G.R. No. 76788 January 22, 1990 JUANITA SALAS, petitioner, vs. HON. COURT OF APP ALS an!

FIRST FINANC " L ASING CORPORATION, respondents. Arsenio C. Villalon, Jr. for petitioner. Labaguis, Loyola, Angara & Associates for private respondent.

F RNAN, C.J.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757 entitled " ilinvest inance ! "easin# Corporation v. $alas", which %odified the decision of the Re#ional &rial Court of $an ernando, 'a%pan#a in Civil Case No. 5()5, a collection suit *etween the sa%e parties. Records disclose that on e*ruar+ ,, )(-0, .uanita $alas /hereinafter referred to as petitioner0 *ou#ht a %otor vehicle fro% the Viola#o 1otor $ales Corporation /V1$ for *revit+0 for '5-,)2-.30 as evidenced *+ a pro%issor+ note. &his note was su*se4uentl+ endorsed to ilinvest inance ! "easin# Corporation /hereinafter referred to as private respondent0 which financed the purchase. 'etitioner defaulted in her install%ents *e#innin# 1a+ 3), )(-0 alle#edl+ due to a discrepanc+ in the en#ine and chassis nu%*ers of the vehicle delivered to her and those indicated in the sales invoice, certificate of re#istration and deed of chattel %ort#a#e, which fact she discovered when the vehicle fi#ured in an accident on ( 1a+ )(-0. &his failure to pa+ pro%pted private respondent to initiate Civil Case No. 5()5 for a su% of %one+ a#ainst petitioner *efore the Re#ional &rial Court of $an ernando, 'a%pan#a. 5n its decision dated $epte%*er )0, )(-3, the trial court held, thus6 789R9 :R9, and in view of all the fore#oin#, ;ud#%ent is here*+ rendered orderin# the defendant to pa+ the plaintiff the su% of '3-,<)<.<0 with interest thereon at the rate of )<= fro% :cto*er 3, )(-0 until the said su% is full+ paid> and the further a%ount of '),000.00 as attorne+?s fees. &he counterclai% of defendant is dis%issed.
7ith costs a#ainst defendant.
1

@oth petitioner and private respondent appealed the aforesaid decision to the Court of Appeals. 5%putin# fraud, *ad faith and %isrepresentation a#ainst V1$ for havin# delivered a different vehicle to petitioner, the latter pra+ed for a reversal of the trial court?s decision so that she %a+ *e a*solved fro% the o*li#ation under the contract. :n :cto*er 37, )(-,, the Court of Appeals rendered its assailed decision, the pertinent portion of which is 4uoted hereunder6

&he alle#ations, state%ents, or ad%issions contained in a pleadin# are conclusive as a#ainst the pleader. A part+ cannot su*se4uentl+ taAe a position contradictor+ of, or inconsistent with his pleadin#s /Cunanan vs. A%paro, -0 'hil. 3370. Ad%issions %ade *+ the parties in the pleadin#s, or in the course of the trial or other proceedin#s, do not re4uire proof and cannot *e contradicted unless previousl+ shown to have *een %ade throu#h palpa*le %istaAe /$ec. 3, Rule )3(, Revised Rules of Court> $ta. Ana vs. 1aliwat, "-32032, Au#. 2), )(,-, 3< $CRA )0)-0. 7hen an action or defense is founded upon a written instru%ent, copied in or attached to the correspondin# pleadin# as provided in the precedin# section, the #enuineness and due eBecution of the instru%ent shall *e dee%ed ad%itted unless the adverse part+, under oath, specificall+ denied the%, and sets forth what he clai%s to *e the facts /$ec. -, Rule -, Revised Rules of Court> 8i**ered vs. Rohde and 1c1illian, 23 'hil. <7,0. A perusal of the evidence shows that the a%ount of '5-,)2-.30 stated in the pro%issor+ note is the a%ount assu%ed *+ the plaintiff in financin# the purchase of defendant?s %otor vehicle fro% the Viola#o 1otor $ales Corp., the %onthl+ a%ortiCation of winch is 'l,,)<.(5 for 2, %onths. Considerin# that the defendant was a*le to pa+ twice /as ad%itted *+ the plaintiff, defendant?s account *eca%e delin4uent onl+ *e#innin# 1a+, )(-00 or in the total su% of '2,33(.(0, she is therefore lia*le to pa+ the re%ainin# *alance of '5<,(0-.20 at l<= per annum fro% :cto*er 3, )(-0 until full pa+%ent.
789R9 :R9, considerin# the fore#oin#, the appealed decision is here*+ %odified orderin# the defendant to pa+ the plaintiff the su% of '5<,(0-.20 at )<= per annum fro% :cto*er 3, )(-0 until full pa+%ent. &he decision is A 5R19D in all other respects. 7ith costs to defendant. 2

'etitioner?s %otion for reconsideration was denied> hence, the present recourse. 5n the petition *efore us, petitioner assi#ns twelve /)30 errors which focus on the alle#ed fraud, *ad faith and %isrepresentation of Viola#o 1otor $ales Corporation in the conduct of its *usiness and which fraud, *ad faith and %isrepresentation supposedl+ released petitioner fro% an+ lia*ilit+ to private respondent who should instead proceed a#ainst V1$. # 'etitioner ar#ues that in the li#ht of the provision of the law on sales *+ description $ which she alle#es is applica*le here, no contract ever eBisted *etween her and V1$ and therefore none had *een assi#ned in favor of private respondent. $he contends that it is not necessar+, as opined *+ the appellate court, to i%plead V1$ as a part+ to the case *efore it can *e %ade to answer for da%a#es *ecause V1$ was earlier sued *+ her for "*reach of contract with da%a#es" *efore the Re#ional &rial Court of :lon#apo Cit+, @ranch "EE55, docAeted as Civil Case No. 3(),-0. $he cites as authorit+ the decision therein where the court ori#inall+ ordered petitioner to pa+ the re%ainin# *alance of the %otor vehicle install%ents in the a%ount of '2),,<<.20 representin# the difference *etween the a#reed consideration of '<(,000.00 as shown in the sales invoice and petitioner?s initial downpa+%ent of ')7,-55.70 alle#edl+ evidenced *+ a receipt. $aid decision was however reversed later on, with the sa%e court orderin# defendant V1$ instead to return to petitioner the su% of ')7,-55.70. 'arentheticall+, said decision is still pendin# consideration *+ the irst Civil Case Division of the Court of Appeals, upon an appeal *+ V1$, docAeted as AC-G.R. No. 03(33. %

'rivate respondent in its co%%ent, pra+s for the dis%issal of the petition and counters that the issues raised and the alle#ations adduced therein are a %ere rehash of those presented and alread+ passed upon in the court *elow, and that the ;ud#%ent in the "*reach of contract" suit cannot *e invoAed as an authorit+ as the sa%e is still pendin# deter%ination in the appellate court. 7e see no co#ent reason to distur* the challen#ed decision. &he pivotal issue in this case is whether the pro%issor+ note in 4uestion is a ne#otia*le instru%ent which will *ar co%pletel+ all the availa*le defenses of the petitioner a#ainst private respondent. 'etitioner?s lia*ilit+ on the pro%issor+ note, the due eBecution and #enuineness of which she never denied under oath is, under the fore#oin# factual milieu, as inevita*le as it is clearl+ esta*lished. &he records reveal that involved herein is not a si%ple case of assi#n%ent of credit as petitioner would have it appear, where the assi#nee %erel+ steps into the shoes of, is open to all defenses availa*le a#ainst and can enforce pa+%ent onl+ to the sa%e eBtent as, the assi#nor-vendor. Recentl+, in the case of Consolidated Plywood Industries Inc. v. I C Leasing and Acceptance Corp., 6 this Court had the occasion to clearl+ distin#uish *etween a ne#otia*le and a non-ne#otia*le instru%ent. A%on# others, the instru%ent in order to *e considered ne#otia*le %ust contain the so-called "words of ne#otia*ilit+ F i.e., %ust *e pa+a*le to "order" or "*earer"". Gnder $ection - of the Ne#otia*le 5nstru%ents "aw, there are onl+ two wa+s *+ which an instru%ent %a+ *e %ade pa+a*le to order. &here %ust alwa+s *e a specified person na%ed in the instru%ent and the *ill or note is to *e paid to the person desi#nated in the instru%ent or to an+ person to who% he has indorsed and delivered the sa%e. 7ithout the words "or order or "to the order of", the instru%ent is pa+a*le onl+ to the person desi#nated therein and is therefore non-ne#otia*le. An+ su*se4uent purchaser thereof will not en;o+ the advanta#es of *ein# a holder of a ne#otia*le instru%ent, *ut will %erel+ "step into the shoes" of the person desi#nated in the instru%ent and will thus *e open to all defenses availa*le a#ainst the latter. $uch *ein# the situation in the a*ove-cited case, it was held that therein private respondent is not a holder in due course *ut a %ere assi#nee a#ainst who% all defenses availa*le to the assi#nor %a+ *e raised. 7 5n the case at *ar, however, the situation is different. 5ndu*ita*l+, the *asis of private respondent?s clai% a#ainst petitioner is a pro%issor+ note which *ears all the ear%arAs of ne#otia*ilit+. &he pertinent portion of the note reads6 'R:15$$:RH N:&9 /1:N&8"H0 '5-,)2-.30 $an ernando, 'a%pan#a, 'hilippines e*. )), )(-0 or value received, 5I7e ;ointl+ and severall+, pro%ise to pa+ Violago !otor "ales Corporation or order, at its office in "an ernando, Pampanga, the su% of I #$ %I&'# #'()"A*+ (*% ')*+,%+ #'I,#$ %I&'# & -./0/.. (*L$ 1P23,/43.-.5 'hilippine currenc+, which a%ount includes interest at )<= per annum *ased on the di%inishin# *alance, the said principal su%, to *e pa+a*le,

without need of notice or de%and, in install%ents of the a%ounts followin# and at the dates hereinafter set forth, to wit6 P/,6/7.82 %onthl+ for "2," %onths due and pa+a*le on the 3)st da+ of each %onth startin# 1arch 3), )(-0 thru and inclusive of e*ruar+ 3), )(-2. 'JJJJJJJJJ %onthl+ for JJJJJJ %onths due and pa+a*le on the JJJJJJ da+ of each %onth startin# JJJJJ)(-JJ thru and inclusive of JJJJJ, )(-JJJJJJJJ provided that interest at )<= per annum shall *e added on each unpaid install%ent fro% %aturit+ hereof until full+ paid. BBB BBB BBB 1aAer> Co-1aAer6 /$5GN9D0 .GAN5&A $A"A$ JJJJJJJJJJJJJJJJJ Address6 JJJJJJJJJJJJJJJJJJJJ JJJJJJJJJJJJJJJJJJJJ 75&N9$$9$ $5GN9D6 5""9G5@"9 $5GN9D6 5""9G5@"9 &AN K &AN K 'AH &: &89 :RD9R : 5"5NV9$& 5NANC9 AND "9A$5NG C:R':RA&5:N
V5:"AG: 1:&:R $A"9$ C:R':RA&5:N @H6 /$5GN9D0 G9N9V9VA V. @A"&ALAR Cash 1ana#er 8

A careful stud+ of the 4uestioned pro%issor+ note shows that it is a ne#otia*le instru%ent, havin# co%plied with the re4uisites under the law as follows6 MaN it is in writin# and si#ned *+ the %aAer .uanita $alas> M*N it contains an unconditional pro%ise to pa+ the a%ount of '5-,)2-.30> McN it is pa+a*le at a fiBed or deter%ina*le future ti%e which is "'),,)<.(5 %onthl+ for 2, %onths due and pa+a*le on the 3) st da+ of each %onth startin# 1arch 3), )(-0 thru and inclusive of e*. 3), )(-2>" MdN it is pa+a*le to Viola#o 1otor $ales Corporation, or order and as such, MeN the drawee is na%ed or indicated with certaint+. 9 5t was ne#otiated *+ indorse%ent in writin# on the instru%ent itself pa+a*le to the :rder of ilinvest inance and "easin# Corporation 10 and it is an indorse%ent of the entire instru%ent. 11 Gnder the circu%stances, there appears to *e no 4uestion that ilinvest is a holder in due course, havin# taAen the instru%ent under the followin# conditions6 MaN it is co%plete and re#ular upon its face> M*N it *eca%e the holder thereof *efore it was overdue, and without notice that it had previousl+ *een dishonored> McN it tooA the sa%e in #ood faith and for value> and MdN when it was ne#otiated to ilinvest, the latter had no notice of an+ infir%it+ in the instru%ent or defect in the title of V1$ Corporation. 12 Accordin#l+, respondent corporation holds the instru%ent free fro% an+ defect of title of prior parties, and free fro% defenses availa*le to prior parties a%on# the%selves, and %a+ enforce pa+%ent of

the instru%ent for the full a%ount thereof. 1# &his *ein# so, petitioner cannot set up a#ainst respondent the defense of nullit+ of the contract of sale *etween her and V1$. 9ven assu%in# for the saAe of ar#u%ent that there is an iota of truth in petitioner?s alle#ation that there was in fact deception %ade upon her in that the vehicle she purchased was different fro% that actuall+ delivered to her, this %atter cannot *e passed upon in the case *efore us, where the V1$ was never i%pleaded as a part+. 7hatever issue is raised or clai% presented a#ainst V1$ %ust *e resolved in the "*reach of contract" case. 8ence, we reach a si%ilar opinion as did respondent court when it held6
7e can onl+ eBtend our s+%pathies to the defendant /herein petitioner0 in this unfortunate incident. 5ndeed, there is nothin# 7e can do as far as the Viola#o 1otor $ales Corporation is concerned since it is not a part+ in this case. &o even discuss the issue as to whether or not the Viola#o 1otor $ales Corporation is lia*le in the transaction in 4uestion would a%ount, to denial of due process, hence, i%proper and unconstitutional. $he should have i%pleaded Viola#o 1otor $ales. 1$

5N V597 : &89 :R9G:5NG, the assailed decision is here*+ A petitioner. $: :RD9R9D.

5R19D. 7ith costs a#ainst

G.R. No. 977%# Au&u'( 10, 1992 CALT ) *PHILIPPIN S+, INC., petitioner, vs. COURT OF APP ALS an! S CURIT, -AN. AN/ TRUST CO0PAN,, respondents. 9ito, Lo:ada, (rtega & Castillo for petitioners. *epomuceno, 'ofile;a & &uingona for private.

R GALA/O, J.: &his petition for review on certiorari i%pu#ns and seeAs the reversal of the decision pro%ul#ated *+ respondent court on 1arch -, )(() in CA-G.R. CV No. 32,)5 1 affir%in# with %odifications, the earlier decision of the Re#ional &rial Court of 1anila, @ranch E"55, 2 which dis%issed the co%plaint filed therein *+ herein petitioner a#ainst respondent *anA. &he undisputed *acA#round of this case, as found *+ the court a <uo and adopted *+ respondent court, appears of record6 ). :n various dates, defendant, a co%%ercial *anAin# institution, throu#h its $ucat @ranch issued 3-0 certificates of ti%e deposit /C&Ds0 in favor of one An#el dela CruC who deposited with herein defendant the a##re#ate a%ount of '),)30,000.00, as follows6 /.oint 'artial $tipulation of acts and $tate%ent of 5ssues, :ri#inal Records, p. 307> Defendant?s 9Bhi*its ) to 3-00> C#+ C#+ +ates "erial *os. =uantity Amount 33 e*. -3 (0)0) to (0)30 30 '-0,000 3, e*. -3 7<,03 to 7<,() (0 2,0,000 3 1ar. -3 7<70) to 7<7<0 <0 ),0,000 < 1ar. -3 (0)37 to (0)<, 30 -0,000 5 1ar. -3 7<7(7 to (<-00 < ),,000 5 1ar. -3 -((,5 to -((-, 33 --,000 5 1ar. -3 70)<7 to (0)50 < ),,000 - 1ar. -3 (000) to (0030 30 -0,000 ( 1ar. -3 (0032 to (0050 3- ))3,000 ( 1ar. -3 -((() to (0000 )0 <0,000 ( 1ar. -3 (035) to (0373 33 --,000 FFF FFFF &otal 3-0 '),)30,000 OOOOO OOOOOOOO 3. An#el dela CruC delivered the said certificates of ti%e /C&Ds0 to herein plaintiff in connection with his purchased of fuel products fro% the latter /:ri#inal Record, p. 30-0.

