed through and the contractor even threatened to file a case against the plaintiffs. is that the checks were never meant to be paid to order. The court a quo declared: We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order.804. PNB’s Answer included its cross-claim against its co-defendants PEMSLA and the MCP. and the amount of P1. realtors. because of PEMSLA’s insufficiency of funds. It ruled that PNB (defendant) is liable to return the value of the checks.00 considering that this case does not involve very complicated issues. the checks were negotiable by mere delivery. Rodriguez.00 or reinstate or restore the amount of P775.00 in the PNBig Demand Deposit.6 CA Disposition PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to bearer and not to order. Being checks made to fictitious payees which are bearer instruments.345. and other businesses: (a) Consequential damages. PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. residential subdivision owners. This is the only obvious explanation as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLA’s errand boy for presentment to the defendant-appellant that led to this present controversy.00. (b) Moral damages in the amount of P1. and for the (e) Costs of suit. we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement – that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s account for payment of the loans it has approved in exchange for PEMSLA’s checks with the full value of the said loans. the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). as a result of their having incurred great dificulty (sic) especially in the residential subdivision business. 810624-6 of Erlando T.337. in view of the foregoing. plus legal rate of interest thereon to be computed from the filing of this complaint until fully paid. therefore.000. The dispositive portion of the RTC decision reads: WHEREFORE. praying that in the event that judgment is rendered against the bank. 810480-4 of Erlando T. 2. and that such was a regular practice by the parties until the defendant-appellant discovered the scam.000.

804 with interest at 6% per annum from 14 May 1999 until fully paid. According to the appellate court. Rodriguez for the following: 1.on the investigation of the defendant-appellant. PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this moneymaking scheme. The highest degree of diligence must go into the study of every controversy submitted for decision by litigants. 3. Costs of suit. The Court does not sanction careless disposition of cases by courts of justice. Moral damages in the amount of P200. Our Ruling Prefatorily. On October 11.9 The CA ruled that the checks were payable to order. judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. Thus. The spouses Rodriguez moved for reconsideration.000. testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank. this arrangement allowed the plaintiffs-appellees to make a profit by issuing rediscounted checks. meanwhile. A court discovering an erroneous judgment before it becomes final may. and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees.000. 2005. PNB failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. SO ORDERED. they are bearer instruments that could be validly negotiated by mere delivery. we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. motu proprio or upon motion of the parties. the present recourse under Rule 45. They were able to achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. which constrained respondents to seek legal action. a word of caution to lower courts.10 However. Attorney’s fees in the amount of P100. the CA in Cebu in this particular case. Actual damages in the amount of P2.345. amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. Thus. while the officers of PEMSLA and other members would be able to claim their loans. thus they do not require indorsement for negotiation. They argued. and 4. x x x. as set forth in the immediately next preceding paragraph hereof. is in order. 99-10892. inter alia. the last paragraph and fallo of which read: In sum. correct its judgment with the singular objective of achieving justice for the litigants. they did not intend for the named payees to receive the proceeds. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship. Hence. They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks. Further. in view of the foregoing premises. 2. Every issue and factual detail must be closely scrutinized and analyzed. and all the applicable laws judiciously . and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004. The payees in the checks were "fictitious payees" because they were not the intended payees at all. the CA reversed itself via an Amended Decision. WHEREFORE. despite the fact that they were disqualified for one reason or another.8(Emphasis added) The CA found that the checks were bearer instruments. Issues The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss? PNB argues anew that when the spouses Rodriguez issued the disputed checks. that the checks on their faces were unquestionably payable to order.

If payable to bearer. – The instrument is payable to bearer – (a) When it is expressed to be so payable. or (e) One or some of several payees. or (c) When it is payable to the order of a fictitious or nonexisting person.13 A review of US jurisprudence yields that an actual. a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. SEC. It is negotiable by mere delivery.studied. Thus. It may be drawn payable to the order of – (a) A payee who is not maker. A check that is payable to a specified payee is an order instrument. 8. What constitutes negotiation. 30. Sections 8 and 9 of the NIL states: SEC. . A bearer instrument. or drawee. It is for this reason that We look elsewhere for guidance. If the payee is not the intended recipient of the proceeds of the check. Under Section 30 of the NIL. does not require an indorsement to be validly negotiated. a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person. drawer. When payable to bearer. when the payee is fictitious or not intended to be the true recipient of the proceeds. on the other hand. it is negotiated by delivery. – The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. or (f) The holder of an office for the time being. or (b) The drawer or maker. As a rule. or (e) Where the only or last indorsement is an indorsement in blank. an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. or (c) The drawee. the payee must be named or otherwise indicated therein with reasonable certainty. However. When payable to order. existing. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States. A check is "a bill of exchange drawn on a bank payable on demand.12 (Underscoring supplied) The distinction between bearer and order instruments lies in their manner of negotiation. We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. and such fact is known to the person making it so payable. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity. the payee is considered a "fictitious" payee and the check is a bearer instrument. or (b) When it is payable to a person named therein or bearer. Now to the core of the petition. if payable to order. and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check.14 Thus. – An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. the check is considered as a bearer instrument."11 It is either an order or a bearer instrument. it is negotiated by the indorsement of the holder completed by delivery. Where the instrument is payable to order. before the promulgation of every judgment by the court." who are well-known characters in Philippine mythology. or (d) When the name of the payee does not purport to be the name of any person. Only in this manner will errors in judgments be avoided. checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda. 9. under Section 9(c) of the NIL. The provision reads: SEC. or (d) Two or more payees jointly. are bearer instruments because the named payees are fictitious and non-existent. and such fact is known to the person making it so payable.