2. $o%eti%e in 1arch )(-3, An#el dela CruC infor%ed 1r. &i%oteo &ian#co, the $ucat @ranch 1an#er, that he lost all the certificates of ti%e deposit in dispute. 1r. &ian#co advised said depositor to eBecute and su*%it a notariCed Affidavit of "oss, as re4uired *+ defendant *anA?s procedure, if he desired replace%ent of said lost C&Ds /&$N, e*ruar+ (, )(-7, pp. <--500. <. :n 1arch )-, )(-3, An#el dela CruC eBecuted and delivered to defendant *anA the re4uired Affidavit of "oss /Defendant?s 9Bhi*it 3-)0. :n the *asis of said affidavit of loss, 3-0 replace%ent C&Ds were issued in favor of said depositor /Defendant?s 9Bhi*its 3-3-5,)0. 5. :n 1arch 35, )(-3, An#el dela CruC ne#otiated and o*tained a loan fro% defendant *anA in the a%ount of 9i#ht 8undred $event+ ive &housand 'esos /'-75,000.000. :n the sa%e date, said depositor eBecuted a notariCed Deed of Assi#n%ent of &i%e Deposit /9Bhi*it 5,30 which stated, a%on# others, that he /de la CruC0 surrenders to defendant *anA "full control of the indicated ti%e deposits fro% and after date" of the assi#n%ent and further authoriCes said *anA to pre-ter%inate, set-off and "appl+ the said ti%e deposits to the pa+%ent of whatever a%ount or a%ounts %a+ *e due" on the loan upon its %aturit+ /&$N, e*ruar+ (, )(-7, pp. ,0,30. ,. $o%eti%e in Nove%*er, )(-3, 1r. Aranas, Credit 1ana#er of plaintiff CalteB /'hils.0 5nc., went to the defendant *anA?s $ucat *ranch and presented for verification the C&Ds declared lost *+ An#el dela CruC alle#in# that the sa%e were delivered to herein plaintiff "as securit+ for purchases %ade with CalteB 'hilippines, 5nc." *+ said depositor /&$N, e*ruar+ (, )(-7, pp. 5<-,-0. 7. :n Nove%*er 3,, )(-3, defendant received a letter /Defendant?s 9Bhi*it 5,20 fro% herein plaintiff for%all+ infor%in# it of its possession of the C&Ds in 4uestion and of its decision to pre-ter%inate the sa%e. -. :n Dece%*er -, )(-3, plaintiff was re4uested *+ herein defendant to furnish the for%er "a cop+ of the docu%ent evidencin# the #uarantee a#ree%ent with 1r. An#el dela CruC" as well as "the details of 1r. An#el dela CruC" o*li#ation a#ainst which plaintiff proposed to appl+ the ti%e deposits /Defendant?s 9Bhi*it 5,<0. (. No cop+ of the re4uested docu%ents was furnished herein defendant. )0. Accordin#l+, defendant *anA re;ected the plaintiff?s de%and and clai% for pa+%ent of the value of the C&Ds in a letter dated e*ruar+ 7, )(-2 /Defendant?s 9Bhi*it 5,,0. )). 5n April )(-2, the loan of An#el dela CruC with the defendant *anA %atured and fell due and on Au#ust 5, )(-2, the latter set-off and applied the ti%e deposits in 4uestion to the pa+%ent of the %atured loan /&$N, e*ruar+ (, )(-7, pp. )20-)2)0. )3. 5n view of the fore#oin#, plaintiff filed the instant co%plaint, pra+in# that defendant *anA *e ordered to pa+ it the a##re#ate value of the certificates of ti%e deposit of '),)30,000.00 plus accrued interest and co%pounded interest therein at ),= per annum, %oral and eBe%plar+ da%a#es as well as attorne+?s fees.
After trial, the court a <uo rendered its decision dis%issin# the instant co%plaint.
#

:n appeal, as earlier stated, respondent court affir%ed the lower court?s dis%issal of the co%plaint, hence this petition wherein petitioner faults respondent court in rulin# /)0 that the su*;ect certificates of deposit are non-ne#otia*le despite *ein# clearl+ ne#otia*le instru%ents> /30 that petitioner did not *eco%e a holder in due course of the said certificates of deposit> and /20 in disre#ardin# the pertinent provisions of the Code of Co%%erce relatin# to lost instru%ents pa+a*le to *earer. $ &he instant petition is *ereft of %erit. A sa%ple teBt of the certificates of ti%e deposit is reproduced *elow to provide a *etter understandin# of the issues involved in this recourse. $9CGR5&H @ANP AND &RG$& C:1'ANH ,77- A+ala Ave., 1aAati No. (0)0) 1etro 1anila, 'hilippines $GCA& : 5C9' <,000.00 C9R&5 5CA&9 : D9':$5& Rate ),= Date of 1aturit+ 9@. 32, )(-< 9@ 33, )(-3, )(JJJJ &his is to Certif+ that @ 9 A R 9 R has deposited in this @anA the su% of '9$:$6 :GR &8:G$AND :N"H, $9CGR5&H @ANP $GCA& : 5C9 '<,000 ! 00 C&$ 'esos, 'hilippine Currenc+, repa+a*le to said depositor 72) da+s. after date, upon presentation and surrender of this certificate, with interest at the rate of ),= per cent per annum. /$#d. 5lle#i*le0 /$#d. 5lle#i*le0 FFFFFFFFFF FFFFFFFFFFF
AG&8:R5L9D $5GNA&GR9$ %

Respondent court ruled that the C&Ds in 4uestion are non-ne#otia*le instru%ents, nationaliCin# as follows6
. . . 7hile it %a+ *e true that the word "*earer" appears rather *oldl+ in the C&Ds issued, it is i%portant to note that after the word "@9AR9R" sta%ped on the space provided supposedl+ for the na%e of the depositor, the words "has deposited" a certain a%ount follows. &he docu%ent further provides that the a%ount deposited shall *e "repa+a*le to said depositor" on the period indicated. &herefore, the teBt of the instru%ent/s0 the%selves %anifest with clarit+ that the+ are pa+a*le, not to whoever purports to *e the "*earer" *ut onl+ to the specified person indicated therein, the depositor. 5n effect, the appellee *anA acAnowled#es its depositor An#el dela CruC as the person who %ade the deposit and further en#a#es itself to pa+ said depositor the a%ount indicated thereon at the stipulated date. 6

7e disa#ree with these findin#s and conclusions, and here*+ hold that the C&Ds in 4uestion are ne#otia*le instru%ents. $ection ) Act No. 302), otherwise Anown as the Ne#otia*le 5nstru%ents "aw, enu%erates the re4uisites for an instru%ent to *eco%e ne#otia*le, vi:6 /a0 5t %ust *e in writin# and si#ned *+ the %aAer or drawer>

/*0 1ust contain an unconditional pro%ise or order to pa+ a su% certain in %one+> /c0 1ust *e pa+a*le on de%and, or at a fiBed or deter%ina*le future ti%e> /d0 1ust *e pa+a*le to order or to *earer> and /e0 7here the instru%ent is addressed to a drawee, he %ust *e na%ed or otherwise indicated therein with reasona*le certaint+. &he C&Ds in 4uestion undou*tedl+ %eet the re4uire%ents of the law for ne#otia*ilit+. &he parties? *one of contention is with re#ard to re4uisite /d0 set forth a*ove. 5t is noted that 1r. &i%oteo '. &ian#co, $ecurit+ @anA?s @ranch 1ana#er wa+ *acA in )(-3, testified in open court that the depositor reffered to in the C&Ds is no other than 1r. An#el de la CruC. BBB BBB BBB Att+. Calida6 4 5n other words 1r. 7itness, +ou are sa+in# that per *ooAs of the *anA, the depositor referred /sic0 in these certificates states that it was An#el dela CruCQ witness6 a Hes, +our 8onor, and we have the record to show that An#el dela CruC was the one who cause /sic0 the a%ount. Att+. Calida6 4 And no other person or entit+ or co%pan+, 1r. 7itnessQ witness6
a None, +our 8onor. 7

BBB BBB BBB Att+. Calida6 4 1r. 7itness, who is the depositor identified in all of these certificates of ti%e deposit insofar as the *anA is concernedQ witness6
a An#el dela CruC is the depositor.
8

BBB BBB BBB :n this score, the accepted rule is that the ne#otia*ilit+ or non-ne#otia*ilit+ of an instru%ent is deter%ined fro% the writin#, that is, fro% the face of the instru%ent itself. 9 5n the construction of a *ill

or note, the intention of the parties is to control, if it can *e le#all+ ascertained. 10 7hile the writin# %a+ *e read in the li#ht of surroundin# circu%stances in order to %ore perfectl+ understand the intent and %eanin# of the parties, +et as the+ have constituted the writin# to *e the onl+ outward and visi*le eBpression of their %eanin#, no other words are to *e added to it or su*stituted in its stead. &he dut+ of the court in such case is to ascertain, not what the parties %a+ have secretl+ intended as contradistin#uished fro% what their words eBpress, *ut what is the %eanin# of the words the+ have used. 7hat the parties %eant %ust *e deter%ined *+ what the+ said. 11 Contrar+ to what respondent court held, the C&Ds are ne#otia*le instru%ents. &he docu%ents provide that the a%ounts deposited shall *e repa+a*le to the depositor. And who, accordin# to the docu%ent, is the depositorQ 5t is the "*earer." &he docu%ents do not sa+ that the depositor is An#el de la CruC and that the a%ounts deposited are repa+a*le specificall+ to hi%. Rather, the a%ounts are to *e repa+a*le to the *earer of the docu%ents or, for that %atter, whosoever %a+ *e the *earer at the ti%e of present%ent. 5f it was reall+ the intention of respondent *anA to pa+ the a%ount to An#el de la CruC onl+, it could have with facilit+ so eBpressed that fact in clear and cate#orical ter%s in the docu%ents, instead of havin# the word "@9AR9R" sta%ped on the space provided for the na%e of the depositor in each C&D. :n the wordin#s of the docu%ents, therefore, the a%ounts deposited are repa+a*le to whoever %a+ *e the *earer thereof. &hus, petitioner?s aforesaid witness %erel+ declared that An#el de la CruC is the depositor "insofar as the *anA is concerned," *ut o*viousl+ other parties not priv+ to the transaction *etween the% would not *e in a position to Anow that the depositor is not the *earer stated in the C&Ds. 8ence, the situation would re4uire an+ part+ dealin# with the C&Ds to #o *ehind the plain i%port of what is written thereon to unravel the a#ree%ent of the parties thereto throu#h facts aliunde. &his need for resort to eBtrinsic evidence is what is sou#ht to *e avoided *+ the Ne#otia*le 5nstru%ents "aw and calls for the application of the ele%entar+ rule that the interpretation of o*scure words or stipulations in a contract shall not favor the part+ who caused the o*scurit+. 12 &he neBt 4uer+ is whether petitioner can ri#htfull+ recover on the C&Ds. &his ti%e, the answer is in the ne#ative. &he records reveal that An#el de la CruC, who% petitioner chose not to i%plead in this suit for reasons of its own, delivered the C&Ds a%ountin# to '),)30,000.00 to petitioner without infor%in# respondent *anA thereof at an+ ti%e. Gnfortunatel+ for petitioner, althou#h the C&Ds are *earer instru%ents, a valid ne#otiation thereof for the true purpose and a#ree%ent *etween it and De la CruC, as ulti%atel+ ascertained, re4uires *oth deliver+ and indorse%ent. or, althou#h petitioner seeAs to deflect this fact, the C&Ds were in realit+ delivered to it as a securit+ for De la CruC? purchases of its fuel products. An+ dou*t as to whether the C&Ds were delivered as pa+%ent for the fuel products or as a securit+ has *een dissipated and resolved in favor of the latter *+ petitioner?s own authoriCed and responsi*le representative hi%self. 5n a letter dated Nove%*er 3,, )(-3 addressed to respondent $ecurit+ @anA, ..R. Aranas, .r., CalteB Credit 1ana#er, wrote6 ". . . &hese certificates of deposit were ne#otiated to us *+ 1r. An#el dela CruC to guarantee >is purc>ases of fuel products " /9%phasis ours.0 1# &his ad%ission is conclusive upon petitioner, its protestations notwithstandin#. Gnder the doctrine of estoppel, an ad%ission or representation is rendered conclusive upon the person %aAin# it, and cannot *e denied or disproved as a#ainst the person rel+in# thereon. 1$ A part+ %a+ not #o *acA on his own acts and representations to the pre;udice of the other part+ who relied upon the%. 1% 5n the law of evidence, whenever a part+ has, *+ his own declaration, act, or o%ission, intentionall+ and deli*eratel+ led another to *elieve a particular thin# true, and to act upon such *elief, he cannot, in an+ liti#ation arisin# out of such declaration, act, or o%ission, *e per%itted to falsif+ it. 16 5f it were true that the C&Ds were delivered as pa+%ent and not as securit+, petitioner?s credit %ana#er could have easil+ said so, instead of usin# the words "to #uarantee" in the letter

afore4uoted. @esides, when respondent *anA, as defendant in the court *elow, %oved for a *ill of particularit+ therein 17 pra+in#, a%on# others, that petitioner, as plaintiff, *e re4uired to aver with sufficient definiteness or particularit+ /a0 the due date or dates ofpayment of the alle#ed inde*tedness of An#el de la CruC to plaintiff and /*0 whether or not it issued a receipt showin# that the C&Ds were delivered to it *+ De la CruC as payment of the latter?s alle#ed inde*tedness to it, plaintiff corporation opposed the %otion. 18 8ad it produced the receipt pra+ed for, it could have proved, if such trul+ was the fact, that the C&Ds were delivered as pa+%ent and not as securit+. 8avin# opposed the %otion, petitioner now la*ors under the presu%ption that evidence willfull+ suppressed would *e adverse if produced. 19 Gnder the fore#oin# circu%stances, this dis4uisition in Intergrated ,ealty Corporation, et al. vs. P>ilippine *ational 9an?, et al. 20 is apropos6 . . . Advertin# a#ain to the Court?s pronounce%ents in Lope:, supra, we 4uote therefro%6 &he character of the transaction *etween the parties is to *e deter%ined *+ their intention, re#ardless of what lan#ua#e was used or what the for% of the transfer was. 5f it was intended to secure the pa+%ent of %one+, it %ust *e construed as a pled#e> *ut if there was so%e other intention, it is not a pled#e. 8owever, even thou#h a transfer, if re#arded *+ itself, appears to have *een a*solute, its o*;ect and character %i#ht still *e 4ualified and eBplained *+ conte%poraneous writin# declarin# it to have *een a deposit of the propert+ as collateral securit+. 5t has *een said that a transfer of propert+ *+ the de*tor to a creditor, even if sufficient on its face to %aAe an a*solute conve+ance, should *e treated as a pled#e if the de*t continues in ineBistence and is not dischar#ed *+ the transfer, and that accordin#l+ the use of the ter%s ordinaril+ i%portin# conve+ance of a*solute ownership will not *e #iven that effect in such a transaction if the+ are also co%%onl+ used in pled#es and %ort#a#es and therefore do not un4ualifiedl+ indicate a transfer of a*solute ownership, in the a*sence of clear and una%*i#uous lan#ua#e or other circu%stances eBcludin# an intent to pled#e. 'etitioner?s insistence that the C&Ds were ne#otiated to it *e#s the 4uestion. Gnder the Ne#otia*le 5nstru%ents "aw, an instru%ent is ne#otiated when it is transferred fro% one person to another in such a %anner as to constitute the transferee the holder thereof, 21 and a holder %a+ *e the pa+ee or indorsee of a *ill or note, who is in possession of it, or the *earer thereof. 22 5n the present case, however, there was no ne#otiation in the sense of a transfer of the le#al title to the C&Ds in favor of petitioner in which situation, for o*vious reasons, %ere deliver+ of the *earer C&Ds would have sufficed. 8ere, the deliver+ thereof onl+ as securit+ for the purchases of An#el de la CruC /and we even disre#ard the fact that the a%ount involved was not disclosed0 could at the %ost constitute petitioner onl+ as a holder for value *+ reason of his lien. Accordin#l+, a ne#otiation for such purpose cannot *e effected *+ %ere deliver+ of the instru%ent since, necessaril+, the ter%s thereof and the su*se4uent disposition of such securit+, in the event of non-pa+%ent of the principal o*li#ation, %ust *e contractuall+ provided for. &he pertinent law on this point is that where the holder has a lien on the instru%ent arisin# fro% contract, he is dee%ed a holder for value to the eBtent of his lien. 2# As such holder of collateral securit+, he would *e a pled#ee *ut the re4uire%ents therefor and the effects thereof, not *ein#

provided for *+ the Ne#otia*le 5nstru%ents "aw, shall *e #overned *+ the Civil Code provisions on pled#e of incorporeal ri#hts, 2$ which inceptivel+ provide6 Art. 30(5. 5ncorporeal ri#hts, evidenced *+ ne#otia*le instru%ents, . . . %a+ also *e pled#ed. &he instru%ent provin# the ri#ht pled#ed shall *e delivered to the creditor, and if ne#otia*le, %ust *e indorsed. Art. 30(,. A pled#e shall not taAe effect a#ainst third persons if a description of the thin# pled#ed and the date of the pled#e do not appear in a pu*lic instru%ent. Aside fro% the fact that the C&Ds were onl+ delivered *ut not indorsed, the factual findin#s of respondent court 4uoted at the start of this opinion show that petitioner failed to produce an+ docu%ent evidencin# an+ contract of pled#e or #uarantee a#ree%ent *etween it and An#el de la CruC. 2% Conse4uentl+, the %ere deliver+ of the C&Ds did not le#all+ vest in petitioner an+ ri#ht effective a#ainst and *indin# upon respondent *anA. &he re4uire%ent under Article 30(, afore%entioned is not a %ere rule of ad;ective law prescri*in# the %ode where*+ proof %a+ *e %ade of the date of a pled#e contract, *ut a rule of su*stantive law prescri*in# a condition without which the eBecution of a pled#e contract cannot affect third persons adversel+. 26 :n the other hand, the assi#n%ent of the C&Ds %ade *+ An#el de la CruC in favor of respondent *anA was e%*odied in a pu*lic instru%ent. 27 7ith re#ard to this other %ode of transfer, the Civil Code specificall+ declares6 Art. ),35. An assi#n%ent of credit, ri#ht or action shall produce no effect as a#ainst third persons, unless it appears in a pu*lic instru%ent, or the instru%ent is recorded in the Re#istr+ of 'ropert+ in case the assi#n%ent involves real propert+. Respondent *anA dul+ co%plied with this statutor+ re4uire%ent. Contraril+, petitioner, whether as purchaser, assi#nee or lien holder of the C&Ds, neither proved the a%ount of its credit or the eBtent of its lien nor the eBecution of an+ pu*lic instru%ent which could affect or *ind private respondent. Necessaril+, therefore, as *etween petitioner and respondent *anA, the latter has definitel+ the *etter ri#ht over the C&Ds in 4uestion. inall+, petitioner faults respondent court for refusin# to delve into the 4uestion of whether or not private respondent o*served the re4uire%ents of the law in the case of lost ne#otia*le instru%ents and the issuance of replace%ent certificates therefor, on the #round that petitioner failed to raised that issue in the lower court. 28 :n this %atter, we uphold respondent court?s findin# that the aspect of alle#ed ne#li#ence of private respondent was not included in the stipulation of the parties and in the state%ent of issues su*%itted *+ the% to the trial court.29 &he issues a#reed upon *+ the% for resolution in this case are6 ). 7hether or not the C&Ds as worded are ne#otia*le instru%ents. 3. 7hether or not defendant could le#all+ appl+ the a%ount covered *+ the C&Ds a#ainst the depositor?s loan *+ virtue of the assi#n%ent /AnneB "C"0. 2. 7hether or not there was le#al co%pensation or set off involvin# the a%ount covered *+ the C&Ds and the depositor?s outstandin# account with defendant, if an+.