However. The effect is that a showing of negligence on the part of the depositary bank will not defeat the protection that is derived from this rule. there is a commercial bad faith exception to the fictitiouspayee rule.In a fictitious-payee situation. it is treated as a bearer instrument that can be negotiated by delivery. as drawee. the drawee bank is absolved from liability and the drawer bears the loss. Thus. Thus. Martin placed the rubber stamp of the GSFCBA and signed his own name as indorsement. there is a "commercial bad faith" exception to UCC 3-405. The check is then considered as a bearer instrument to be validly negotiated by mere delivery. which omits a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact. and is a party to the fraudulent scheme.17 The more recent Getty Petroleum Corp. the claim was denied. The exception will cause it to bear the loss. A showing of commercial bad faith on the part of the drawee bank. the drawer of the check will bear the loss. Martin drew seven checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2. it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks. in case of controversy. x x x Such a test finds support in the text of the Code. regardless of whether prior indorsements were genuine or not. And since the maker knew this limitation. . Commercial bad faith is present if the transferee of the check acts dishonestly. however.50 against the account of the corporation without authority from the latter. American Express Travel Related Services Company.18upheld the fictitious-payee rule. What remains to be determined is if the payees. it is uncontroverted that the payees were actual. it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. Likewise. a transferee’s lapse of wary vigilance. At most. applicable when the transferee "acts dishonestly – where it has actual knowledge of facts and circumstances that amount to bad faith. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. Martin was also an officer of the GSFCBA but did not have signing authority.16 In the said case. Rather. will work to strip it of this defense. and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. This lack of knowledge on the part of the payees. the Rodriguez checks were payable to specified payees. disregard of suspicious circumstances which might have well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. one of its authorized signatories.972. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees. At the back of the checks. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first place. existing. In the case under review. though existing persons. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. When faced with a check payable to a fictitious payee. The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the transactions. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. For the fictitious-payee rule to be available as a defense. he must have intended for the instrument to be negotiated by mere delivery. v. It is unrefuted that the 69 checks were payable to specific persons. were "fictitious" in its broader context. This rule is justified for otherwise. the payee is considered as a fictitious payee. the US Supreme Court held that Liberty Insurance Bank. was authorized to make payment to the bearer of the check. When the corporation filed an action against the bank to recover the amount of the checks. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check. was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds.15 The fictitious-payee rule is best illustrated in Mueller & Martin v. Inc. Said the US Supreme Court in Getty: Consequently. Liberty Insurance Bank. Martin. the bank’s thesis shows that the payees did not have knowledge of the existence of the checks. or any transferee of the check for that matter. thus itself becoming a participant in a fraudulent scheme. the corporation Mueller & Martin was defrauded by George L." x x x19 (Emphasis added) Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the named payees. In fine. the subject checks are presumed order instruments. In Bank of the Philippine Islands v. as found by both lower courts. in violation of banking rules of procedure. PNB should be held liable for the amounts of the checks. PNB was negligent in the selection and supervision of its employees. the bank should be held liable. Petitioner miserably failed to discharge this burden. Otherwise. and the genuineness of the signatures on the checks before accepting them for deposit. banks are minded to treat their customer’s accounts with utmost care. The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement. respondents-spouses were unable to collect payments for the amounts they had advanced. forged or otherwise. It should charge to the drawer’s accounts only the payables authorized by the latter. respondents-spouses were the bank’s depositors.Verily. The checks were drawn against respondents-spouses’ accounts. had the responsibility to ascertain the regularity of the indorsements.20 PNB was remiss in its duty as the drawee bank. PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks’ proceeds. a third party to the transaction between the drawers and the payees. permitted the invalid deposits of checks to the PEMSLA account.22 For this reason.26 PNB’s tellers and officers.e. PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. Court of Appeals. when it is the gross negligence of the bank employees that caused the loss. as the drawee bank. i. It bears stressing that order instruments can only be negotiated with a valid indorsement. The trustworthiness of bank employees is indispensable to maintain the stability of the banking industry.21 This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in their banks. but to PEMSLA. respondentsspouses. the fictitious-payee rule does not apply.alf-ITC Moreover.. the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer’s instructions.24 In the case at bar. PNB. Consequently. A bank that has been remiss in its duty must suffer the consequences of its negligence. the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer’s account. care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Since they could not encash the PEMSLA checks. This is because. Thus.23 In a checking transaction. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers. to the named payee in the check. Because of a failure to show that the payees were "fictitious" in its broader sense. it paid the values of the checks not to the named payees or their order. the checks are to be deemed payable to order. Lastly.25 this Court cautioned thus: Banks handle daily transactions involving millions of pesos. the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.27 PNB’s argument that there is no loss to compensate since no demand for payment has been made by the payees must also fail. One Last Note . A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its operations. and honesty. PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. Indeed. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason "Account Closed. confidence. Instead. banks are enjoined to be extra vigilant in the management and supervision of their employees. By the very nature of their work the degree of responsibility. For obvious reasons. Thus. The bank failed to satisfy a requisite condition of a fictitious-payee situation – that the maker of the check intended for the payee to have no interest in the transaction." These PEMSLA checks were the corresponding payments to the Rodriguez checks. Being issued to named payees. the drawee bank bears the loss.

it became involved in the controversial transaction not of its own volition but due to the actions of some of its employees. On June 14. 1989. Instead of merely requiring a note of indebtedness.000.000. which according to her was only a formality. For the new loan.000. Vicencio also required Virginia's husband. however. Virginia asked for the return of the first check (RCBC check no.00.00. Mrs. Vicencio required petitioners to issue an undated check as evidence of the loan which allegedly will not be presented to the bank. the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings. she only received the amount of P9.00. and again informed Mrs. not punitive or corrective in nature.R. J. Thus. Considering that moral damages must be understood to be in concept of grants. RUBEN T. With the payment of the previous debt. MPC. On May 17. petitioner Virginia Pacheco issued on May 17. her husband Mr.00 from Mrs. Vicencio. No. Petitioner Ernesto also signed the three checks as required by Mrs.000. to sign the check on the same understanding that the check is not to be encashed but merely intended as an evidence of indebtedness which cannot be negotiated. Petitioners were not amendable to these requirements. due to financial difficulties arising from the repeated delays in the payment of their receivables for the construction projects from the DPWH.: Petitioner spouses are engaged in the construction business.00 as well as the 10% interest amounting to P5.00 as the 10% interest on the loan was already deducted. Due to her dire financial needs.000. The latter acceded. Virginia issued three undated RCBC checks numbered 101783 and 101784 in the sum of P20. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES. Vicencio on the same conditions as the first check.00.000. Thus. Luz Vicencio. Vicencio told Virginia that they can no longer locate the folder containing that check. REYES Associate Justice YNARES-SANTIAGO. the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral damages is reduced to P50.000. She received only P35.We note that the RTC failed to thresh out the merits of PNB’s crossclaim against its co-defendants PEMSLA and MPC.00 as the previous loan of P10. Vicencio.000. The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-claim of PNB.00 from Mrs. HON. and that this is without prejudice to whatever civil. Mrs. Verily. SO ORDERED. 1petitioners were constrained to obtain a loan of P10.000. Mrs.00 each and the third check for P10. herein petitioner Ernesto Pacheco. she also required Virginia to issue three (3) more checks in various amounts — two checks for P20. Vicencio told her that her filing clerk was absent.00 on the new loan were deducted by the latter. and the employees involved. However. 1999 ERNESTO T. Vicencio insisted that issue the check. respondents. but Mrs. Vicencio that the cheeks cannot be encashed as the same were not funded.00 each and 101785 for P10. To PNB’s credit.000. the RTC dismissal of PNB’s cross-claim has no basis.29 WHEREFORE. 1989. The Rules expressly provide that failure to file an answer is a ground for a declaration that defendant is in default. owns a pawnshop in Samar. or administrative action PNB might take against PEMSLA. this judgment shall be without prejudice to whatever action the bank might take against its co-defendants in the trial court. Despite several demands for the return of the first check.28 Yet. vs. Complainant Romualdo Vicencio was a former Judge and his wife. We resolve to reduce the award of moral damages toP50. G. 101756) but Mrs. Despite being informed by petitioners that their bank account no longer had any funds.000.000. PACHECO. criminal.00.000. . PACHECO and VIRGINIA O. 126670 December 2. petitioners. Virginia obtained another loan of P50. 1989 an undated RCBC 2 check with number CT 101756 for P10. Vicencio insisted that they issue the same assuring them that the checks will not be presented to the banks but will merely serve as guarantee for the loan since there was no promissory note required of them.