<. 7hether or not plaintiff could co%pel defendant to preter%inate the C&Ds *efore the %aturit+ date provided therein. 5. 7hether or not plaintiff is entitled to the proceeds of the C&Ds. ,. 7hether or not the parties can recover da%a#es, attorne+?s fees and liti#ation eBpenses fro% each other. As respondent court correctl+ o*served, with appropriate citation of so%e doctrinal authorities, the fore#oin# enu%eration does not include the issue of ne#li#ence on the part of respondent *anA. An issue raised for the first ti%e on appeal and not raised ti%el+ in the proceedin#s in the lower court is *arred *+ estoppel. #0 Ruestions raised on appeal %ust *e within the issues fra%ed *+ the parties and, conse4uentl+, issues not raised in the trial court cannot *e raised for the first ti%e on appeal. #1 're-trial is pri%aril+ intended to %aAe certain that all issues necessar+ to the disposition of a case are properl+ raised. &hus, to o*viate the ele%ent of surprise, parties are eBpected to disclose at a pre-trial conference all issues of law and fact which the+ intend to raise at the trial, eBcept such as %a+ involve privile#ed or i%peachin# %atters. &he deter%ination of issues at a pre-trial conference *ars the consideration of other 4uestions on appeal. #2 &o accept petitioner?s su##estion that respondent *anA?s supposed ne#li#ence %a+ *e considered enco%passed *+ the issues on its ri#ht to preter%inate and receive the proceeds of the C&Ds would *e tanta%ount to sa+in# that petitioner could raise on appeal an+ issue. 7e a#ree with private respondent that the *road ulti%ate issue of petitioner?s entitle%ent to the proceeds of the 4uestioned certificates can *e pre%ised on a %ultitude of other le#al reasons and causes of action, of which respondent *anA?s supposed ne#li#ence is onl+ one. 8ence, petitioner?s su*%ission, if accepted, would render a pre-trial deli%itation of issues a useless eBercise. ## $till, even assu%in# arguendo that said issue of ne#li#ence was raised in the court *elow, petitioner still cannot have the odds in its favor. A close scrutin+ of the provisions of the Code of Co%%erce la+in# down the rules to *e followed in case of lost instru%ents pa+a*le to *earer, which it invoAes, will reveal that said provisions, even assu%in# their applica*ilit+ to the C&Ds in the case at *ar, are %erel+ per%issive and not %andator+. &he ver+ first article cited *+ petitioner speaAs for itself. Art 5<-. &he dispossessed owner, no %atter for what cause it %a+ *e, may appl+ to the ;ud#e or court of co%petent ;urisdiction, asAin# that the principal, interest or dividends due or a*out to *eco%e due, *e not paid a third person, as well as in order to prevent the ownership of the instru%ent that a duplicate *e issued hi%. /9%phasis ours.0 BBB BBB BBB &he use of the word "%a+" in said provision shows that it is not %andator+ *ut discretionar+ on the part of the "dispossessed owner" to appl+ to the ;ud#e or court of co%petent ;urisdiction for the issuance of a duplicate of the lost instru%ent. 7here the provision reads "%a+," this word shows that it is not %andator+ *ut discretional. #$ &he word "%a+" is usuall+ per%issive, not %andator+. #% 5t is an auBiliar+ ver* indicatin# li*ert+, opportunit+, per%ission and possi*ilit+. #6 1oreover, as correctl+ anal+Ced *+ private respondent, #7 Articles 5<- to 55- of the Code of Co%%erce, on which petitioner seeAs to anchor respondent *anA?s supposed ne#li#ence, %erel+ esta*lished, on the one hand, a ri#ht of recourse in favor of a dispossessed owner or holder of a

*earer instru%ent so that he %a+ o*tain a duplicate of the sa%e, and, on the other, an option in favor of the part+ lia*le thereon who, for so%e valid #round, %a+ elect to refuse to issue a replace%ent of the instru%ent. $i#nificantl+, none of the provisions cited *+ petitioner cate#oricall+ restricts or prohi*its the issuance a duplicate or replace%ent instru%ent sans co%pliance with the procedure outlined therein, and none esta*lishes a %andator+ precedent re4uire%ent therefor. 789R9 :R9, on the %odified pre%ises a*ove set forth, the petition is D9N59D and the appealed decision is here*+ A 5R19D. $: :RD9R9D. *arvasa, C.J., Padilla and *ocon, JJ., concur.

ASTRO L CTRONICS CORP. an! P T R RO)AS, petitioner, vs. PHILIPPIN )PORT AN/ FOR IGN LOAN GUARANT CORPORATION,respondent. /
AUSTRIA10ARTIN 2, J.3

CISION

Assailed in this petition for review on certiorari under Rule <5 of the Rules of Court is the decision of the Court of Appeals in CA-G.R. CV No. <)37<, affir%in# the decision of the Re#ional &rial Court /@ranch )<70 of 1aAati, then 1etro 1anila, where*+ petitioners 'eter RoBas and Astro 9lectronics Corp. /Astro for *revit+0 were ordered to pa+ respondent 'hilippine 9Bport and orei#n "oan Guarantee Corporation /'hil#uarantee0, ;ointl+ and severall+, the a%ount of '2,,3),)-7.53 with interests and costs.
M)N

&he antecedent facts are undisputed. Astro was #ranted several loans *+ the 'hilippine &rust Co%pan+ /'hiltrust0 a%ountin# to '2,000,000.00 with interest and secured *+ three pro%issor+ notes6 'N N:. ' E-35< dated Dece%*er )<, )(-) for ',00,000.00, 'N No. ' E-35- also dated Dece%*er )<, )(-) for '<00,000.00 and 'N No. )5<77 dated Au#ust 37, )(-) for '3,000,000.00. 5n each of these pro%issor+ notes, it appears that petitioner RoBas si#ned twice, as 'resident of Astro and in his personal capacit+. RoBas also si#ned a Continuin# $uret+ ship A#ree%ent in favor of 'hiltrust @anA, as 'resident of Astro and as suret+.
M3N M2N

&hereafter, 'hil#uarantee, with the consent of Astro, #uaranteed in favor of 'hiltrust the pa+%ent of 70= of AstroSs loan, su*;ect to the condition that upon pa+%ent *+ 'hil#uanrantee of said a%ount, it shall *e proportionall+ su*ro#ated to the ri#hts of 'hiltrust a#ainst Astro.
M<N M5N

As a result of AstroSs failure to pa+ its loan o*li#ations, despite de%ands, 'hil#uarantee paid 70= of the #uaranteed loan to 'hiltrust. $u*se4uentl+, 'hil#uarantee filed a#ainst Astro and RoBas a co%plaint for su% of %one+ with the R&C of 1aAati. 5n his Answer, RoBas disclai%s an+ lia*ilit+ on the instru%ents, alle#in#, inter alia, that he %erel+ si#ned the sa%e in *lanA and the phrases Tin his personal capacit+U and Tin his official capacit+U were fraudulentl+ inserted without his Anowled#e.
M,N

After trial, the R&C rendered its decision in favor of 'hil#uarantee with the followin# dispositive portion6

WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic the !laintiff and against the defendants "stro Electronics Cor!oration and #eter $% Ro&as, ordering the then (sic to !ay, jointly and severally, the !laintiff the sum of #',()*%*+,%-) re!resenting the total obligation of defendants in favor of !laintiff #hilguarantee as of .ecember '*, */+0 with interest at the sti!ulated rate of *(1 !er annum and sti!ulated !enalty charges of *(1 !er annum com!uted from 2anuary *, */+- until the amount is fully !aid% With costs% 3O OR.ERE.%
4,5

&he trial court o*served that if RoBas reall+ intended to si#n the instru%ents %erel+ in his capacit+ as 'resident of Astro, then he should have si#ned onl+ once in the pro%issor+ note.
M-N

:n appeal, the Court of Appeals affir%ed the R&C decision a#reein# with the trial court that RoBas failed to eBplain satisfactoril+ wh+ he had to si#n twice in the contract and therefore the presu%ption that private transactions have *een fair and re#ular %ust *e sustained.
M(N

5n the present petition, the principal issue to *e resolved is whether or not RoBas should *e ;ointl+ and severall+ lia*le /solidar+0 with Astro for the su% awarded *+ the R&C. &he answer is in the affir%ative. AstroSs loan with 'hiltrust @anA is secured *+ three pro%issor+ notes. &hese pro%issor+ notes are valid and *indin# a#ainst Astro and RoBas. As it appears on the notes, RoBas si#ned twice6 first, as president of Astro and second, in his personal capacit+. 5n si#nin# his na%e aside fro% *ein# the 'resident of Asro, RoBas *eca%e a co-%aAer of the pro%issor+ notes and cannot escape an+ lia*ilit+ arisin# fro% it. Gnder the Ne#otia*le 5nstru%ents "aw, persons who write their na%es on the face of pro%issor+ notes are %aAers, pro%isin# that the+ will pa+ to the order of the pa+ee or an+ holder accordin# to its tenor. &hus, even without the phrase Tpersonal capacit+,U RoBas will still *e pri%aril+ lia*le as a ;oint and several de*tor under the notes considerin# that his intention to *e lia*le as such is %anifested *+ the fact that he affiBed his si#nature on each of the pro%issor+ notes twice which necessaril+ would i%pl+ that he is undertaAin# the o*li#ation in two different capacities, official and personal.
M)0N M))N

Gnnoticed *+ *oth the trial court and the Court of Appeals, a closer eBa%ination of the si#natures affiBed *+ RoBas on the pro%issor+ notes, 9Bhi*its TA-<U and T2-AU and T@-<U and T<-AU readil+ reveals that portions of his si#natures covered portions of the t+pewritten words Tpersonal capacit+U

indicatin# with certaint+ that the t+pewritten words were alread+ eBistin# at the ti%e RoBas affiBed his si#natures thus de%olishin# his clai% that the t+pewritten words were ;ust inserted after he si#ned the pro%issor+ notes. 5f what he clai%s is true, then portions of the t+pewritten words would have covered portions of his si#natures, and not vice versa. As to the third pro%issor+ note, 9Bhi*it TC-<U and T5-AU, the cop+ su*%itted is not clear so that this Court could not discern the sa%e o*servations on the notes, 9Bhi*its TA-<U and T2-AU and T@-<U and T<-AU. Nevertheless, the followin# discussions e4uall+ appl+ to all three pro%issor+ notes. &he three pro%issor+ notes unifor%l+ provide6 T :R VA"G9 R9C95V9D, 5I7e ;ointl+, severall+ and solidaril+, pro%ise to pa+ to '85"&RG$& @ANP or order...U An instru%ent which *e#ins with T5U, T7eU, or T9ither of usU pro%ise to pa+, when si#ned *+ two or %ore persons, %aAes the% solidaril+ lia*le. Also, the phrase T;oint and severalU *inds the %aAers ;ointl+ and individuall+ to the pa+ee so that all %a+ *e sued to#ether for its enforce%ent, or the creditor %a+ select one or %ore as the o*;ect of the suit. 8avin# si#ned under such ter%s, RoBas assu%ed the solidar+ lia*ilit+ of a de*tor and 'hiltrust @anA %a+ choose to enforce the notes a#ainst hi% alone or ;ointl+ with Astro.
M)3N M)2N M)<N

RoBasS clai% that the phrases Tin his personal capacit+U and Tin his official capacit+U were inserted on the notes without his Anowled#e was correctl+ disre#arded *+ the R&C and the Court of Appeals. 5t is not disputed that RoBas does not den+ that he si#ned the notes twice. As aptl+ found *+ *oth the trial and appellate court, RoBas did not offer an+ eBplanation wh+ he did so. 5t devolves upon hi% to overco%e the presu%ptions that private transactions are presu%ed to *e fair and re#ular and that a person taAes ordinar+ care of his concerns. Aside fro% his self-servin# alle#ations, RoBas failed to prove the truth of such alle#ations. &hus, said presu%ptions prevail over his clai%s. @are alle#ations, when unsu*stantiated *+ evidence, docu%entar+ or otherwise, are not e4uivalent to proof under our Rules of Court.
M)5N M),N M)7N

RoBas is the 'resident of Astro and reasona*l+, a *usiness%an who is presu%ed to taAe ordinar+ care of his concerns. A*sent an+ countervailin# evidence, it cannot *e #ainsaid that he will not si#n docu%ent without first infor%in# hi%self of its contents and conse4uences. Clearl+, he Anew the nature of the transactions and docu%ents involved as he not onl+ eBecuted these notes on two different dates *ut he also eBecuted, and a#ain, si#ned twice, a Tcontinuin# $uret+ ship A#ree%entU notariCed on .ul+ 2), )(-),

wherein he #uaranteed, ;ointl+ and severall+ with Astro the repa+%ent of '2,000,000.00 due to 'hiltrust. $uch continuin# suret+ship a#ree%ent even re-enforced his solidar+ lia*ilit+ 'hiltrust *ecause as a suret+, he *ound hi%self ;ointl+ and severall+ with AstroSs o*li#ation. RoBas cannot now avoid lia*ilit+ *+ hidin# under the convenient eBcuse that he %erel+ si#ned the notes in *lanA and the phrases Tin personal capacit+U and Tin his official capacit+U were fraudulentl+ inserted without his Anowled#e.
M)-N

"astl+, 'hil#uarantee has all the ri#ht to proceed a#ainst petitioner, it is su*ro#ated to the ri#hts of 'hiltrust to de%and for and collect pa+%ent fro% *oth RoBas and Astro since it alread+ paid the value of 70= of roBas and Astro 9lectronics Corp.Ss loan o*li#ation. 5n co%pliance with its contract of TGuaranteeU in favor of 'hiltrust. $u*ro#ation is the transfer of all the ri#hts of the creditor to a third person, who su*stitutes hi% in all his ri#hts. 5t %a+ either *e le#al or conventional. "e#al su*ro#ation is that which taAes place without a#ree%ent *ut *+ operation of law *ecause of certain acts. 5nstances of le#al su*ro#ation are those provided in Article )203 of the Civil Code. Conventional su*ro#ation, on the other hand, is that which taAes place *+ a#ree%ent of the parties.
M)(N M30N M3)N

RoBasS ac4uiescence is not necessar+ for su*ro#ation to taAe place *ecause the instant case is one of the le#al su*ro#ation that occurs *+ operation of law, and without need of the de*torSs Anowled#e. urther, 'hil#uarantee, as #uarantor, *eca%e the transferee of all the ri#hts of 'hiltrust as a#ainst RoBas and Astro *ecause the T#uarantor who pa+s is su*ro#ated *+ virtue thereof to all the ri#hts which the creditor had a#ainst the de*tor.U
M33N M32N

4H R FOR , findin# no error with the decision of the Court of Appeals dated Dece%*er )0, )((-, the sa%e is here*+ A 5R19D in toto. SO OR/ R /.

5G.R. No. 1%$127. /676896r 8, 200#:

RO0 O C. GARCIA, petitioner, vs. /IONISIO ;. LLA0AS, respondent. /

PANGANI-AN, J.:

CISION

Novation cannot *e presu%ed. 5t %ust *e clearl+ shown either *+ the eBpress assent of the parties or *+ the co%plete inco%pati*ilit+ *etween the old and the new a#ree%ents. 'etitioner herein fails to show either re4uire%ent convincin#l+> hence, the su%%ar+ ;ud#%ent holdin# hi% lia*le as a ;oint and solidar+ de*tor stands. T<6 Ca'6 @efore us is a 'etition for Review under Rule <5 of the Rules of Court, seeAin# to nullif+ the Nove%*er 3,, 300) Decision and the .une 3,, 3003 Resolution of the Court of Appeals /CA0 in CA-GR CV No. ,053). &he appellate court disposed as follows6
M)N M3N M2N

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment a!!ealed from, insofar as it !ertains to 4#etitioner5 Romeo 6arcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for attorney7s fees and cost of suit is DELETED% $he !ortion of the judgment that !ertains to & & & Eduardo de 2esus is SET ASIDE and VACATED% "ccordingly, the case against & & & Eduardo de 2esus isREMANDED to the court of origin for !ur!oses of receiving ex parte 4Res!ondent5 .ionisio 8lamas7 evidence against & & & Eduardo de 2esus%9
M<N

&he challen#ed Resolution, on the other hand, denied petitionerSs 1otion for Reconsideration. T<6 An(676!6n(' &he antecedents of the case are narrated *+ the CA as follows6 :$his case started out as a com!laint for sum of money and damages by & & & 4Res!ondent5 .ionisio 8lamas against & & & 4#etitioner5 Romeo 6arcia and

Eduardo de 2esus% .oc;eted as Civil Case <o% =/,>')>+,', the com!laint alleged that on )' .ecember *//(4,5 46arcia (!etitioner and de 2esus5 borrowed #0??,???%?? from 4res!ondent5@ that, on the same day, 4they5 e&ecuted a !romissory note wherein they bound themselves jointly and severally to !ay the loan on or before )' 2anuary *//, with a -1 interest !er month@ that the loan has long been overdue and, des!ite re!eated demands, 4!etitioner and de 2esus5 have failed and refused to !ay it@ and that, by reason of the4ir5 unjustified refusal, 4res!ondent5 was com!elled to engage the services of counsel to whom he agreed to !ay )-1 of the sum to be recovered from 4!etitioner and de 2esus5, !lus #),???%?? for every a!!earance in court% "nne&ed to the com!laint were the !romissory note above> mentioned and a demand letter, dated ?) Aay *//,, by 4res!ondent5 addressed to 4!etitioner and de 2esus5% :Resisting the com!laint, 4#etitioner 6arcia,5 in his 4"nswer,5 averred that he assumed no liability under the !romissory note because he signed it merely as an accommodation !arty for & & & de 2esus@ and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been !aid by & & & de 2esus by means of a chec; dated *, "!ril *//,@ and that, in any event, the issuance of the chec; and 4res!ondent7s5 acce!tance thereof novated or su!erseded the note% :4Res!ondent5 tendered a re!ly to 4#etitioner5 6arcia7s answer, thereunder asserting that the loan remained un!aid for the reason that the chec; issued by & & & de 2esus bounced, and that 4#etitioner5 6arcia7s answer was not even accom!anied by a certificate of non>forum sho!!ing% "nne&ed to the re!ly were the face of the chec; and the reverse side thereof% :For his !art, & & & de 2esus asserted in his 4"5nswer with 4C5ounterclaim that out of the su!!osed #0??,???%?? loan, he received only #'(?,???%??, the #0?,???%?? having been advance interest thereon for two months, that is, for 2anuary and February *//,@ that4,5 in fact4,5 he !aid the sum of #*)?,???%?? by way of interests@ that this was made when 4res!ondent7s5 daughter, one <its 8lamas>=uijencio, received from the Central #olice .istrict Command at Bicutan, $aguig, Aetro Aanila (where & & & de 2esus wor;ed , the sum of #0?,???%??, re!resenting the !eso eCuivalent of his accumulated leave credits, another #0?,???%?? as advance interest, and still another #0?,???%?? as interest for the months of Aarch and "!ril *//,@ that he had difficulty in !aying the loan and had as;ed 4res!ondent5 for an e&tension of time@ that 4res!ondent5 acted in bad faith in instituting the case, 4res!ondent5 having agreed to acce!t the benefits he (de 2esus would receive for his retirement, but 4res!ondent5 nonetheless filed the instant case while his retirement was being !rocessed@ and that, in defense of his rights, he agreed to !ay his counsel #)?,???%?? 4as5 attorney7s fees, !lus #*,???%?? for every court a!!earance%