000. Later. two informations for estafa.00. Vicencio. petitioners were surprised to receive on August 29. 1989. Vicencio's spouse informing them that the checks when presented for payment on August 25. 101756 was required by Mrs.00 in July 1989. that the offender postdated or issued a check in payment of an payment obligation contracted at the time the check was issued.000. Vicencio's husband with whom petitioners never had any transaction. upon the complaint of Mrs. However. one for P10. Consequently.On June 20 and July 21. defined in Article 315 (2) (d) of the Revised Penal Code.000. . or his funds deposited therein were not sufficient to cover the amount of the check.. viz: Art.000. as provided in Article 315. although said checks were respectively given undated to Mrs. Vicencio. 1992 were dishonored due to "Account Closed". Vicencio to be dated as additional guarantee for the P15. 1992" on checks nos. Again she issued two more RCBC checks (No. the Court of Appeals (CA) affirmed the decision of the court a quo. 101774 for P15. The six checks represent a total obligation of P85.000. 101774. 4 On appeal. 1989. since the loan of P10. One of these is by postdating a check or issuing a check in payment of an obligation.000. 5 Hence this petition.00 on the loans became due and demandable. 1993 alleged that petitioners "through fraud and false pretenses and in payment of a diamond ring (gold necklace)" issued checks which when presented for payment were dishonored due to account closed. went to petitioners' residence to persuade Virginia to place the date "August 15.00 and No. 1989.00. Vicencio and her daughter insisted that she place a date on the checks allegedly so that it will become evidence of their indebtedness.00.000. Petitioners never had any transaction nor ever dealt with Mrs.00 unpaid balance allegedly under check no. the complainant herein. The informations which were amended on April 1.000. the remaining account was only P75.00 under the first check was already paid when the amount thereof was deducted from the proceeds of the second loan. Swindling (estafa). Vicencio on May 17. Vicencio with the same assurance that the checks shall not be presented for payment but shall stand only as evidence of indebtedness in lieu of the usual promissory note. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: xxx xxx xxx (d) By postdating a check. Mrs.00) as required by Mrs. 1992 a demand letter from Mrs.000.000. 3 After entering a plea of not guilty during arraignment. or issuing a check in payment of an obligation when the offender had no funds in the bank. were filed against them. 101756 and 101774. Estafa may be committed in several ways. Of this amount.00 and another for P15. When the remaining balance of P15. Check no. All the checks were undated at the time petitioners handed them to Mrs. Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxx xxx xxx 2. petitioners were able to settle and pay in cash P60. 315. 1992. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. 1989 and July 21. 101768 for P10. paragraph 2(d) of the RPC. On August 3. The former reluctantly wrote the date on the checks for fear that she might not be able to obtain future loans from Mrs. Vicencio together with her husband and their daughter Lucille. Despite being informed by petitioner Virginia that their account with RCBC had been closed as early as August 17. Vicencio's husband. petitioners were not able to pay despite demands to do so. The essential elements in order to sustain a conviction under the above paragraph are: 1. petitioners were tried and sentenced to suffer imprisonment and ordered to indemnify the complainant in the total amount of P25. Mrs. petitioner Virginia obtained two more loans.00.000.

or his funds deposited therein were not sufficient to cover the amount of the check. complainant. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa. pursuant to Section 12 of the same law. Awareness by the complainant of the fictitious nature of the pretense cannot give rise to estafa by means of deceit. however. 6 The first and third elements are not present in this case. Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the essential element of deceit. when the Vicencio family asked Virginia to place a date on the check. hasprima facie authority to complete it by filling up the blanks therein. he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law (NIL). The other checks. then. 3. a check must be presented within a reasonable time from issue. deceit or damage to the payee thereof. because as holder of the check. Hence. on the other hand. Vicencio's husband is a former Judge who knows the law. 7 Mrs. With the assurance. complainant is . why were not all the checks presented? There was a deliberate choice of these two checks as the total amount reflected therein is equivalent to the amount due under the unpaid obligation. the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. but were delivered as mere security for the payment of the loan and under an agreement that the checks would be redeemed with cash as they fell due. 15 Moreover. that such postdating or issuing a check was done when the offender had no funds in the bank. as the person in possession of the check. In his complaint. Besides.2. Under these circumstances. 12 By current banking practice. There were six checks given by petitioners to Mrs. petitioners herein. however. the allegation of Mrs. Vicencio but only two were presented for encashment. the checks were not intended by the parties to be modes of payment but only as promissory notes. A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness. they cannot now complain there was deception on the part of petitioners. As per assurance of the lender. does not support the theory of the crime. 14 When the payee was informed by the by the drawer that the checks are not covered by adequate funds it does not give rise to bad faith or estafa. Both courts below relied so much on the fact that Mrs. Following complainant's theory that he would not have sold the jewelries had not petitioners issued "postdated" checks. 13 In this case. still no estafa can be imputed to petitioners. that the check will only stand as a firm evidence of indebtedness. that he need not even ask the petitioners to place a date on the check. Vicencio that the date to be placed by Virginia was necessary so as to make the check evidence of indebtedness is nothing but a ploy. 10 Thus. the latter again informed Mrs. Vicencio could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no longer have funds in their RCBC accounts. 8 no estafa was committed by petitioners. a negotiable instrument is not rendered invalid by reason only that it is antedated or postdated. could not be used as the amounts therein do not jibe with the amount of the unpaid balance. He should have known. Petitioners openly disclosed and never hid the fact that they no longer have funds in the bank as their bank account was already closed. In 1992. By mutual agreement of the parties. the checks were issued more than three years prior to their presentment. Virginia placed a date on the check. complainant's allegations that the two subject checks were issued in 1992 as payment for the jewelry he allegedly sold to petitioners is belied by the evidence on record. It is clear that the checks were not intended for encashment with the bank. Since complainant and his wife were well aware of that fact. the negotiable character of a check may be waived and the instrument may be treated simply as proof of an obligation. By their own covenant. In fact a check long overdue for more than two and one-half years is considered stale. therefore. First. There cannot be deceit on the part of the obligor. complainant alleged that petitioners bought jewelry from him and that he would not have parted with his jewelry had not petitioners issued the checks. because they agreed with the obligee at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the banks. Knowledge by the complainant that the drawer does not have sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks. If all were issued in payment of the alleged jewelry. as stated in Section 14 thereof. Mrs. 11 Moreover. a check becomes stale after more than six (6) months. 9 Moreover. the checks became mere evidence of indebtedness. The evidence on record. Vicencio that their account with RCBC was already closed as early as August 1989.