:.uring the !re>trial conference, & & & de 2esus and his lawyer did not a!!ear, nor did they file any !re>trial brief% <either did 4#etitioner5 6arcia file a !re>trial brief, and his counsel even manifested that he would no 4longer5 !resent evidence% 6iven this develo!ment, the trial court gave 4res!ondent5 !ermission to !resent his evidence ex parte against & & & de 2esus@ and, as regards 4#etitioner5 6arcia, the trial court directed 4res!ondent5 to file a motion for judgment on the !leadings, and for 4#etitioner5 6arcia to file his comment or o!!osition thereto% :Dnstead, 4res!ondent5 filed a 4A5otion to declare 4#etitioner5 6arcia in default and to allow him to !resent his evidence ex parte% Aeanwhile, 4#etitioner5 6arcia filed a 4A5anifestation submitting his defense to a judgment on the !leadings% 3ubseCuently, 4res!ondent5 filed a 4A5anifestationE4A5otion to submit the case for judgement on the !leadings, withdrawing in the !rocess his !revious motion% $hereunder, he asserted that 4!etitioner7s and de 2esus75 solidary liability under the !romissory note cannot be any clearer, and that the chec; issued by de 2esus did not discharge the loan since the chec; bounced%9
M5N

:n .ul+ 7, )((-, the Re#ional &rial Court /R&C0 of RueCon Cit+ /@ranch 3330 disposed of the case as follows6 :WHEREFORE, !remises considered, judgment on the !leadings is hereby rendered in favor of 4res!ondent5 and against 4!etitioner and .e 2esus5, who are hereby ordered to !ay, jointly and severally, the 4res!ondent5 the following sums, to witF G* #0??,???%?? re!resenting the !rinci!al amount !lus -1 interest thereon !er month from 2anuary )', *//, until the same shall have been fully !aid, less the amount of #*)?,???%?? re!resenting interests already !aid by & & & de 2esus@ G) #*??,???%?? as attorney7s fees !lus a!!earance fee of #),???%?? for each day of 4c5ourt a!!earance, and@ G' Cost of this suit%79
M,N

Ru=>n& o? (<6 Cour( o? A@@6a=' &he CA ruled that the trial court had erred when it rendered a ;ud#%ent on the pleadin#s a#ainst De .esus. Accordin# to the appellate court, his Answer raised #enuinel+ contentious issues. 1oreover, he was still re4uired to present his evidence e@ parte. &hus, respondent was not ipso facto entitled to the R&C ;ud#%ent, even thou#h De .esus had *een declared in default. &he

case a#ainst the latter was therefore re%anded *+ the CA to the trial court for the e@ parte reception of the for%erSs evidence. As to petitioner, the CA treated his case as a su%%ar+ ;ud#%ent, *ecause his Answer had failed to raise even a sin#le #enuine issue re#ardin# an+ %aterial fact. &he appellate court ruled that no novation -- eBpress or i%plied -- had taAen place when respondent accepted the checA fro% De .esus. Accordin# to the CA, the checA was issued precisel+ to pa+ for the loan that was covered *+ the pro%issor+ note ;ointl+ and severall+ undertaAen *+ petitioner and De .esus. RespondentSs acceptance of the checA did not serve to %aAe De .esus the sole de*tor *ecause, first, the o*li#ation incurred *+ hi% and petitioner was ;oint and several> and, second, the checA -- which had *een intended to eBtin#uish the o*li#ation -- *ounced upon its present%ent. 8ence, this 'etition.
M7N

I''u6' 'etitioner su*%its the followin# issues for our consideration6

T5

Whether or not the Honorable Court of "!!eals gravely erred in not holding that novation a!!lies in the instant case as & & & Eduardo de 2esus had e&!ressly assumed sole and e&clusive liability for the loan obligation he obtained from & & & Res!ondent .ionisio 8lamas, as clearly evidenced byF a Dssuance by & & & de 2esus of a chec; in !ayment of the full amount of the loan of #0??,???%?? in favor of Res!ondent 8lamas, although the chec; subseCuently bounced4@5 "cce!tance of the chec; by the & & & res!ondent & & & which resulted in 4the5 substitution by & & & de 2esus or 4the su!erseding of5 the !romissory note@ & & & de 2esus having !aid interests on the loan in the total amount of #*)?,???%??@ $he fact that Res!ondent 8lamas agreed to the !ro!osal of & & & de 2esus that due to financial difficulties, he be given an e&tension of time to !ay his loan obligation and that his retirement

c d

benefits from the #hili!!ine <ational #olice will answer for said obligation%
T55

Whether or not the Honorable Court of "!!eals seriously erred in not holding that the defense of !etitioner that he was merely an accommodation !arty, des!ite the fact that the !romissory note !rovided for a joint andsolidary liability, should have been given weight and credence considering that subseCuent events showed that the !rinci!al obligor was in truth and in fact & & & de 2esus, as evidenced by the foregoing circumstances showing his assum!tion of sole liability over the loan obligation%
T555

Whether or not judgment on the !leadings or summary judgment was !ro!erly availed of by Res!ondent 8lamas, des!ite the fact that there are genuine issues of fact, which the Honorable Court of "!!eals itself admitted in its .ecision, which call for the !resentation of evidence in a full>blown trial%9
M-N

$i%pl+ put, the issues are the followin#6 )0 whether there was novation of the o*li#ation> 30 whether the defense that petitioner was onl+ an acco%%odation part+ had an+ *asis> and 20 whether the ;ud#%ent a#ainst hi% -- *e it a ;ud#%ent on the pleadin#s or a su%%ar+ ;ud#%ent -- was proper. T<6 Cour(A' Ru=>n& &he 'etition has no %erit. F>r'( I''u63 Novation 'etitioner seeAs to eBtricate hi%self fro% his o*li#ation as ;oint and solidar+ de*tor *+ insistin# that novation tooA place, either throu#h the su*stitution of De .esus as sole de*tor or the replace%ent of the pro%issor+ note *+ the checA. Alternativel+, the for%er ar#ues that the ori#inal o*li#ation was eBtin#uished when the latter, who was his co-o*li#or, TpaidU the loan with the checA.

&he fallac+ of the second /alternative0 ar#u%ent is all too apparent. &he checA could not have eBtin#uished the o*li#ation, *ecause it *ounced upon present%ent. @+ law, the deliver+ of a checA produces the effect of pa+%ent onl+ when it is encashed.
M(N

7e now co%e to the %ain issue of whether novation tooA place. Novation is a %ode of eBtin#uishin# an o*li#ation *+ chan#in# its o*;ects or principal o*li#ations, *+ su*stitutin# a new de*tor in place of the old one, or *+ su*ro#atin# a third person to the ri#hts of the creditor. Article )3(2 of the Civil Code defines novation as follows6
M)0N

:"rt% *)/'% <ovation which consists in substituting a new debtor in the !lace of the original one, may be made even without the ;nowledge or against the will of the latter, but not without the consent of the creditor% #ayment by the new debtor gives him rights mentioned in articles *)'( and *)',%9 5n #eneral, there are two %odes of su*stitutin# the person of the de*tor6 /)0 e@promision and /30 delegacion. 5n e@promision, the initiative for the chan#e does not co%e fro% -- and %a+ even *e %ade without the Anowled#e of -- the de*tor, since it consists of a third personSs assu%ption of the o*li#ation. As such, it lo#icall+ re4uires the consent of the third person and the creditor. 5ndelegacion, the de*tor offers, and the creditor accepts, a third person who consents to the su*stitution and assu%es the o*li#ation> thus, the consent of these three persons are necessar+. @oth %odes of su*stitution *+ the de*tor re4uire the consent of the creditor.
M))N M)3N

Novation %a+ also *e eBtinctive or %odificator+. 5t is eBtinctive when an old o*li#ation is ter%inated *+ the creation of a new one that taAes the place of the for%er. 5t is %erel+ %odificator+when the old o*li#ation su*sists to the eBtent that it re%ains co%pati*le with the a%endator+ a#ree%ent. 7hether eBtinctive or %odificator+, novation is %ade either *+ chan#in# the o*;ect or the principal conditions, referred to as o*;ective or real novation> or *+ su*stitutin# the person of the de*tor or su*ro#atin# a third person to the ri#hts of the creditor, an act Anown as su*;ective or personal novation. or novation to taAe place, the followin# re4uisites %ust concur6
M)2N M)<N

* ) '

$here must be a !revious valid obligation% $he !arties concerned must agree to a new contract% $he old contract must be e&tinguished%

$here must be a valid new contract%

M)5N

Novation %a+ also *e eBpress or i%plied. 5t is eBpress when the new o*li#ation declares in une4uivocal ter%s that the old o*li#ation is eBtin#uished. 5t is i%plied when the new o*li#ation is inco%pati*le with the old one on ever+ point. &he test of inco%pati*ilit+ is whether the two o*li#ations can stand to#ether, each one with its own independent eBistence.
M),N M)7N

Appl+in# the fore#oin# to the instant case, we hold that no novation tooA place. &he parties did not une4uivocall+ declare that the old o*li#ation had *een eBtin#uished *+ the issuance and the acceptance of the checA, or that the checA would taAe the place of the note. &here is no inco%pati*ilit+ *etween the pro%issor+ note and the checA. As the CA correctl+ o*served, the checA had *een issued precisel+ to answer for the o*li#ation. :n the one hand, the note evidences the loan o*li#ation> and on the other, the checA answers for it. Veril+, the two can stand to#ether. Neither could the pa+%ent of interests -- which, in petitionerSs view, also constitutes novation -- chan#e the ter%s and conditions of the o*li#ation. $uch pa+%ent was alread+ provided for in the pro%issor+ note and, liAe the checA, was totall+ in accord with the ter%s thereof.
M)-N

Also un%eritorious is petitionerSs ar#u%ent that the o*li#ation was novated *+ the su*stitution of de*tors. 5n order to chan#e the person of the de*tor, the old one %ust *e eBpressl+ released fro% the o*li#ation, and the third person or new de*tor %ust assu%e the for%erSs place in the relation. 7ell-settled is the rule that novation is never presu%ed. Conse4uentl+, that which arises fro% a purported chan#e in the person of the de*tor %ust *e clear and eBpress. 5t is thus incu%*ent on petitioner to show clearl+ and une4uivocall+ that novation has indeed taAen place.
M)(N M30N M3)N

5n the present case, petitioner has not shown that he was eBpressl+ released fro% the o*li#ation, that a third person was su*stituted in his place, or that the ;oint and solidar+ o*li#ation was cancelled and su*stituted *+ the solitar+ undertaAin# of De .esus. &he CA aptl+ held6 :& & &% #laintiff7s acce!tance of the bum chec; did not result in substitution by de 2esus either, the nature of the obligation being solidary due to the fact that the !romissory note e&!ressly declared that the liability of a!!ellants thereunder is joint and 4solidary%5 ReasonF under the law, a creditor may demand !ayment or !erformance from one of the solidary debtors or some or all of them simultaneously, and !ayment made by one of them e&tinguishes the obligation% Dt therefore follows

that in case the creditor fails to collect from one of the solidary debtors, he may still !roceed against the other or others% & & & 9
M33N

1oreover, it %ust *e noted that for novation to *e valid and le#al, the law re4uires that the creditor eBpressl+ consent to the su*stitution of a new de*tor. $ince novation i%plies a waiver of the ri#ht the creditor had *efore the novation, such waiver %ust *e eBpress. 5t cannot *e supposed, without clear proof, that the present respondent has done awa+ with his ri#ht to eBact fulfill%ent fro% either of the solidar+ de*tors.
M32N M3<N M35N

1ore i%portant, De .esus was not a third person to the o*li#ation. ro% the *e#innin#, he was a ;oint and solidar+ o*li#or of the '<00,000 loan> thus, he can *e released fro% it onl+ upon its eBtin#uish%ent. RespondentSs acceptance of his checA did not chan#e the person of the de*tor, *ecause a ;oint and solidar+ o*li#or is re4uired to pa+ the entiret+ of the o*li#ation. 5t %ust *e noted that in a solidar+ o*li#ation, the creditor is entitled to de%and the satisfaction of the whole o*li#ation fro% an+ or all of the de*tors. 5t is up to the for%er to deter%ine a#ainst who% to enforce collection. 8avin# %ade hi%self ;ointl+ and severall+ lia*le with De .esus, petitioner is therefore lia*le for the entire o*li#ation.
M3,N M37N M3-N M3(N

S67on! I''u63 Accommodation Party 'etitioner avers that he si#ned the pro%issor+ note %erel+ as an acco%%odation part+> and that, as such, he was released as o*li#or when respondent a#reed to eBtend the ter% of the o*li#ation. &his reasonin# is %isplaced, *ecause the note herein is not a ne#otia*le instru%ent. &he note reads6 :#ROAD33ORH <O$E :#0??,???%?? :RECEDIE. FROA "$$H% .DO<D3DO I% 88"A"3, the sum of FOJR HJ<.RE. $HOJ3"<. #E3O3, #hili!!ine Currency !ayable on or before 2anuary )', *//, at <o% *00 K>*? 3t% Kamias, =ueLon City, with interest at the rate of -1 !er month or fraction thereof% :Dt is understood that our liability under this loan is jointly and severally 4sic5%

:.one at =ueLon City, Aetro Aanila this )'rd day of .ecember, *//(%9

M20N

@+ its ter%s, the note was %ade pa+a*le to a specific person rather than to *earer or to order -- a re4uisite for ne#otia*ilit+ under Act 302), the Ne#otia*le 5nstru%ents "aw /N5"0. 8ence, petitioner cannot avail hi%self of the N5"Ss provisions on the lia*ilities and defenses of an acco%%odation part+. @esides, a non-ne#otia*le note is %erel+ a si%ple contract in writin# and is evidence of such intan#i*le ri#hts as %a+ have *een created *+ the assent of the parties. &he pro%issor+ note is thus covered *+ the #eneral provisions of the Civil Code, not *+ the N5".
M2)N M23N

9ven #rantin# arguendo that the N5" was applica*le, still, petitioner would *e lia*le for the pro%issor+ note. Gnder Article 3( of Act 302), an acco%%odation part+ is lia*le for the instru%ent to a holder for value even if, at the ti%e of its taAin#, the latter Anew the for%er to *e onl+ an acco%%odation part+. &he relation *etween an acco%%odation part+ and the part+ acco%%odated is, in effect, one of principal and suret+ -- the acco%%odation part+ *ein# the suret+. 5t is a settled rule that a suret+ is *ound e4uall+ and a*solutel+ with the principal and is dee%ed an ori#inalpro%issor and de*tor fro% the *e#innin#. &he lia*ilit+ is i%%ediate and direct.
M22N M2<N

T<>r! I''u63 Propriety of Summary Judgment or Judgment on the Pleadings &he neBt issue illustrates the usual confusion *etween a ;ud#%ent on the pleadin#s and a su%%ar+ ;ud#%ent. Gnder $ection 2 of Rule 25 of the Rules of Court, a su%%ar+ ;ud#%ent %a+ *e rendered after a su%%ar+ hearin# if the pleadin#s, supportin# affidavits, depositions and ad%issions on file show that /)0 eBcept as to the a%ount of da%a#es, there is no #enuine issue re#ardin# an+ %aterial fact> and /30 the %ovin# part+ is entitled to a ;ud#%ent as a %atter of law. A su%%ar+ ;ud#%ent is a procedural device desi#ned for the pro%pt disposition of actions in which the pleadin#s raise onl+ a le#al, not a #enuine, issue re#ardin# an+ %aterial fact. Conse4uentl+, facts are asserted in the co%plaint re#ardin# which there is +et no ad%ission, disavowal or 4ualification> or specific denials or affir%ative defenses are set forth in the answer, *ut the issues are fictitious as shown *+ the pleadin#s, depositions or
M25N

ad%issions. A su%%ar+ ;ud#%ent %a+ *e applied for *+ either a clai%ant or a defendin# part+.
M2,N M27N

:n the other hand, under $ection ) of Rule 2< of the Rules of Court, a ;ud#%ent on the pleadin#s is proper when an answer fails to render an issue or otherwise ad%its the %aterial alle#ations of the adverse part+Ss pleadin#. &he essential 4uestion is whether there are issues #enerated *+ the pleadin#s. A ;ud#%ent on the pleadin#s %a+ *e sou#ht onl+ *+ a clai%ant, who is the part+ seeAin# to recover upon a clai%, counterclai% or cross-clai%> or to o*tain a declarator+ relief.
M2-N M2(N

Apropos thereto, it %ust *e stressed that the trial courtSs ;ud#%ent a#ainst petitioner was correctl+ treated *+ the appellate court as a su%%ar+ ;ud#%ent, rather than as a ;ud#%ent on the pleadin#s. 8is Answer apparentl+ raised several issues -- that he si#ned the pro%issor+ note alle#edl+ as a %ere acco%%odation part+, and that the o*li#ation was eBtin#uished *+ either pa+%ent or novation. 8owever, these are not factual issues re4uirin# trial. 7e 4uote with approval the CASs o*servations6
M<0N

:"lthough 6arcia7s 4"5nswer tendered some issues, by way of affirmative defenses, the documents submitted by 4res!ondent5 nevertheless clearly showed that the issues so tendered were not valid issues% Firstly, 6arcia7s claim that he was merely an accommodation !arty is belied by the !romissory note that he signed% <othing in the note indicates that he was only an accommodation !arty as he claimed to be% =uite the contrary, the !romissory note bears the statementF GDt is understood that our liability under this loan is jointly and severally 4sic5%7 3econdly, his claim that his co> defendant de 2esus already !aid the loan by means of a chec; colla!ses in view of the dishonor thereof as shown at the dorsal side of said chec;%9
M<)N

ro% the records, it also appears that petitioner hi%self %oved to su*%it the case for ;ud#%ent on the *asis of the pleadin#s and docu%ents. 5n a written 1anifestation, he stated that T;ud#%ent on the pleadin#s %a+ now *e rendered without further evidence, considerin# the alle#ations and ad%issions of the parties.U
M<3N M<2N

5n view of the fore#oin#, the CA correctl+ considered as a su%%ar+ ;ud#%ent that which the trial court had issued a#ainst petitioner. 4H R FOR , this 'etition is here*+ +%*I%+ and Decision A I,!%+. Costs a#ainst petitioner. SO OR/ R /. the assailed

5G.R. No. 12901%. Au&u'( 1#, 200$:

SA0SUNG CONSTRUCTION CO0PAN, PHILIPPIN S, INC., petitioner, vs. FAR AST -AN. AN/ TRUST CO0PAN, AN/ COURT OF APP ALS,respondents. /
TINGA, J.:

CISION

Called to fore in the present petition is a classic teBt*ooA 4uestion V if a *anA pa+s out on a for#ed checA, is it lia*le to rei%*urse the drawer fro% whose account the funds were paid outQ &he Court of Appeals, in reversin# a trial court decision adverse to the *anA, invoAed tenuous reasonin# to ac4uit the *anA of lia*ilit+. 7e reverse, appl+in# ti%e-honored principles of law. &he salient facts follow. 'laintiff $a%sun# Construction Co%pan+ 'hilippines, 5nc. /T$a%sun# ConstructionU0, while *ased in @iWan, "a#una, %aintained a current account with defendant ar 9ast @anA and &rust Co%pan+ /T 9@&CU0 at the latterSs @el-Air, 1aAati *ranch. &he sole si#nator+ to $a%sun# ConstructionSs account was .on# P+u "ee /T.on#U0, its 'ro;ect 1ana#er, while the checAs re%ained in the custod+ of the co%pan+Ss accountant, P+u Hon# "ee /TP+uU0.
M)N M3N M2N M<N

:n )( 1arch )((3, a certain Ro*erto GonCa#a presented for pa+%ent 9@&C ChecA No. <23)00 to the *anASs *ranch in @el-Air, 1aAati. &he checA, pa+a*le to cash and drawn a#ainst $a%sun# ConstructionSs current account, was in the a%ount of Nine 8undred Ninet+ Nine &housand ive 8undred 'esos /'(((,500.000. &he *anA teller, Cleofe .ustiani, first checAed the *alance of $a%sun# ConstructionSs account. After ascertainin# there were enou#h funds to cover the checA, she co%pared the si#nature appearin# on the checA with the speci%en si#nature of .on# as contained in the speci%en si#nature card with the *anA. After co%parin# the two si#natures, .ustiani was satisfied as to the authenticit+ of the si#nature appearin# on the checA. $he then asAed GonCa#a to su*%it proof of his identit+, and the latter presented three /20 identification cards.
M5N M,N

At the sa%e ti%e, .ustiani forwarded the checA to the *ranch $enior Assistant Cashier Ge%%a VeleC, as it was *anA polic+ that two *anA *ranch officers approve checAs eBceedin# :ne 8undred &housand 'esos, for pa+%ent or encash%ent. VeleC liAewise counterchecAed the si#nature on the checA as a#ainst that on the si#nature card. 8e too concluded that the checA

was indeed si#ned *+ .on#. VeleC then forwarded the checA and si#nature card to $hirle+ $+fu, another *anA officer, for approval. $+fu then noticed that .ose $e%pio 555 /T$e%pioU0, the assistant accountant of $a%sun# Construction, was also in the *anA. $e%pio was well-Anown to $+fu and the other *anA officers, he *ein# the assistant accountant of $a%sun# Construction. $+fu showed the checA to $e%pio, who vouched for the #enuineness of .on#Ss si#nature. Confir%in# the identit+ of GonCa#a, $e%pio said that the checA was for the purchase of e4uip%ent for $a%sun# Construction. $atisfied with the #enuineness of the si#nature of .on#, $+fu authoriCed the *anASs encash%ent of the checA to GonCa#a. &he followin# da+, the accountant of $a%sun# Construction, P+u, eBa%ined the *alance of the *anA account and discovered that a checA in the a%ount of Nine 8undred Ninet+ Nine &housand ive 8undred 'esos /'(((,500.000 had *een encashed. Aware that he had not prepared such a checA for .on#Ss si#nature, P+u perused the checA*ooA and found that the last *lanA checA was %issin#. 8e reported the %atter to .on#, who then proceeded to the *anA. .on# learned of the encash%ent of the checA, and realiCed that his si#nature had *een for#ed. &he @anA 1ana#er reputedl+ told .on# that he would *e rei%*ursed for the a%ount of the checA. .on# proceeded to the police station and consulted with his law+ers. $u*se4uentl+, a cri%inal case for 4ualified theft was filed a#ainst $e%pio *efore the "a#una court.
M7N M-N M(N M)0N

5n a letter dated , 1a+ )((3, $a%sun# Construction, throu#h counsel, de%anded that 9@&C credit to it the a%ount of Nine 8undred Ninet+ Nine &housand ive 8undred 'esos /'(((,500.000, with interest. 5n response, 9@&C said that it was still conductin# an investi#ation on the %atter. Gnsatisfied, $a%sun# Construction filed a Complaint on )0 .une )((3 for violation of $ection 32 of the Ne#otia*le 5nstru%ents "aw, and pra+ed for the pa+%ent of the a%ount de*ited as a result of the 4uestioned checA plus interest, and attorne+Ss fees. &he case was docAeted as Civil Case No. (3,)50, *efore the Re#ional &rial Court /TR&CU0 of 1anila, @ranch (.
M))N M)3N M)2N

Durin# the trial, *oth sides presented their respective eBpert witnesses to testif+ on the clai% that .on#Ss si#nature was for#ed. $a%sun# Corporation, which had referred the checA for investi#ation to the N@5, presented $enior N@5 Docu%ent 9Ba%iner Roda @. lores. $he testified that *ased on her eBa%ination, she concluded that .on#Ss si#nature had *een for#ed on the checA. :n the other hand, 9@&C, which had sou#ht the assistance of the 'hilippine National 'olice /'N'0, presented Rosario C. 'ereC, a docu%ent eBa%iner fro% the 'N' Cri%e "a*orator+. $he testified that her findin#s showed that .on#Ss si#nature on the checA was #enuine.
M)<N M)5N

Confronted with conflictin# eBpert testi%on+, the R&C chose to *elieve the findin#s of the N@5 eBpert. 5n a +ecision dated 35 April )((<, the R&C held that .on#Ss si#nature on the checA was for#ed and accordin#l+ directed the *anA to pa+ or credit *acA to $a%sun# ConstructionSs account the a%ount of Nine 8undred Ninet+ Nine &housand ive 8undred 'esos /'(((,500.000, to#ether with interest tolled fro% the ti%e the co%plaint was filed, and attorne+Ss fees in the a%ount of ifteen &housand 'esos /')5,000.000. 9@&C ti%el+ appealed to the Court of Appeals. :n 3- Nove%*er )((,, the $pecial ourteenth Division of the Court of Appeals rendered a +ecision, reversin# the R&C +ecision and a*solvin# 9@&C fro% an+ lia*ilit+. &he Court of Appeals held that the contradictor+ findin#s of the N@5 and the 'N' created dou*t as to whether there was for#er+. 1oreover, the appellate court also held that assu%in# there was for#er+, it occurred due to the ne#li#ence of $a%sun# Construction, i%putin# *la%e on the accountant P+u for lacA of care and prudence in Aeepin# the checAs, which if o*served would have prevented $e%pio fro% #ainin# access thereto. &he Court of Appeals invoAed the rulin# in P*9 v. *ational City 9an? of *ew $or? that, if a loss, which %ust *e *orne *+ one or two innocent persons, can *e traced to the ne#lect or fault of either, such loss would *e *orne *+ the ne#li#ent part+, even if innocent of intentional fraud.
M),N M)7N M)-N M)(N M30N

$a%sun# Construction now ar#ues that the Court of Appeals had seriousl+ %isapprehended the facts when it overturned the R&CSs findin# of for#er+. 5t also contends that the appellate court erred in findin# that it had *een ne#li#ent in safeAeepin# the checA, and in appl+in# the e4uit+ principle enunciated in P*9 v. *ational City 9an? of *ew $or?. $ince the trial court and the Court of Appeals arrived at contrar+ findin#s on 4uestions of fact, the Court is o*li#ed to eBa%ine the record to draw out the correct conclusions. Gpon eBa%ination of the record, and *ased on the applica*le laws and ;urisprudence, we reverse the Court of Appeals. $ection 32 of the Ne#otia*le 5nstru%ents "aw states6 When a signature is forged or made without the authority of the !erson whose signature it !ur!orts to be, it is wholly ino !"#ti$!, #n% no "i&ht to retain the instrument, or to give a discharge therefor, or to enforce !ayment thereof against any !arty thereto, can '! #()*i"!% th"o*&h o" *n%!" s*(h si&n#t*"!, unless the !arty against whom it is sought to enforce such right is !recluded from setting u! the forgery or want of authority% (Em!hasis su!!lied &he #eneral rule is to the effect that a for#ed si#nature is Twholl+ inoperative,U and pa+%ent %ade Tthrou#h or under such si#natureU is

ineffectual or does not dischar#e the instru%ent. 5f pa+%ent is %ade, the drawee cannot char#e it to the drawerSs account. &he traditional ;ustification for the result is that the drawee is in a superior position to detect a for#er+ *ecause he has the %aAerSs si#nature and is eBpected to Anow and co%pare it. &he rule has a health+ cautionar+ effect on *anAs *+ encoura#in# care in the co%parison of the si#natures a#ainst those on the si#nature cards the+ have on file. 1oreover, the ver+ opportunit+ of the drawee to insure and to distri*ute the cost a%on# its custo%ers who use checAs %aAes the drawee an ideal part+ to spread the risA to insurance.
M3)N M33N M32N

@rad+, in his treatise #>e Law of orged and Altered C>ec?s, elucidates6 When a !erson de!osits money in a general account in a ban;, against which he has the !rivilege of drawing chec;s in the ordinary course of business, the relationshi! between the ban; and the de!ositor is that of debtor and creditor% 3o far as the legal relationshi! between the two is concerned, the situation is the same as though the ban; had borrowed money from the de!ositor, agreeing to re!ay it on demand, or had bought goods from the de!ositor, agreeing to !ay for them on demand% $he ban; owes the de!ositor money in the same sense that any debtor owes money to his creditor% "dded to this, in the case of ban; and de!ositor, there is, of course, the ban;7s obligation to !ay chec;s drawn by the de!ositor in !ro!er form and !resented in due course% When the ban; receives the de!osit, it im!liedly agrees to !ay only u!on the de!ositor7s order% When the ban; !ays a chec;, on which the de!ositor7s signature is a forgery, it has failed to com!ly with its contract in this res!ect% $herefore, the ban; is held liable% $he fact that the forgery is a clever one is immaterial% $he forged signature may so closely resemble the genuine as to defy detection by the de!ositor himself% "nd yet, if a ban; !ays the chec;, it is !aying out its own money and not the de!ositor7s% $he forgery may be committed by a trusted em!loyee or confidential agent% $he ban; still must bear the loss% Even in a case where the forged chec; was drawn by the de!ositor7s !artner, the loss was !laced u!on the ban;% $he case referred to is Robinson v% 3ecurity Ban;, "r;%, )*( 3% W% Re!% ,*,% Dn this case, the !laintiff brought suit against the defendant ban; for money which had been de!osited to the !laintiff7s credit and which the ban; had !aid out on chec;s bearing forgeries of the !laintiff7s signature% &&& Dt was held that the ban; was liable% Dt was further held that the fact that the !laintiff waited eight or nine months after discovering the forgery, before notifying the ban;,

did not, as a matter of law, constitute a ratification of the !ayment, so as to !reclude the !laintiff from holding the ban; liable% &&& $his rule of liability can be stated briefly in these wordsF :" ban; is bound to ;now its de!ositors7 signature%9 $he rule is variously e&!ressed in the many decisions in which the Cuestion has been considered% But they all sum u! to the !ro!osition that a ban; must ;now the signatures of those whose general de!osits it carries%
M3<N

@+ no %eans is the principle rendered o*solete with the advent of %odern co%%ercial transactions. Conte%porar+ teBts still affir% this well-entrenched standard. NicAles, in his *ooA*egotiable Instruments and (t>er ,elated Commercial Paper wrote, thus6 $he de!osit contract between a !ayor ban; and its customer determines who can draw against the customer7s account by s!ecifying whose signature is necessary on chec;s that are chargeable against the customer7s account% $herefore, a chec; drawn against the account of an individual customer that is signed by someone other than the customer, and without authority from her, is not !ro!erly !ayable and is not chargeable to the customer7s account, inasmuch as any :unauthoriLed signature on an instrument is ineffective9 as the signature of the !erson whose name is signed%
M35N

Gnder $ection 32 of the Ne#otia*le 5nstru%ents "aw, for#er+ is a real or a*solute defense *+ the part+ whose si#nature is for#ed. :n the pre%ise that .on#Ss si#nature was indeed for#ed, 9@&C is lia*le for the loss since it authoriCed the dischar#e of the for#ed checA. $uch lia*ilit+ attaches even if the *anA eBerts due dili#ence and care in preventin# such fault+ dischar#e. or#eries often deceive the e+e of the %ost cautious eBperts> and when a *anA has *een so deceived, it is a harsh rule which co%pels it to suffer althou#h no one has suffered *+ its *ein# deceived. &he for#er+ %a+ *e so near liAe the #enuine as to def+ detection *+ the depositor hi%self, and +et the *anA is lia*le to the depositor if it pa+s the checA.
M3,N M37N M3-N

&hus, the first %atter of in4uir+ is into whether the checA was indeed for#ed. A docu%ent for%all+ presented is presu%ed to *e #enuine until it is proved to *e fraudulent. 5n a for#er+ trial, this presu%ption %ust *e overco%e *ut this can onl+ *e done *+ convincin# testi%on+ and effective illustrations.
M3(N

5n rulin# that for#er+ was not dul+ proven, the Court of Appeals held6 4$here5 is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by handwriting e&!erts from the <BD and the #<#, both agencies of the government%

&&& $hese contradictory findings create doubt on whether there was indeed a forgery% Dn the case of Tenio-Obsequio v. Court of Appeals, )'? 3CR" --?, the 3u!reme Court held that forgery cannot be !resumed@ it must be !roved by clear, !ositive and convincing evidence% &his reasonin# is pure sophistr+. An+ liti#ator worth his or her salt would never allow an opponentSs eBpert witness to stand uncontradicted, thus the spectacle of co%petin# eBpert witnesses is not unusual. &he trier of fact will have to decide which version to *elieve, and eBplain wh+ or wh+ not such version is %ore credi*le than the other. Reliance therefore cannot *e placed %erel+ on the fact that there are collidin# opinions of two eBperts, *oth clothed with the presu%ption of official dut+, in order to draw a conclusion, especiall+ one which is eBtre%el+ crucial. Doin# so is tanta%ount to a ;urisprudential cop-out. 1uch is eBpected fro% the Court of Appeals as it occupies the penulti%ate tier in the ;udicial hierarch+. &his Court has lon# deferred to the appellate court as to its findin#s of fact in the understandin# that it has the appropriate sAill and co%petence to plou#h throu#h the minutiae that scatters the factual field. 5n failin# to thorou#hl+ evaluate the evidence *efore it, and rel+in# instead on presu%ptions haphaCardl+ drawn, the Court of Appeals was sadl+ re%iss. :f course, courts, liAe hu%ans, are falli*le, and not ever+ error deserves a stern re*uAe. Het, the appellate courtSs error in this case warrants special attention, as it is a*surd and even dan#erous as a precedent. 5f this rationale were adopted as a #overnin# standard *+ ever+ court in the land, *arel+ an+ actiona*le clai% would prosper, defeated as it would *e *+ the %ere invocation of the eBistence of a contrar+ TeBpertU opinion. :n the other hand, the R&C did ad;ud#e the testi%on+ of the N@5 eBpert as %ore credi*le than that of the 'N', and eBplained its reason *ehind the conclusion6 "fter subjecting the evidence of both !arties to a crucible of analysis, the court arrived at the conclusion that the testimony of the <BD document e&aminer is more credible because the testimony of the #<# Crime 8aboratory 3ervices document e&aminer reveals that there are a lot of differences in the Cuestioned signature as com!ared to the standard s!ecimen signature% Furthermore, as testified to by As% Rhoda Flores, <BD e&!ert, the manner of e&ecution of the standard signatures used reveals that it is a free ra!id continuous e&ecution or stro;e as shown by the tam!ering terminal stro;e of the signatures whereas the

Cuestioned signature is a hesitating slow drawn e&ecution stro;e% Clearly, the !erson who e&ecuted the Cuestioned signature was hesitant when the signature was made%
M20N

Durin# the testi%on+ of 'N' eBpert Rosario 'ereC, the R&C *luntl+ noted that Tapparentl+, there MareN differences on that 4uestioned si#nature and the standard si#natures.U &his Court, in eBa%inin# the si#natures, %aAes a si%ilar findin#. &he 'N' eBpert eBcused the noted TdifferencesU *+ assertin# that the+ were %ere Tvariations,U which are nor%al deviations found in writin#. Het the R&C, which had the opportunit+ to eBa%ine the relevant docu%ents and to personall+ o*serve the eBpert witness, clearl+ dis*elieved the 'N' eBpert. &he Court si%ilarl+ finds the testi%on+ of the 'N' eBpert as unconvincin#. Durin# the trial, she was confronted several ti%es with apparent differences *etween stroAes in the 4uestioned si#nature and the #enuine sa%ples. 9ach ti%e, she would ;ust *landl+ assert that these differences were ;ust Tvariations,U as if the %ere con;uration of the word would sufficientl+ dis4uiet whatever dou*ts a*out the deviations. $uch conclusion, standin# alone, would *e of little or no value unless supported *+ sufficientl+ co#ent reasons which %i#ht a%ount al%ost to a de%onstration.
M2)N M23N M22N M2<N

&he %ost tellin# difference *etween the 4uestioned and #enuine si#natures eBa%ined *+ the 'N' is in the final upward stroAe in the si#nature, or Tthe point to the short stroAe of the ter%inal in the capital letter X",SU as referred to *+ the 'N' eBa%iner who had %arAed it in her co%parison chart as Tpoint no. ,.U &o the plain e+e, such upward final stroAe consists of a vertical line which for%s a ninet+ de#ree /(0Y0 an#le with the previous stroAe. :f the twent+ one /3)0 other #enuine sa%ples eBa%ined *+ the 'N', at least nine /(0 ended with an upward stroAe. 8owever, unliAe the 4uestioned si#nature, the upward stroAes of ei#ht /-0 of these si#natures are looped, while the upward stroAe of the seventh for%s a severe fort+-five de#ree /<5Y0 with the previous stroAe. &he difference is #larin#, and indeed, the 'N' eBa%iner was confronted with the inconsistenc+ in point no. ,.
M25N M2,N

R6 Now, in this 4uestioned docu%ent point no. ,, the TsU stroAe is directl+ upwards. A6 Hes, sir. R6 Now, can +ou looA at all these standard si#nature /sic0 were /sic0 point , is repeated or the last stroAe TsU is pointin# directl+ upwardsQ A6 &here is none in the standard si#nature, sir.M27N