the amount due is deemed equivalent to a forbearance of credit during the interim period from the finality of judgment until full payment.00 in favor of Mrs. are not without liability. This last booklet contains 50 checks consecutively numbered from 101751 to 101800.J. No. however. We have no test of the truth of human testimony. in which case it shall earn legal interest at the rate of twelve per cent (12%) per annum pursuant to Central Bank (CB) Circular No. from the time this judgment becomes final and executory. they still have an outstanding obligation of P15. Petitioners are ACQUITTED of the charge of estafa but they are ORDERED to pay Mrs. vs. Vicencio the amount of P15. 16 Neither are petitioners.. 148864 August 21. and the REGISTER OF DEEDS OF BULACAN. concur. 20 Based on the foregoing discussions. Whatever is repugnant to these belongs to the miraculous. 17 he would not have easily parted with them in consideration for unfunded personal checks in favor of persons whose means of living or source of income were unknown to him. 1987 and was closed on April 17. Jr. an agreement as to payment of interest must be in writing. However. LAMEC'S** REALTY AND DEVELOPMENT CORP. Respondents. this Court is constrained to depart from the general rule.: Petitioners. C. Spouses Evangelista ("Petitioners"). The rule that factual findings of the trial court bind this court is not absolute but admits of exceptions such as when the conclusion is a finding grounded on speculation. except its conformity to our knowledge. All the checks in this booklet were issued in the year 1989 including the two subject checks. An accused acquitted of a criminal charge may nevertheless be held civilly liable in the same case where the facts established by the evidence so warrant..000. are before this Court on a Petition for Review on Certiorari under Rule 45 of the Revised . observation and experience. Once the judgment becomes final and executory. Vicencio. 416.not engaged in the sale of jewelry.. SO ORDERED. 2003 SPOUSES EDUARDO B. the assailed Decision is REVERSED and SET ASIDE. and conjecture and when the findings of the lower court is premised on the absence of evidence and is contradicted by the evidence on record. Kapunan and Pardo. Petitioners. EVANGELISTA and EPIFANIA C.00 without interest. The two subject checks came from this booklet. petitioners' bank account with RCBC was opened on March 26. Puno. J. If the pieces of jewelry were important to complainant considering that they were with him for more than twenty-five years already. 23 although there was actual payment of interests by virtue of the advance deductions from the loan.R. 18Applicable here is the legal precept that persons are presumed to have taken care of their business. 22 Based on the records. However. SALAZAR. 19 Second. the amount due shall earn legal interest of twelve percent (12%)per annum until full payment. 1984. otherwise it cannot be valid. 1989. MERCATOR FINANCE CORP. Davide. There was mention that the loan shall earn interests.000. during the span of which they were issued 10 check booklets with the last booklet issued on April 6. 24 WHEREFORE. so that the complainants' theory that the jewelry were sold in 1992 cannot be believed. surmise. Petitioners. JJ. and is outside of judicial cognizance. Equally applicable is what Vice-Chancellor Van Fleet once said: 21 Evidence to be believed must not only proceed from the mouth of a credible witness but must be credible in itself — such as the common experience and observation of mankind can approve as probable under the circumstances. PUNO.. G. LYDIA P. EVANGELISTA.