A#ain, the 'N' eBa%iner downpla+ed the uni4ueness of the final stroAe in the 4uestioned si#nature as a %ere variation, the sa%e eBcuse she proffered for the other %arAed differences noted *+ the Court and the counsel for petitioner.
M2-N M2(N

&here is no reason to dou*t wh+ the R&C #ave credence to the testi%on+ of the N@5 eBa%iner, and not the 'N' eBpertSs. &he N@5 eBpert, Rhoda lores, clearl+ 4ualifies as an eBpert witness. A docu%ent eBa%iner for fifteen +ears, she had *een pro%oted to the ranA of $enior Docu%ent 9Ba%iner with the N@5, and had held that ranA for twelve +ears prior to her testi%on+. $he had placed a%on# the top five eBa%inees in the Co%petitive $e%inar in Ruestion Docu%ent 9Ba%ination, conducted *+ the N@5 Acade%+, which 4ualified her as a docu%ent eBa%iner. $he had trained with the Ro+al 8on#Aon# 'olice "a*orator+ and is a %e%*er of the 5nternational Association for 5dentification. As of the ti%e she testified, she had eBa%ined %ore than fift+ to fift+-five thousand 4uestioned docu%ents, on an avera#e of fifteen to twent+ docu%ents a da+. 5n co%parison, 'N' docu%ent eBa%iner 'ereC ad%itted to havin# eBa%ined onl+ around five hundred docu%ents as of her testi%on+.
M<0N M<)N M<3N M<2N

5n anal+Cin# the si#natures, N@5 9Ba%iner lores utiliCed the scientific co%parative eBa%ination %ethod consistin# of anal+sis, reco#nition, co%parison and evaluation of the writin# ha*its with the use of instru%ents such as a %a#nif+in# lense, a stereoscopic %icroscope, and varied li#htin# su*stances. $he also prepared enlar#ed photo#raphs of the si#natures in order to facilitate the necessar+ co%parisons. $he co%pared the 4uestioned si#nature as a#ainst ten /)00 other sa%ple si#natures of .on#. ive of these si#natures were eBecuted on checAs previousl+ issued *+ .on#, while the other five contained in *usiness letters .on# had si#ned. &he N@5 found that there were si#nificant differences in the handwritin# characteristics eBistin# *etween the 4uestioned and the sa%ple si#natures, as to %anner of eBecution, linAIconnectin# stroAes, proportion characteristics, and other identif+in# details.
M<<N M<5N M<,N

&he R&C was sufficientl+ convinced *+ the N@5 eBa%inerSs testi%on+, and eBplained her reasons in its +ecisions. 7hile the Court of Appeals disa#reed and upheld the findin#s of the 'N', it failed to convincin#l+ de%onstrate wh+ such findin#s were %ore credi*le than those of the N@5 eBpert. As a throwawa+, the assailed +ecision noted that the 'N', not the N@5, had the opportunit+ to eBa%ine the speci%en si#nature card si#ned *+ .on#, which was relied upon *+ the e%plo+ees of 9@&C in authenticatin# .on#Ss si#nature. &he distinction is irrelevant in esta*lishin# for#er+. or#er+ can *e esta*lished co%parin# the contested si#natures as a#ainst those of an+ sa%ple si#nature dul+ esta*lished as that of the persons whose si#nature was for#ed. 9@&C la+s undue e%phasis on the fact that the 'N' eBa%iner did co%pare the 4uestioned si#nature a#ainst the *anA si#nature cards. T<6

7ru7>a= ?a7( >n Bu6'(>on >' C<6(<6r or no( (<6 7<67D Ca' ?or&6!, no( C<6(<6r (<6 9anD 7ou=! <aE6 !6(67(6! (<6 ?or&6ry. T<6 =a((6r >''u6 967o86' r6=6Ean( on=y >? (<6r6 >' n66! (o C6>&< (<6 7o8@ara(>E6 n6&=>&6n76 96(C66n (<6 9anD an! (<6 @ar(y C<o'6 '>&na(ur6 Ca' ?or&6!. At the sa%e ti%e, the Court of Appeals failed to assess the effect of .on#Ss testi%on+ that the si#nature on the checA was not his. &he assertion %a+ see% self-servin# at first *lush, +et it cannot *e i#nored that .on# was in the *est position to Anow whether or not the si#nature on the checA was his. 7hile his clai% should not *e taAen at face value, an+ aver%ents he would have on the %atter, if ad;ud#ed as truthful, deserve pri%ac+ in consideration. .on#Ss testi%on+ is supported *+ the findin#s of the N@5 eBa%iner. &he+ are also *acAed *+ factual circu%stances that support the conclusion that the assailed checA was indeed for#ed. .udicial notice can *e taAen that is hi#hl+ unusual in practice for a *usiness esta*lish%ent to draw a checA for close to a %illion pesos and %aAe it pa+a*le to cash or *earer, and not to order. .on# i%%ediatel+ reported the for#er+ upon its discover+. 8e filed the appropriate cri%inal char#es a#ainst $e%pio, the putative for#er.
M<7N M<-N

Now for deter%ination is whether $a%sun# Construction was precluded fro% settin# up the defense of for#er+ under $ection 32 of the Ne#otia*le 5nstru%ents "aw. &he Court of Appeals concluded that $a%sun# Construction was ne#li#ent, and invoAed the doctrines that Twhere a loss %ust *e *orne *+ one of two innocent person, can *e traced to the ne#lect or fault of either, it is reasona*le that it would *e *orne *+ hi%, even if innocent of an+ intentional fraud, throu#h whose %eans it has succeeded or who put into the power of the third person to perpetuate the wron#.U Appl+in# these rules, the Court of Appeals deter%ined that it was the ne#li#ence of $a%sun# Construction that allowed the encash%ent of the for#ed checA.
M<(N M50N

Dn the case at bar, the forgery a!!ears to have been made !ossible through the acts of one 2ose 3em!io DDD, an assistant accountant em!loyed by the !laintiff 3amsung 4Construction5 Co% #hili!!ines, Dnc% who su!!osedly stole the blan; chec; and who !resumably is res!onsible for its encashment through a forged signature of 2ong Kyu 8ee% 3em!io was assistant to the Korean accountant who was in !ossession of the blan; chec;s and who through negligence, enabled 3em!io to have access to the same% Had the Korean accountant been more careful and !rudent in ;ee!ing the blan; chec;s 3em!io would not have had the chance to steal a !age thereof and to effect the forgery% Besides, 3em!io was an em!loyee who a!!ears to have had dealings with the defendant Ban; in behalf of the !laintiff cor!oration and on the date the chec; was encashed, he was there to certify that it was a genuine chec; issued to !urchase eCui!ment for the com!any%
M5)N

7e reco#niCe that $ection 32 of the Ne#otia*le 5nstru%ents "aw *ars a part+ fro% settin# up the defense of for#er+ if it is #uilt+ of ne#li#ence. Het, we are una*le to conclude that $a%sun# Construction was #uilt+ of ne#li#ence in this case. &he appellate court failed to eBplain precisel+ how the Porean accountant was ne#li#ent or how %ore care and prudence on his part would have prevented the for#er+. 7e cannot sustain this Ttar and featherin#U resorted to without an+ *asis.
M53N

&he *are fact that the for#er+ was co%%itted *+ an e%plo+ee of the part+ whose si#nature was for#ed cannot necessaril+ i%pl+ that such part+Ss ne#li#ence was the cause for the for#er+. 9%plo+ers do not possess the preternatural #ift of co#nition as to the evil that %a+ lurA within the hearts and %inds of their e%plo+ees. &he CourtSs pronounce%ent in PCI 9an? v. Court of Appeals applies in this case, to wit6
M52N

4$5he mere fact that the forgery was committed by a drawer>!ayor7s confidential em!loyee or agent, who by virtue of his !osition had unusual facilities for !er!etrating the fraud and im!osing the forged !a!er u!on the ban;, does not entitle the ban; to shift the loss to the drawer>!ayor, in the absence of some circumstance raising esto!!el against the drawer%
M5<N

Ad%ittedl+, the record does not clearl+ esta*lish what %easures $a%sun# Construction e%plo+ed to safe#uard its *lanA checAs. .on# did testif+ that his accountant, P+u, Aept the checAs inside a Tsafet+ *oB,U and no contrar+ version was presented *+ 9@&C. 8owever, such testi%on+ cannot prove that the checAs were indeed Aept in a safet+ *oB, as .on#Ss testi%on+ on that point is hearsa+, since P+u, and not .on#, would have the personal Anowled#e as to how the checAs were Aept.
M55N

$till, in the a*sence of evidence to the contrar+, we can conclude that there was no ne#li#ence on $a%sun# ConstructionSs part. &he presu%ption re%ains that ever+ person taAes ordinar+ care of his concerns, and that the ordinar+ course of *usiness has *een followed. Ne#li#ence is not presu%ed, *ut %ust *e proven *+ hi% who alle#es it. 7hile the co%plaint was lod#ed at the instance of $a%sun# Construction, the %atter it had to prove was the clai% it had alle#ed - whether the checA was for#ed. 5t cannot *e re4uired as well to prove that it was not ne#li#ent, *ecause the le#al presu%ption re%ains that ordinar+ care was e%plo+ed.
M5,N M57N M5-N

&hus, it was incu%*ent upon 9@&C, in defense, to prove the ne#ative fact that $a%sun# Construction was ne#li#ent. 7hile the pa+ee, as in this case, %a+ not have the personal Anowled#e as to the standard procedures o*served *+ the drawer, it well has the %eans of disputin# the presu%ption of

re#ularit+. 'rovin# a ne#ative fact %a+ *e Ta difficult office,U *ut necessaril+ so, as it seeAs to overco%e a presu%ption in law. 9@&C was una*le to dispute the presu%ption of ordinar+ care eBercised *+ $a%sun# Construction, hence we cannot a#ree with the Court of AppealsS findin# of ne#li#ence.
M5(N

&he assailed +ecision replicated the eBtensive efforts which 9@&C devoted to esta*lish that there was no ne#li#ence on the part of the *anA in its acceptance and pa+%ent of the for#ed checA. 8owever, the de#ree of dili#ence eBercised *+ the *anA would *e irrelevant if the drawer is not precluded fro% settin# up the defense of for#er+ under $ection 32 *+ his own ne#li#ence. &he rule of e4uit+ enunciated in P*9 v. *ational City 9an? of *ew $or?, as relied upon *+ the Court of Appeals, deserves careful eBa%ination.
M,0N

$he !oint in issue has sometimes been said to be that of negligence% Th! %"#w!! who h#s #i% * on th! +o"&!% si&n#t*"! is h!l% to '!#" th! loss, '!(#*s! h! h#s '!!n n!&li&!nt in +#ilin& to "!(o&ni,! th#t th! h#n%w"itin& is not th#t o+ his (*sto-!"% But it follows obviously that if the !ayee, holder, or !resenter of the forged !a!er has himself been in default, if he has himself been guilty of a negligence !rior to that of the ban;er, or if by any act of his own he has at all contributed to induce the ban;erMs negligence, then he may lose his right to cast the loss u!on the ban;er% (Em!hasis su!!lied
M,)N

Ruite palpa*l+, the #eneral rule re%ains that the drawee who has paid upon the for#ed si#nature *ears the loss. &he eBception to this rule arises onl+ when ne#li#ence can *e traced on the part of the drawer whose si#nature was for#ed, and the need arises to wei#h the co%parative ne#li#ence *etween the drawer and the drawee to deter%ine who should *ear the *urden of loss. &he Court finds no *asis to conclude that $a%sun# Construction was ne#li#ent in the safeAeepin# of its checAs. or one, the settled rule is that the %ere fact that the depositor leaves his checA *ooA l+in# around does not constitute such ne#li#ence as will free the *anA fro% lia*ilit+ to hi%, where a clerA of the depositor or other persons, taAin# advanta#e of the opportunit+, a*stract so%e of the checA *lanAs, for#es the depositorSs si#nature and collect on the checAs fro% the *anA. And for another, in point of fact $a%sun# Construction was not ne#li#ent at all since it reported the for#er+ al%ost i%%ediatel+ upon discover+.
M,3N M,2N

5t is also worth notin# that the for#ed si#natures in P*9 v. *ational City 9an? of *ew $or? were not of the drawer, *ut of indorsers. &he sa%e circu%stance attends P*9 v. Court of Appeals, which was also cited *+ the
M,<N

Court of Appeals. 5t is accepted that a for#ed si#nature of the drawer differs in treat%ent than a for#ed si#nature of the indorser. $he justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in a !osition to verify the drawer7s signature by com!arison with one in his hands, but has ordinarily no o!!ortunity to verify an indorsement%
M,5N

$hus, a drawee ban; is generally liable to its de!ositor in !aying a chec; which bears either a forgery of the drawer7s signature or a forged indorsement% But the ban; may, as a general rule, recover bac; the money which it has !aid on a chec; bearing a forged indorsement, whereas it has not this right to the same e&tent with reference to a chec; bearing a forgery of the drawer7s signature%
M,,N

&he #eneral rule i%putin# lia*ilit+ on the drawee who paid out on the for#er+ holds in this case. $ince 9@&C puts into issue the de#ree of care it eBercised *efore pa+in# out on the for#ed checA, we %i#ht as well co%%ent on the *anASs perfor%ance of its dut+. 5t %i#ht *e so that the *anA co%plied with its own internal rules prior to pa+in# out on the 4uestiona*le checA. Het, there are several trou*lin# circu%stances that lead us to *elieve that the *anA itself was re%iss in its dut+. &he fact that the checA was %ade out in the a%ount of nearl+ one %illion pesos is unusual enou#h to re4uire a hi#her de#ree of caution on the part of the *anA. 5ndeed, 9@&C confir%s this throu#h its own internal procedures. ChecAs *elow twent+-five thousand pesos re4uire onl+ the approval of the teller> those *etween twent+-five thousand to one hundred thousand pesos necessitate the approval of one *anA officer> and should the a%ount eBceed one hundred thousand pesos, the concurrence of two *anA officers is re4uired.
M,7N

5n this case, not onl+ did the a%ount in the checA nearl+ total one %illion pesos, it was also pa+a*le to cash. &hat latter circu%stance should have aroused the suspicion of the *anA, as it is not ordinar+ *usiness practice for a checA for such lar#e a%ount to *e %ade pa+a*le to cash or to *earer, instead of to the order of a specified person. 1oreover, the checA was presented for pa+%ent *+ one Ro*erto GonCa#a, who was not desi#nated as the pa+ee of the checA, and who did not carr+ with hi% an+ written proof that he was authoriCed *+ $a%sun# Construction to encash the checA. GonCa#a, a stran#er to 9@&C, was not even an e%plo+ee of $a%sun# Construction. &hese circu%stances are alread+ suspicious if taAen independentl+, %uch
M,-N M,(N

%ore so if the+ are evaluated in concurrence. Given the shadiness attendin# GonCa#aSs present%ent of the checA, it was not sufficient for 9@&C to have %erel+ co%plied with its internal procedures, *ut %andator+ that all earnest efforts *e undertaAen to ensure the validit+ of the checA, and of the authorit+ of GonCa#a to collect pa+%ent therefor. Accordin# to 9@&C $enior Assistant Cashier Ge%%a VeleC, the *anA tried, *ut failed, to contact .on# over the phone to verif+ the checA. $he added that callin# the issuer or drawer of the checA to verif+ the sa%e was not part of the standard procedure of the *anA, *ut an TeBtra effort.U 9ven assu%in# that such personal verification is tanta%ount to eBtraordinar+ dili#ence, it cannot *e denied that 9@&C still paid out the checA despite the a*sence of an+ proof of verification fro% the drawer. 5nstead, the *anA see%s to have relied heavil+ on the sa+-so of $e%pio, who was present at the *anA at the ti%e the checA was presented.
M70N M7)N

9@&C alle#es that $e%pio was well-Anown to the *anA officers, as he had re#ularl+ transacted with the *anA in *ehalf of $a%sun# Construction. 5t was even clai%ed that ever+ti%e 9@&C would contact .on# a*out pro*le%s with his account, .on# would hand the phone over to $e%pio. 8owever, the onl+ proof of such alle#ations is the testi%on+ of Ge%%a VeleC, who also testified that she did not Anow $e%pio personall+, and had %et $e%pio for the first ti%e onl+ on the da+ the checA was encashed. 5n fact, VeleC had to in4uire with the other officers of the *anA as to whether $e%pio was actuall+ Anown to the e%plo+ees of the *anA. :*viousl+, VeleC had no personal Anowled#e as to the past relationship *etween 9@&C and $e%pio, and an+ aver%ents of her to that effect should *e dee%ed hearsa+ evidence. 5nterestin#l+, 9@&C did not present as a witness an+ other e%plo+ee of their @el-Air *ranch, includin# those who supposedl+ had transacted with $e%pio *efore.
M73N M72N M7<N M75N

9ven assu%in# that 9@&C had a standin# ha*it of dealin# with $e%pio, actin# in *ehalf of $a%sun# Construction, the irre#ular circu%stances attendin# the present%ent of the for#ed checA should have put the *anA on the hi#hest de#ree of alert. &he Court recentl+ e%phasiCed that the hi#hest de#ree of care and dili#ence is re4uired of *anAs. Ban;s are engaged in a business im!ressed with !ublic interest, and it is their duty to !rotect in return their many clients and de!ositors who transact business with them% $hey have the obligation to treat their client7s account meticulously and with the highest degree of care, considering the fiduciary nature of their relationshi!% $he diligence reCuired of ban;s, therefore, is more than that of a good father of a family%

M7,N

Given the circu%stances, eBtraordinar+ dili#ence dictates that 9@&C should have ascertained fro% .on# personall+ that the si#nature in the 4uestiona*le checA was his. $till, even if the *anA perfor%ed with ut%ost dili#ence, the drawer whose si#nature was for#ed %a+ still recover fro% the *anA as lon# as he or she is not precluded fro% settin# up the defense of for#er+. After all, $ection 32 of the Ne#otia*le 5nstru%ents "aw plainl+ states that no ri#ht to enforce the pa+%ent of a checA can arise out of a for#ed si#nature. $ince the drawer, $a%sun# Construction, is not precluded *+ ne#li#ence fro% settin# up the for#er+, the #eneral rule should appl+. Conse4uentl+, if a *anA pa+s a for#ed checA, it %ust *e considered as pa+in# out of its funds and cannot char#e the a%ount so paid to the account of the depositor. A *anA is lia*le, irrespective of its #ood faith, in pa+in# a for#ed checA.
M77N M7-N

4H R FOR , the Petition is GRAN&9D. &he +ecision of the Court of Appeals dated 3- Nove%*er )((, is R9V9R$9D, and the +ecision of the Re#ional &rial Court of 1anila, @ranch (, dated 35 April )((< is R95N$&A&9D. Costs a#ainst respondent. SO OR/ R /. Puno, 1C>airman5, AustriaA!artine:, CalleBo, "r., and C>icoA*a:ario, JJ., concur.

5G.R. No. 1$9$%$. 0ay 28, 200$:

-AN. OF TH PHILIPPIN ISLAN/S, petitioner, vs. CASA 0ONT SSORI INT RNATIONAL an! L ONAR/O T. ,A-UT, respondents.

5G.R. No. 1$9%07. 0ay 28, 200$:

CASA 0ONT SSORI INT RNATIONAL , petitioner, vs. -AN. OF TH PHILIPPIN ISLAN/S, respondent. /
PANGANI-AN, J.:

CISION

@+ the nature of its functions, a *anA is re4uired to taAe %eticulous care of the deposits of its clients, who have the ri#ht to eBpect hi#h standards of inte#rit+ and perfor%ance fro% it. A%on# its o*li#ations in furtherance thereof is Anowin# the si#natures of its clients. Depositors are not estopped fro% 4uestionin# wron#ful withdrawals, even if the+ have failed to 4uestion those errors in the state%ents sent *+ the *anA to the% for verification. T<6 Ca'6 @efore us are two 'etitions for Review under Rule <5 of the Rules of Court, assailin# the 1arch 32, 300) Decision and the Au#ust )7, 300) Resolution of the Court of Appeals /CA0 in CA-GR CV No. ,25,). &he decretal portion of the assailed Decision reads as follows6
M)N M3N M2N

:WHEREFORE, u!on the !remises, the decision a!!ealed from is AFFIRMED with the modification that defendant ban; 4Ban; of the #hili!!ine Dslands (B#D 5 is held liable only for one>half of the value of the forged chec;s in the amount

of #-0,,**-%?? after deductions subject to REDABJR3EAE<$ from third !arty defendant Habut who is li;ewise ORDERED to !ay the other half to !laintiff cor!oration 4Casa Aontessori Dnternationale (C"3" 5%9
M<N

&he assailed Reconsideration.

Resolution

denied

all

the

partiesS

1otions

for

T<6 Fa7(' &he facts of the case are narrated *+ the CA as follows6 :On <ovember +, */+), !laintiff C"3" Aontessori Dnternational o!ened Current "ccount <o% ?)/*>??+*>?* with defendant B#D4,5 with C"3"7s #resident As% Aa% Carina C% 8ebron as one of its authoriLed signatories%
M5N

:Dn *//*, after conducting an investigation, !laintiff discovered that nine (/ of its chec;s had been encashed by a certain 3onny .% 3antos since *//? in the total amount of #,+),???%??, on the following dates and amountsF GCh!(. No/ *% +'/,?? )% +'/0-/ '% +'/(?/ 0% +'/-0/ -% +'/-(/ (% ,)/*0/ ,% ,)/*)/ +% +'/(+0 /% ,)/?'0 D#t! "!ril )0, *//? <ov% ), *//? Oct% *,, *//? "!ril ,, *//? 3e!t% )', *//? Aar% )), *//? Aar% *(, *//? .ec% *, *//? Aar% ), *//? $otal >> # # A-o*nt 0',0??%?? **?,-??%?? 0,,,)'%?? /?,,??%?? -),),,%?? *0+,???%?? -*,?*-%?? *0?,???%?? /+,/+-%?? ,+),(??%??
M,N

T5t turned out that X$onn+ D. $antosS with account at @'5Ss Green*elt @ranch MwasN a fictitious na%e used *+ third part+ defendant "eonardo &. Ha*ut who worAed as eBternal auditor of CA$A. &hird part+ defendant voluntaril+ ad%itted that he for#ed the si#nature of 1s. "e*ron and encashed the checAs. T&he 'N' Cri%e "a*orator+ conducted an eBa%ination of the nine /(0 checAs and concluded that the handwritin#s thereon co%pared to the standard si#nature of 1s. "e*ron were not written *+ the latter. T:n 1arch <, )((), plaintiff filed the herein Co%plaint for Collection with Da%a#es a#ainst defendant *anA pra+in# that the latter *e ordered to reinstate the a%ount of '7-3,500.00 in the current and savin#s accounts of the plaintiff with interest at ,= per annu%.
M7N

T:n e*ruar+ ),, )(((, the R&C rendered the appealed decision in favor of the plaintiff.U
M-N

Ru=>n& o? (<6 Cour( o? A@@6a=' 1odif+in# the Decision of the Re#ional &rial Court /R&C0, the CA apportioned the loss *etween @'5 and CA$A. &he appellate court tooA into account CA$ASs contri*utor+ ne#li#ence that resulted in the undetected for#er+. 5t then ordered "eonardo &. Ha*ut to rei%*urse @'5 half the total a%ount clai%ed> and CA$A, the other half. 5t also disallowed attorne+Ss fees and %oral and eBe%plar+ da%a#es. 8ence, these 'etitions.
M(N

I''u6' 5n GR No. )<(<5<, 'etitioner @'5 su*%its the followin# issues for our consideration6 :D% $he Honorable Court of "!!eals erred in deciding this case NOT in #((o"% with th! # li(#'l! %!(isions o+ this Hono"#'l! Co*"t to the effect that forgery cannot be !resumed@ that it must be !roved by clear, !ositive and convincing evidence@ and that the burden of !roof lies on the !arty alleging the forgery% :DD% $he Honorable Court of "!!eals erred in deciding this case not in #((o"% with # li(#'l! l#ws, in !articular the <egotiable Dnstruments 8aw (<D8 which !recludes

C"3", on account of its own negligence, from asserting its forgery claim against B#D, s!ecially ta;ing into account the absence of any negligence on the !art of B#D%9
M)0N

5n GR No. )<(507, 'etitioner CA$A su*%its the followin# issues6 :*% $he Honorable Court of "!!eals erred when it ruled that Gthere is no showing that 4B#D5, although negligent, acted in bad faith & & &7 thus denying the !rayer for the award of attorney7s fees, moral damages and e&em!lary damages to 4C"3"5% $he Honorable Court also erred when it did not order 4B#D5 to !ay interest on the amounts due to 4C"3"5% :)% $he Honorable Court of "!!eals erred when it declared that 4C"3"5 was li;ewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of #-0,,**-%?? be Ga!!ortioned between 4C"3"5 and 4B#D5 & & &%79
M))N

&hese issues can *e narrowed down to three. irst, was there for#er+ under the Ne#otia*le 5nstru%ents "aw /N5"0Q "econd, were an+ of the parties ne#li#ent and therefore precluded fro% settin# up for#er+ as a defenseQ #>ird, should %oral and eBe%plar+ da%a#es, attorne+Ss fees, and interest *e awardedQ T<6 Cour(A' Ru=>n& &he 'etition in GR No. )<(<5< has no %erit, while that in GR No. )<(507 is partl+ %eritorious. F>r'( I''u63 Forged Signature Wholly noperative $ection 32 of the N5" provides6 :3ection )'% Forged signature@ effect of% >> When a signature is forged or made without the authority of the !erson whose signature it !ur!orts to be, it is wholly ino!erative, and no right & & & to enforce !ayment thereof against any !arty thereto, can be acCuired through or under such signature, unless the !arty against whom it is sought to enforce such right is !recluded from setting u! the forgery or want of authority%9
M)3N

Gnder this provision, a for#ed si#nature is a real or a*solute defense, and a person whose si#nature on a ne#otia*le instru%ent is for#ed is dee%ed to have never *eco%e a part+ thereto and to have never consented to the contract that alle#edl+ #ave rise to it.
M)2N M)<N M)5N

&he counterfeitin# of an+ writin#, consistin# in the si#nin# of anotherSs na%e with intent to defraud, is for#er+.
M),N

5n the present case, we hold that there was for#er+ of the drawerSs si#nature on the checA. irst, *oth the CA and the R&C found that Respondent Ha*ut hi%self had voluntaril+ ad%itted, throu#h an Affidavit, that he had for#ed the drawerSs si#nature and encashed the checAs. 8e never refuted these findin#s. &hat he had *een coerced into ad%ission was not corro*orated *+ an+ evidence on record.
M)7N M)-N M)(N M30N M3)N

"econd, the appellate and the trial courts also ruled that the 'N' Cri%e "a*orator+, after its eBa%ination of the said checAs, had concluded that the handwritin#s thereon -- co%pared to the standard si#nature of the drawer -were not hers. &his conclusion was the sa%e as that in the Report that the 'N' Cri%e "a*orator+ had earlier issued to @'5 -- the drawee *anA -- upon the latterSs re4uest.
M33N M32N M3<N

5ndeed, we respect and affir% the R&CSs factual findin#s, especiall+ when affir%ed *+ the CA, since these are supported *+ su*stantial evidence on record.
M35N

!oluntary Admission Not !iolative of Constitutional "ights &he voluntar+ ad%ission of Ha*ut did not violate his constitutional ri#hts /)0 on custodial investi#ation, and /30 a#ainst self-incri%ination. 5n the first place, he was not under custodial investi#ation. 8is Affidavit was eBecuted in private and *efore private individuals. &he %antle of protection under $ection )3 of Article 555 of the )(-7 Constitution covers onl+ the period Tfro% the ti%e a person is taAen into custod+ for investi#ation of his possi*le participation in the co%%ission of a cri%e or fro% the ti%e he is sin#led out as a suspect in the co%%ission of a cri%e althou#h not +et in custod+.U
M3,N M37N M3-N M3(N

&herefore, to fall within the a%*it of $ection )3, 4uoted a*ove, there %ust *e an arrest or a deprivation of freedo%, with T4uestions propounded on hi%

*+ the police authorities for the purpose of elicitin# ad%issions, confessions, or an+ infor%ation.U &he said constitutional provision does Tnot appl+ to spontaneous state%ents %ade in a voluntar+ %annerU where*+ an individual orall+ ad%its to authorship of a cri%e. T7hat the Constitution proscri*es is the co%pulsor+ or coercive disclosure of incri%inatin# facts.U
M20N M2)N M23N M22N

1oreover, the ri#ht a#ainst self-incri%ination under $ection )7 of Article 555 of the Constitution, which is ordinaril+ availa*le onl+ in cri%inal prosecutions, eBtends to all other #overn%ent proceedin#s -- includin# civil actions, le#islative investi#ations, and ad%inistrative proceedin#s that possess a cri%inal or penal aspect -- *ut not to private investi#ations done *+ private individuals. 9ven in such #overn%ent proceedin#s, this ri#ht %a+ *e waived, provided the waiver is certain> une4uivocal> and intelli#entl+, understandin#l+ and willin#l+ %ade.
M2<N M25N M2,N M27N M2-N M2(N

5f in these #overn%ent proceedin#s waiver is allowed, all the %ore is it so in private investi#ations. 5t is of no %o%ent that no cri%inal case has +et *een filed a#ainst Ha*ut. &he filin# thereof is entirel+ up to the appropriate authorities or to the private individuals upon who% da%a#e has *een caused. As we shall also eBplain later, it is not %andator+ for CA$A -- the plaintiff *elow -- to i%plead Ha*ut in the civil case *efore the lower court. Gnder these two constitutional provisions, TMtNhe @ill of Ri#hts does not concern itself with the relation *etween a private individual and another individual. 5t #overns the relationship *etween the individual and the $tate.U 1oreover, the @ill of Ri#hts Tis a charter of li*erties for the individual and a li%itation upon the power of the M$Ntate.U &hese ri#hts are #uaranteed to preclude the sli#htest coercion *+ the $tate that %a+ lead the accused Tto ad%it so%ethin# false, not prevent hi% fro% freel+ and voluntaril+ tellin# the truth.U
M<0N M<)N M<3N M<2N M<<N

Ha*ut is not an accused here. @esides, his %ere invocation of the aforesaid ri#hts Tdoes not auto%aticall+ entitle hi% to the constitutional protection.U 7hen he freel+ and voluntaril+ eBecuted his Affidavit, the $tate was not even involved. $uch Affidavit %a+ therefore *e ad%itted without violatin# his constitutional ri#hts while under custodial investi#ation and a#ainst self-incri%ination.
M<5N M<,N

Clear, Positive and Convincing #$amination and #vidence

&he eBa%ination *+ the 'N', thou#h inconclusive, was nevertheless clear, positive and convincin#. or#er+ Tcannot *e presu%ed.U 5t %ust *e esta*lished *+ clear, positive and convincin# evidence. Gnder the *est evidence rule as applied to docu%entar+ evidence liAe the checAs in 4uestion, no secondar+ or su*stitutionar+ evidence %a+ inceptivel+ *e introduced, as the ori#inal writin# itself %ust *e produced in court. @ut when, without *ad faith on the part of the offeror, the ori#inal checAs have alread+ *een destro+ed or cannot *e produced in court, secondar+ evidence %a+ *e produced. 7ithout *ad faith on its part, CA$A proved the loss or destruction of the ori#inal checAs throu#h the Affidavit of the one person who Anew of that fact -- Ha*ut. 8e clearl+ ad%itted to discardin# the paid checAs to cover up his %isdeed. 5n such a situation, secondar+ evidence liAe %icrofil% copies %a+ *e introduced in court.
M<7N M<-N M<(N M50N M5)N M53N

&he drawerSs si#natures on the %icrofil% copies were co%pared with the standard si#nature. 'N' Docu%ent 9Ba%iner 55 .osefina de la CruC testified on cross-eBa%ination that two different persons had written the%. Althou#h no conclusive report could *e issued in the a*sence of the ori#inal checAs, she affir%ed that her findin#s were (0 percent conclusive. Accordin# to her, even if the %icrofil% copies were the onl+ *asis of co%parison, the differences were evident. @esides, the R&C eBplained that althou#h the Report was inconclusive, no conclusive report could have *een #iven *+ the 'N', an+wa+, in the a*sence of the ori#inal checAs. &his eBplanation is valid> otherwise, no such report can ever *e relied upon in court.
M52N M5<N M55N M5,N M57N

9ven with respect to docu%entar+ evidence, the *est evidence rule applies onl+ when the contents of a docu%ent -- such as the drawerSs si#nature on a checA -- is the su*;ect of in4uir+. As to whether the docu%ent has *een actuall+ eBecuted, this rule does not appl+> and testi%onial as well as an+ other secondar+ evidence is ad%issi*le. Carina "e*ron herself, the drawerSs authoriCed si#nator+, testified %an+ ti%es that she had never si#ned those checAs. 8er testi%onial evidence is ad%issi*le> the checAs have not *een actuall+ eBecuted. &he #enuineness of her handwritin# is proved, not onl+ throu#h the courtSs co%parison of the 4uestioned handwritin#s and ad%ittedl+ #enuine speci%ens thereof, *ut a*ove all *+ her.
M5-N M5(N M,0N

&he failure of CA$A to produce the ori#inal checAs neither #ives rise to the presu%ption of suppression of evidence nor creates an unfavora*le inference a#ainst it. $uch failure %erel+ authoriCes the introduction of secondar+ evidence in the for% of %icrofil% copies. :f no conse4uence is the fact that CA$A did not present the si#nature card containin# the
M,)N M,3N M,2N

si#natures with which those on the checAs were co%pared. $peci%ens of standard si#natures are not li%ited to such a card. Considerin# that it was not produced in evidence, other docu%ents that *ear the drawerSs authentic si#nature %a+ *e resorted to. @esides, that card was in the possession of @'5 -- the adverse part+.
M,<N M,5N

7e have held that without the ori#inal docu%ent containin# the alle#edl+ for#ed si#nature, one cannot %aAe a definitive co%parison that would esta*lish for#er+> and that a co%parison *ased on a %ere reproduction of the docu%ent under controvers+ cannot produce relia*le results. 7e have also said, however, that a ;ud#e cannot %erel+ rel+ on a handwritin# eBpertSs testi%on+, *ut should also eBercise independent ;ud#%ent in evaluatin# the authenticit+ of a si#nature under scrutin+. 5n the present case, *oth the R&C and the CA conducted independent eBa%inations of the evidence presented and arrived at reasona*le and si%ilar conclusions. Not onl+ did the+ ad%it secondar+ evidence> the+ also appositel+ considered testi%onial and other docu%entar+ evidence in the for% of the Affidavit.
M,,N M,7N M,-N M,(N

&he *est evidence rule ad%its of eBceptions and, as we have discussed earlier, the first of these has *een %et. &he result of eBa%inin# a 4uestioned handwritin#, even with the aid of eBperts and scientific instru%ents, %a+ *e inconclusive> *ut it is a non se<uitur to sa+ that such result is not clear, positive and convincin#. &he preponderance of evidence re4uired in this case has *een satisfied.
M70N M7)N M73N

Second ssue: Negligence Attri%uta%le to &P Alone 8avin# esta*lished the for#er+ of the drawerSs si#nature, @'5 -- the drawee -erred in %aAin# pa+%ents *+ virtue thereof. &he for#ed si#natures are wholl+ inoperative, and CA$A -- the drawer whose authoriCed si#natures do not appear on the ne#otia*le instru%ents -- cannot *e held lia*le thereon. Neither is the latter precluded fro% settin# up for#er+ as a real defense. Clear Negligence in Allo'ing Payment (nder a Forged Signature 7e have repeatedl+ e%phasiCed that, since the *anAin# *usiness is i%pressed with pu*lic interest, of para%ount i%portance thereto is the trust

and confidence of the pu*lic in #eneral. Conse4uentl+, the hi#hest de#ree of dili#ence is eBpected, and hi#h standards of inte#rit+ and perfor%ance are even re4uired, of it. @+ the nature of its functions, a *anA is Tunder o*li#ation to treat the accounts of its depositors with %eticulous care, alwa+s havin# in %ind the fiduciar+ nature of their relationship.U
M72N M7<N M75N M7,N M77N

@'5 contends that it has a si#nature verification procedure, in which checAs are honored onl+ when the si#natures therein are verified to *e the sa%e with or si%ilar to the speci%en si#natures on the si#nature cards. Nonetheless, it still failed to detect the ei#ht instances of for#er+. 5ts ne#li#ence consisted in the o%ission of that de#ree of dili#ence re4uired of a *anA. 5t cannot now fei#n i#norance, for ver+ earl+ on we have alread+ ruled that a *anA is T*ound to Anow the si#natures of its custo%ers> and if it pa+s a for#ed checA, it %ust *e considered as %aAin# the pa+%ent out of its own funds, and cannot ordinaril+ char#e the a%ount so paid to the account of the depositor whose na%e was for#ed.U 5n fact, @'5 was the sa%e *anA involved when we issued this rulin# sevent+ +ears a#o.
M7-N M7(N