then petitioners are jointly and severally liable with Embassy Farms. Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x. b. Whether or not the parties are entitled to damages. relying on the validity of the title of Mercator. hence. c. is null and void. are null and void. there is no factual issue to be litigated. there is no genuine issue regarding their liability. Whether or not the sale made by defendant Mercator Finance Corp. there is a need for a full-blown trial. plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation ‘for and in consideration of certain loans.4 With the void mortgage. the parties agreed on the following issues: a.625. the foreclosure and subsequent sale of the mortgaged properties are valid.’"5 It contended that since petitioners and Embassy Farms signed the promissory note6 as co-makers. the continuing suretyship agreement and the subsequent promissory notes restructuring the loan. Mercator Finance Corporation.12 The RTC granted the motion for summary judgment and dismissed the complaint. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp. foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed.10 After pre-trial. Lamecs admitted the prior ownership of petitioners of the subject parcels of land. Lamecs Realty and Development Corporation. as all of it went to Embassy Farms. There being no principal obligation on which the mortgage rests. d. Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. It held: . contended that "on February 16. the real estate mortgage is void. Thus. and the transfer of the titles to her name. Inc. Thus. the subsequent sale of the same parcels of land to respondent Lydia P. they assailed the validity of the foreclosure proceedings conducted by Mercator. Salazar ("Salazar"). Petitioners claimed being the registered owners of five (5) parcels of land2 contained in the Real Estate Mortgage3 executed by them and Embassy Farms. however.Rules of Court. They did not receive the proceeds of the loan evidenced by a promissory note. It. the issuance of the transfer certificates of title to it. and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note. Mercator admitted that petitioners were the owners of the subject parcels of land. Petitioners filed a complaint1 for annulment of titles against respondents. the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation ("Lamecs"). Lydia P. and lastly. Due to their failure to pay the obligation. Inc. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith. They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation ("Mercator") only as officers of Embassy Farms. ("Embassy Farms"). they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations.78) PESOS. Salazar. The mortgage.11 Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue. but alleged that they are the present registered owner. 1982. in favor of Lydia Salazar and that executed by the latter in favor of defendant Lamecs Realty and Development Corp. aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the indebtedness of Embassy Farms. and the Register of Deeds of Bulacan. Mercator moved for summary judgment on the ground that except as to the amount of damages. is (sic) null and void. assailing the decision of the Court of Appeals dismissing their petition. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the indebtedness of Embassy Farms. the sale to it as the highest bidder in the public auction. and the succeeding promissory notes8 restructuring the loan.9 During pre-trial. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim.

The appellate court held: The appellants’ insistence that the loans secured by the mortgage they executed were not personally theirs but those of Embassy Farms.e. thereby deciding the case in a way probably not in accord with applicable decisions of this Honorable Court."16 A motion for reconsideration by petitioners was likewise denied for lack of merit. to save the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor. in the light of the foregoing is untenable. but in their personal capacity as well(. Civil Code of the Philippines). Orig.. there are no genuine issues raised by petitioners. 675). That the principal contract of loan is void for lack of consideration. as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial.14 Thus. why then did they commence the suit only on August 12. 1998 order of the trial court granting respondent’s motion for summary judgment despite the existence of genuine issues as to material facts and its non-entitlement to a judgment as a matter of law.15 (emphases in the original) The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties. Evangelista below the words Embassy Farms. 1988)?" Petitioners’ "procrastination for about nine (9) years is difficult to understand. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms.). to pay defendant Mercator Finance Corporation the amount of indebtedness.17 Thus. as shown by affidavits. In constituting a mortgage over their own property in order to secure the purported corporate debt of Embassy Farms. were free to discharge the same by payment (Articles 1302 [3] and 1303.A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase "jointly and severally. Epifania C. is clearly self-serving and misplaced. Court of Appeals. the appellants undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who. a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. Inc.18 we affirm. the appellants lose sight of the fact that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property (Lustan vs. plausible and fairly arguable defense. i. this petition where they allege that: The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in affirming in toto the May 4. and the certificates of title in the name of Mercator on September 27. Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation. 266 SCRA 663." On the promissory note appears (sic) the signatures of Eduardo B. petitioners went up to the Court of Appeals. The promissory note22 states: .13 Petitioners’ motion for reconsideration was denied for lack of merit. However. 118.21 In the case at bar."20 To forestall summary judgment. On so flimsy a ground as lack of consideration. x x x. Even assuming arguendo that they did not. Rec. A genuine issue means "an issue of fact which calls for the presentation of evidence. Petitioners do not deny that they obtained a loan from Mercator. (w)e may even venture to say that the complaint was not worth the time of the courts. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial.) by affixing their signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms. Inc. Inc.) Plaintiffs(. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property. it is essential for the nonmoving party to confirm the existence of genuine issues where he has substantial. Inc. 1987. depositions or admissions accompanying the motion. issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving party."19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious.. but again were unsuccessful. The fact that they signed the subject promissory notes in the(ir) personal capacities and as officers of the said debtor corporation is manifest on the very face of the said documents of indebtedness (pp. Evangelista. 1997 (when the certificate of sale was issued on January 12. Evangelista and another signature of Eduardo B. 128-131. Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms.

I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office. Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form. Petitioners also insist that the promissory note does not convey their true intent in executing the document. Section 17 of the Negotiable Instruments Law states.8 7 P154.267. still this does not erase the fact that they subsequently executed a continuing suretyship agreement. jointly and severally unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION (hereinafter called Creditor). (hereinafter called Principal) to the Creditor.267.1âwphi1 The defense is unavailing. The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners. Inc.8 7 P154.267. Inc. 1983 - The agreement was signed by petitioners on February 16. 1983 February 16.8 7 xxx xxx xxx (3) The obligations hereunder are joint and several and independent of the obligations of the Principal. Construction where instrument is ambiguous.267. 1982 P154. the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844. 1982 November 16. then the ambiguity should be resolved against it. EVANGELISTA and EPIFANIA C.78). the full. viz: SECTION 17.267. an examination of the promissory note shows no such ambiguity. Evangelista) Surety (Mercator Finance Corporation) Creditor To: MERCATOR FINANCE COPORATION (1) For valuable and/or other consideration.25 But. 1982 January 16. in installments as follows: September 16. they are deemed to be jointly and severally liable thereon.8 7 P154. a consideration moving to the principal alone being xxx xxx xxx The note was signed at the bottom by petitioners Eduardo B. 1982 December 16. xxx xxx xxx October 16. 1982.) Principal (Eduardo B. Even if petitioners intended to sign the note merely as officers of Embassy Farms.8 7 P154. EDUARDO B. likewise prove that petitioners are solidarily liable with Embassy Farms. viz: (Embassy Farms. A separate action or actions may be brought and prosecuted against the Surety whether or not the action is also brought and prosecuted against the Principal and whether or not the Principal be joined in any such action or actions. Philippine currency. A surety is one who is solidarily liable with the principal. The promissory notes24 subsequently executed by petitioners and Embassy Farms. – Where the language of the instrument is ambiguous or there are omissions therein. and Embassy Farms.267. with the signature of Eduardo B. restructuring their loan. assuming arguendo that there is an ambiguity. Courts can interpret a contract only if there is doubt in its letter.For value received. INC. . Besides.625.8 7 P154. Evangelista below it. x x x. EVANGELISTA (hereinafter called Surety). Evangelista and Epifania C. the following rules of construction apply: xxx xxx xxx (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons.26 Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety. Evangelista. faithful and prompt payment and discharge of any and all indebtedness of EMBASSY FARMS. Evangelista) Surety (Epifania C.

the petition is dismissed. JR.sufficient. However. 167567 September 22. Court of Appeals..510. it is presumed that they have made the writing the only repository and memorial of truth.29 that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were longterm accommodations.820.00) and 27903 (forP11.. 2005 Resolution2 of the Court of Appeals (CA) in CA-G. and whatever is not found in the writing must be understood to have been waived and abandoned. the DOJ issued its resolution5 affirming the prosecutor’s Resolution dismissing the case. 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. in her July 31. Puzon. G.. SMC appealed. 27904 (for P309. respectively. Corona. J. Said checks were returned to Puzon when the transactions covered by these checks were paid or settled in full. 83905. IN VIEW WHEREOF. there can be no dispute on the personal liability of petitioners. SO ORDERED. On December 31. Puzon. No. Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be one of credit or creditor-debtor relationship. and gave to SMC. Jr. Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ) The investigating prosecutor. which dismissed the petition before it and denied reconsideration. (Puzon) owner of Bartenmyk Enterprises.4 she recommended the dismissal of the case for lack of evidence.327 for which he issued. 2004 Decision1 and March 28. Its motion for reconsideration having been denied in the April 23. Puzon purchased products on credit amounting to P11. Respondent. JJ. Puzon ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutor’s Office of Parañaque City. 2010 SMC required him to issue postdated checks equivalent to the value of the products purchased on credit before the same were released to him. SMC sent a letter to Puzon on March 6. 17657 he allegedly immediately left the office with his accountant.500. was a dealer of beer products of petitioner San Miguel Corporation (SMC) for Parañaque City. On June 4.R.R.27 Having executed the suretyship agreement. Bank of the Philippine Islands (BPI) Check Nos. 2000. 27903 which was attached to a bond paper together with BPI Check No. During that visit Puzon allegedly requested to see BPI Check No. 2003.6 SMC filed a petition for certiorari with the CA. bringing the checks with them. visited the SMC Sales Office in Parañaque City to reconcile his account with SMC. and Carpio-Morales. the parol evidence rule does not apply in this case. Factual Antecedents Respondent Bartolome V.827.. 17657.28 We held in Tarnate v. SP No.00) to cover the said transaction. and Sandoval-Gutierrez. then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing. concur. Panganiban. To ensure payment and as a business practice. Petitioner. 2001. Lastly. BARTOLOME PUZON."3 Thus. together with his accountant. On January 23. when he got hold of BPI Check No. DECISION DEL CASTILLO. .: This petition for review assails the December 21. vs. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Ruling of the Court of Appeals SAN MIGUEL CORPORATION. JJ. Puzon purchased SMC products on credit. on official leave. 2004 DOJ Resolution. Treble costs against the petitioners. 2001 Resolution. 2001 demanding the return of the said checks.

This issue cannot be resolved based on .827. 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. dated 04 June 2003 and 23 April 2004.827. Hence. in payment of Puzon’s purchases. SO ORDERED. 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. AMONG OTHERS BPI CHECK NO. WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZON’S OBLIGATION.510.7 The motion for reconsideration of SMC was denied. No costs at this instance. The resolution of the first issue raised by SMC of whether respondent stole the subject check.00). not merely as security but were. PARTICULARLY BPI CHECK NO. SMC points out that it has established more than sufficient probable cause to justify the indictment of Puzon for the crime of Theft. 27903 DATED MARCH 30. 2001. 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11. IV WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. which calls for the Court to determine whether respondent is guilty of a felony.8 Petitioner's Arguments SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. the present petition. considering that a person cannot be charged with theft for taking personal property that belongs to himself. areAFFIRMED. It disposed of the appeal as follows: WHEREFORE. It also contends that ownership of the checks was transferred to it because these were issued. 308 OF THE REVISED PENAL CODE. Respondent’s Arguments On the other hand.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. Issues Petitioner now raises the following issues: I WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23. 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. the instant petition is herebyDISMISSED. SMC raises questions of fact. Our Ruling The petition has no merit. 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11. Preliminary Matters At the outset we find that as pointed out by Puzon. Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on certiorari. finding no grave abuse of discretion committed by public respondent. The assailed Resolutions of public respondent. The CA agreed with the prosecutor that there was no theft.510. first requires that the facts be duly established in the proper forum and in accord with the proper procedure.00) II WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON. 27903 DATED MARCH 30.

Once . The third issue raised by petitioner. the decision whether to dismiss a complaint or not is dependent upon the sound discretion of the prosecuting fiscal. 12. ultimately.Theft is committed by any person who. 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. and (5) that the taking be accomplished without the use of violence or intimidation against persons or force upon things."11 Considering that the second element is that the thing taken belongs to another. And unless made with grave abuse of discretion. Consistent with this policy. The same is true with the second issue raised by petitioner. In the present case. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. we are also not sufficiently convinced to deviate from the general rule of non-interference. (3) that the taking be done with intent to gain. which at this point is more properly resolved through another more clear cut route. who may direct the filing of the corresponding information or move for the dismissal of the case. to the Secretary of Justice. on the other hand. Indeed the CA did not err in dismissing the petition for certiorari before it. (2) that said property belongs to another.12 Otherwise. Reyes v. (Underscoring supplied. 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. . 308. the determination of probable cause for the filing of information in court is an executive function. xxxx "[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property. He may dismiss the complaint forthwith. whether or not a complaint will be dismissed is dependent on the sound discretion of the Secretary of Justice.) 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. absent grave abuse of discretion on the part of the DOJ Secretary in not finding probable cause against Puzon for theft.10 comprehensively elaborated that: 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. For this reason. To emphasize. (4) that the taking be done without the consent of the owner. findings of the Secretary of Justice are not subject to review. would entail venturing into constitutional matters for a complete resolution. to wit: whether the checks issued by Puzon were payments for his purchases or were intended merely as security to ensure payment."9 On the fine points of the determination of probable cause. one that properly pertains at the first instance to the public prosecutor and. The Revised Penal Code provides: Art. Pearlbank Securities. Inc. Ultimately. Thus. or intimidation of persons nor force upon things. On this point the Negotiable Instruments Law provides: Sec. 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. it cannot be said that there has been delivery of the negotiable instrument. 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. 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. shall take personal property of another without the latter’s consent. Or he may proceed with the investigation if the complaint in his view is sufficient and in proper form. 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. if he finds the charge insufficient in form or substance or without any ground. with intent to gain but without violence against.mere allegations of facts and affidavits. it is relevant to determine whether ownership of the subject check was transferred to petitioner. Who are liable for theft.

83905 are AFFIRMED. the petitioner's demand letter sent to respondent states "As per company policies on receivables. there being no intent to give effect to the instrument. No." and in paragraph 8 which clearly shows that partial payment is expected to be made by the return of beer empties. the petition is DENIED. the prosecutor and the DOJ were correct in finding no probable cause for theft. This being so. Gregorio L. the purpose of giving effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. SP. Hence. where he states that "As a standard company operating procedure. Joven III. title to the check did not transfer to SMC. What was issued was a receipt for thedocument. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. 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. Although the petitioner's witness. not as payment. MARIANO C. Consequently." When taken in conjunction with the counter-affidavit of Puzon – where he states that "As the [liquid beer] contents are paid for. in paragraph 9 where he states that "the transaction covered by the said check had not yet been paid for."13 Furthermore.there is delivery. WHEREFORE. However. If the subject check was given by Puzon to SMC in payment of the obligation. 2005 Resolution of the Court of Appeals in CA-G. 2004 Decision and March 28. all beer purchases by dealers on credit shall be coveredby postdated checks equivalent to the value of the beer products purchased". DEL CASTILLO Associate Justice . However. if the check was not given as payment. The evidence proves that the check was accepted. and not by the deposit or encashment of the check. states in paragraph 6 of his affidavit that the check was given in payment of the obligation of Puzon. The second element of the felony of theft was therefore not established. it remained with Puzon."14 Notably. then ownership of the check was not transferred to SMC. all issuances are to be covered by post-dated checks. SMC return[s] to me the corresponding PDCs or request[s] me to replace them with whatever was the unpaid balance. 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."15 – it becomes clear that both parties did not intend for the check to pay for the beer products. the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. SO ORDERED. you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December issuance. The December 21.1avvphi1 Clearly the term "cover" was not meant to be used interchangeably with "payment. the term "payment" was not used instead the terms "covered" and "cover" were used. but in accordance with the long-standing policy of SMC to require its dealers to issue postdated checks to cover its receivables. Petitioner was not able to show that Puzon took a check that belonged to another. There was no provisional receipt or official receipt issued for the amount of the check.R. the same is contradicted by his statements in paragraph 4. a "POSTDATED CHECK SLIP.

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