Neither Waiver nor #stoppel "esults from Failure to "eport #rror in &an) Statement &he %onthl+ state%ents issued *+ @'5 to its clients contain a notice worded as follows6 T5f no error is reported in ten /)00 da+s, account will *e correct.U $uch notice cannot *e considered a waiver, even if CA$A failed to report the error. Neither is it estopped fro% 4uestionin# the %istaAe after the lapse of the ten-da+ period.
M-0N

&his notice is a si%ple confir%ation or TcirculariCationU -- in accountin# parlance -- that re4uests client-depositors to affir% the accurac+ of ite%s recorded *+ the *anAs. 5ts purpose is to o*tain fro% the depositors a direct corro*oration of the correctness of their account *alances with their respective *anAs. 5nternal or eBternal auditors of a *anA use it as a *asic audit procedure -- the results of which its client-depositors are neither interested in nor priv+ to -- to test the details of transactions and *alances in the *anASs records. 9vidential %atter o*tained fro% independent sources outside a *anA onl+ serves to provide #reater assurance of relia*ilit+ than that o*tained solel+ within it for purposes of an audit of its own financial state%ents, not those of its client-depositors.
M-)N M-3N M-2N M-<N M-5N M-,N

urther%ore, there is alwa+s the audit risA that errors would not *e detected for various reasons. (ne, %aterialit+ is a consideration in audit
M-7N

plannin#> and two, the infor%ation o*tained fro% such a su*stantive test is %erel+ presu%ptive and cannot *e the *asis of a valid waiver. @'5 has no ri#ht to i%pose a condition unilaterall+ and thereafter consider failure to %eet such condition a waiver. Neither %a+ CA$A renounce a ri#ht it has never possessed.
M--N M-(N M(0N M()N

9ver+ ri#ht has su*;ects -- active and passive. 7hile the active su*;ect is entitled to de%and its enforce%ent, the passive one is dut+-*ound to suffer such enforce%ent.
M(3N

:n the one hand, @'5 could not have *een an active su*;ect, *ecause it could not have de%anded fro% CA$A a response to its notice. @esides, the notice was a %easl+ re4uest worded as follows6 T'lease eBa%ine B B B and report B B B.U CA$A, on the other hand, could not have *een a passive su*;ect, either, *ecause it had no o*li#ation to respond. 5t could -- as it did -choose not to respond.
M(2N

9stoppel precludes individuals fro% den+in# or assertin#, *+ their own deed or representation, an+thin# contrar+ to that esta*lished as the truth, in le#al conte%plation. :ur rules on evidence even %aAe a Buris et de Bure presu%ption that whenever one has, *+ oneSs own act or o%ission, intentionall+ and deli*eratel+ led another to *elieve a particular thin# to *e true and to act upon that *elief, one cannot -- in an+ liti#ation arisin# fro% such act or o%ission -- *e per%itted to falsif+ that supposed truth.
M(<N M(5N M(,N

5n the instant case, CA$A never %ade an+ deed or representation that %isled @'5. &he for%erSs o%ission, if an+, %a+ onl+ *e dee%ed an innocent %istaAe o*livious to the procedures and conse4uences of periodic audits. $ince its conduct was due to such i#norance founded upon an innocent %istaAe, estoppel will not arise. A person who has no Anowled#e of or consent to a transaction %a+ not *e estopped *+ it. T9stoppel cannot *e sustained *+ %ere ar#u%ent or dou*tful inference B B B.U CA$A is not *arred fro% 4uestionin# @'5Ss error even after the lapse of the period #iven in the notice.
M(7N M(-N M((N

*oss &orne %y Pro$imate Source of Negligence or allowin# pa+%ent on the checAs to a wron#ful and fictitious pa+ee, @'5 -- the drawee *anA -- *eco%es lia*le to its depositor-drawer. $ince the encashin# *anA is one of its *ranches, @'5 can easil+ #o after it and hold it
M)00N M)0)N

lia*le for rei%*urse%ent. 5t T%a+ not de*it the drawerSs account and is not entitled to inde%nification fro% the drawer.U 5n *oth law and e4uit+, when one of two innocent persons T%ust suffer *+ the wron#ful act of a third person, the loss %ust *e *orne *+ the one whose ne#li#ence was the proBi%ate cause of the loss or who put it into the power of the third person to perpetrate the wron#.U
M)03N M)02N M)0<N M)05N

'roBi%ate cause is deter%ined *+ the facts of the case. T5t is that cause which, in natural and continuous se4uence, un*roAen *+ an+ efficient intervenin# cause, produces the in;ur+, and without which the result would not have occurred.U
M)0,N M)07N

'ursuant to its pri%e dut+ to ascertain well the #enuineness of the si#natures of its client-depositors on checAs *ein# encashed, @'5 is TeBpected to use reasona*le *usiness prudence.U 5n the perfor%ance of that o*li#ation, it is *ound *+ its internal *anAin# rules and re#ulations that for% part of the contract it enters into with its depositors.
M)0-N M)0(N

Gnfortunatel+, it failed in that re#ard. irst, Ha*ut was a*le to open a *anA account in one of its *ranches without privit+> that is, without the proper verification of his correspondin# identification papers. "econd, @'5 was una*le to discover earl+ on not onl+ this irre#ularit+, *ut also the %arAed differences in the si#natures on the checAs and those on the si#nature card. #>ird, despite the eBa%ination procedures it conducted, the Central Verification Gnit of the *anA even passed off these evidentl+ different si#natures as #enuine. 7ithout eBercisin# the re4uired prudence on its part, @'5 accepted and encashed the ei#ht checAs presented to it. As a result, it proBi%atel+ contri*uted to the fraud and should *e held pri%aril+ lia*le for the Tne#li#ence of its officers or a#ents when actin# within the course and scope of their e%plo+%ent.U 5t %ust *ear the loss.
M))0N M)))N M))3N M))2N

CASA Not Negligent in ts Financial Affairs 5n this ;urisdiction, the ne#li#ence of the part+ invoAin# for#er+ is reco#niCed as an eBception to the #eneral rule that a for#ed si#nature is wholl+ inoperative. Contrar+ to @'5Ss clai%, however, we do not find CA$A ne#li#ent in handlin# its financial affairs. CA$A, we stress, is not precluded fro% settin# up for#er+ as a real defense.
M))<N M))5N

"ole of ndependent Auditor

&he %a;or purpose of an independent audit is to investi#ate and deter%ine o*;ectivel+ if the financial state%ents su*%itted for audit *+ a corporation have *een prepared in accordance with the appropriate financial reportin# practices of private entities. &he relationship that arises therefro% is *oth le#al and %oral. 5t *e#ins with the eBecution of the en#a#e%ent letter that e%*odies the ter%s and conditions of the audit and ends with the fulfilled eBpectation of the auditorSs ethical and co%petent perfor%ance in all aspects of the audit.
M)),N M))7N M))-N M))(N M)30N

&he financial state%ents are representations of the client> *ut it is the auditor who has the responsi*ilit+ for the accurac+ in the recordin# of data that underlies their preparation, their for% of presentation, and the opinion eBpressed therein. &he auditor does not assu%e the role of e%plo+ee or of %ana#e%ent in the clientSs conduct of operations and is never under the control or supervision of the client.
M)3)N M)33N M)32N M)3<N

Ha*ut was an independent auditor hired *+ CA$A. 8e handled its %onthl+ *anA reconciliations and had access to all relevant docu%ents and checA*ooAs. 5n hi% was reposed the clientSs trust and confidence that he would perfor% precisel+ those functions and appl+ the appropriate procedures in accordance with #enerall+ accepted auditin# standards. Het he did not %eet these eBpectations. Nothin# could *e %ore horri*le to a client than to discover later on that the person tasAed to detect fraud was the sa%e one who perpetrated it.
M)35N M)3,N M)37N M)3-N M)3(N

Cash &alances +pen to ,anipulation 5t is a non se<uitur to sa+ that the person who receives the %onthl+ *anA state%ents, to#ether with the cancelled checAs and other de*itIcredit %e%oranda, shall eBa%ine the contents and #ive notice of an+ discrepancies within a reasona*le ti%e. Awareness is not e4uipollent with discern%ent. @esides, in the internal accountin# control s+ste% prudentl+ installed *+ CA$A, it was Ha*ut who should eBa%ine those docu%ents in order to prepare the *anA reconciliations. 8e owned his worAin# papers, and his output consisted of his opinion as well as the clientSs financial state%ents and acco%pan+in# notes thereto. CA$A had ever+ ri#ht to rel+ solel+ upon his output -- *ased on the ter%s of the audit en#a#e%ent -- and could thus *e unwittin#l+ duped into *elievin# that ever+thin# was in order. @esides, TM#Nood faith is alwa+s presu%ed and it is the *urden of the part+ clai%in# otherwise to adduce clear and convincin# evidence to the contrar+.U
M)20N M)2)N M)23N M)22N

1oreover, there was a ti%e #ap *etween the period covered *+ the *anA state%ent and the date of its actual receipt. "e*ron personall+ received the Dece%*er )((0 *anA state%ent onl+ in .anuar+ )(() -- when she was also infor%ed of the for#er+ for the first ti%e, after which she i%%ediatel+ re4uested a Tstop pa+%ent order.U $he cannot *e faulted for the late detection of the for#ed Dece%*er checA. After all, the *anA account with @'5 was not personal *ut corporate, and she could not *e eBpected to %onitor closel+ all its finances. A preschool teacher char#ed with %oldin# the %inds of the +outh cannot *e *urdened with the intricacies or co%pleBities of corporate eBistence.
M)2<N

&here is also a cutoff period such that checAs issued durin# a #iven %onth, *ut not presented for pa+%ent within that period, will not *e reflected therein. An eBperienced auditor with intent to defraud can easil+ conceal an+ devious sche%e fro% a client unwar+ of the accountin# processes involved *+ %anipulatin# the cash *alances on record -- especiall+ when *anA transactions are nu%erous, lar#e and fre4uent. CA$A could onl+ *e *la%ed, if at all, for its unintelli#ent choice in the selection and appoint%ent of an auditor -- a fault that is not tanta%ount to ne#li#ence.
M)25N

Ne#li#ence is not presu%ed, *ut proven *+ whoever alle#es it. 5ts %ere eBistence Tis not sufficient without proof that it, and no other cause,U has #iven rise to da%a#es. 5n addition, this fault is co%%on to, if not prevalent a%on#, s%all and %ediu%-siCed *usiness entities, thus leadin# the 'rofessional Re#ulation Co%%ission /'RC0, throu#h the @oard of Accountanc+ /@:A0, to re4uire toda+ not onl+ accreditation for the practice of pu*lic accountanc+, *ut also the re#istration of fir%s in the practice thereof. 5n fact, a%on# the attach%ents now re4uired upon re#istration are the code of #ood #overnance and a sworn state%ent on ade4uate and effective trainin#.
M)2,N M)27N M)2-N M)2(N M)<0N M)<)N

&he %issin# checAs were certainl+ reported *+ the *ooAAeeper to the accountant -- her i%%ediate supervisor -- and *+ the latter to the auditor. 8owever, *oth the accountant and the auditor, for reasons Anown onl+ to the%, assured the *ooAAeeper that there were no irre#ularities.
M)<3N M)<2N

&he *ooAAeeper who had eBclusive custod+ of the checA*ooAs did not have to #o directl+ to CA$ASs president or to @'5. Althou#h she ri#htfull+ reported the %atter, neither an investi#ation was conducted nor a resolution of it was arrived at, precisel+ *ecause the person at the top of the hel% was the culprit. &he vouchers, invoices and checA stu*s in support of all checA dis*urse%ents could *e concealed or fa*ricated -- even in collusion -- and %ana#e%ent would still have no wa+ to verif+ its cash accounta*ilities.
M)<<N M)<5N

Clearl+ then, Ha*ut was a*le to perpetrate the wron#ful act throu#h no fault of CA$A. 5f auditors %a+ *e held lia*le for *reach of contract and ne#li#ence, with all the %ore reason %a+ the+ *e char#ed with the perpetration of fraud upon an unsuspectin# client. CA$A had the discretion to pursue @'5 alone under the N5", *+ reason of eBpedienc+ or %unificence or *oth. 1one+ paid under a %istaAe %a+ ri#htfull+ *e recovered, and under such ter%s as the in;ured part+ %a+ choose.
M)<,N M)<7N

-hird ssue: A'ard of ,onetary Claims ,oral .amages .enied 7e den+ CA$ASs clai% for %oral da%a#es. 5n the a*sence of a wron#ful act or o%ission, or of fraud or *ad faith, %oral da%a#es cannot *e awarded. &he adverse result of an action does not per se %aAe the action wron#ful, or the part+ lia*le for it. :ne %a+ err, *ut error alone is not a #round for #rantin# such da%a#es. 7hile no proof of pecuniar+ loss is necessar+ therefor -- with the a%ount to *e awarded left to the courtSs discretion -- the clai%ant %ust nonetheless satisfactoril+ prove the eBistence of its factual *asis and causal relation to the clai%antSs act or o%ission.
M)<-N M)<(N M)50N M)5)N M)53N M)52N M)5<N M)55N

Re#retta*l+, in this case CA$A was una*le to identif+ the particular instance -- enu%erated in the Civil Code -- upon which its clai% for %oral da%a#es is predicated. Neither *ad faith nor ne#li#ence so #ross that it a%ounts to %alice can *e i%puted to @'5. @ad faith, under the law, Tdoes not si%pl+ connote *ad ;ud#%ent or ne#li#ence> it i%ports a dishonest purpose or so%e %oral o*li4uit+ and conscious doin# of a wron#, a *reach of a Anown dut+ throu#h so%e %otive or interest or ill will that partaAes of the nature of fraud.U
M)5,N M)57N M)5-N M)5(N

As a #eneral rule, a corporation -- *ein# an artificial person without feelin#s, e%otions and senses, and havin# eBistence onl+ in le#al conte%plation -- is not entitled to %oral da%a#es, *ecause it cannot eBperience ph+sical sufferin# and %ental an#uish. 8owever, for *reach of the fiduciar+ dut+ re4uired of a *anA, a corporate client %a+ clai% such da%a#es when its #ood reputation is *es%irched *+ such *reach, and social hu%iliation results therefro%. CA$A was una*le to prove that @'5 had de*ased the #ood reputation of, and conse4uentl+ caused incalcula*le
M),0N M),)N M),3N M),2N

e%*arrass%ent to, the for%er. CA$ASs %ere alle#ation or supposition thereof, without an+ sufficient evidence on record, is not enou#h.
M),<N

#$emplary .amages Also .enied 7e also den+ CA$ASs clai% for eBe%plar+ da%a#es. 5%posed *+ wa+ of correction for the pu*lic #ood, eBe%plar+ da%a#es cannot *e recovered as a %atter of ri#ht. As we have said earlier, there is no *ad faith on the part of @'5 for pa+in# the checAs of CA$A upon for#ed si#natures. &herefore, the for%er cannot *e said to have acted in a wanton, fraudulent, recAless, oppressive or %alevolent %anner. &he latter, havin# no ri#ht to %oral da%a#es, cannot de%and eBe%plar+ da%a#es.
M),5N M),,N M),7N M),-N M),(N

Attorney/s Fees 0ranted Althou#h it is a sound polic+ not to set a pre%iu% on the ri#ht to liti#ate, we find that CA$A is entitled to reasona*le attorne+Ss fees *ased on Tfactual, le#al, and e4uita*le ;ustification.U
M)70N M)7)N

7hen the act or o%ission of the defendant has co%pelled the plaintiff to incur eBpenses to protect the latterSs interest, or where the court dee%s it ;ust and e4uita*le, attorne+Ss fees %a+ *e recovered. 5n the present case, @'5 persistentl+ denied the clai% of CA$A under the N5" to recredit the latterSs account for the value of the for#ed checAs. &his denial constrained CA$A to incur eBpenses and eBert effort for %ore than ten +ears in order to protect its corporate interest in its *anA account. @esides, we have alread+ cautioned @'5 on a si%ilar act of ne#li#ence it had co%%itted sevent+ +ears a#o, *ut it has re%ained unrelentin#. &herefore, the Court dee%s it ;ust and e4uita*le to #rant ten percent /)0=0 of the total value ad;ud#ed to CA$A as attorne+Ss fees.
M)73N M)72N M)7<N

nterest Allo'ed or the failure of @'5 to pa+ CA$A upon de%and and for co%pellin# the latter to resort to the courts to o*tain pa+%ent, le#al interest %a+ *e ad;udicated at the discretion of the Court, the sa%e to run fro% the filin# of the Co%plaint. $ince a court ;ud#%ent is not a loan or a for*earance of recover+, the le#al interest shall *e at siB percent /,=0 per annum. T5f the
M)75N M)7,N M)77N

o*li#ation consists in the pa+%ent of a su% of %one+, and the de*tor incurs in dela+, the inde%nit+ for da%a#es, there *ein# no stipulation to the contrar+, shall *e the pa+%ent of B B B le#al interest, which is siB percent per annum.U &he actual *ase for its co%putation shall *e Ton the a%ount finall+ ad;ud#ed,U co%pounded annuall+ to %aAe up for the cost of %one+ alread+ lost to CA$A.
M)7-N M)7(N M)-0N M)-)N

1oreover, the failure of the CA to award interest does not prevent us fro% #rantin# it upon da%a#es awarded for *reach of contract. @ecause @'5 evidentl+ *reached its contract of deposit with CA$A, we award interest in addition to the total a%ount ad;ud#ed. Gnder $ection )(, of the N5", an+ case not provided for shall *e T#overned *+ the provisions of eBistin# le#islation or, in default thereof, *+ the rules of the law %erchant.U Da%a#es are not provided for in the N5". &hus, we resort to the Code of Co%%erce and the Civil Code. Gnder Article 3 of the Code of Co%%erce, acts of co%%erce shall *e #overned *+ its provisions and, Tin their a*sence, *+ the usa#es of co%%erce #enerall+ o*served in each place> and in the a*sence of *oth rules, *+ those of the civil law.U &his law *ein# silent, we looA at Article )- of the Civil Code, which states6 T5n %atters which are #overned *+ the Code of Co%%erce and special laws, their deficienc+ shall *e suppliedU *+ its provisions. A perusal of these three statutes un%istaAa*l+ shows that the award of interest under our civil law is ;ustified.
M)-3N M)-2N M)-<N

4H R FOR , the 'etition in GR No. )<(<5< is here*+ +%*I%+, and that in GR No. )<(507 PA,#L$ &,A*#%+. &he assailed Decision of the Court of Appeals is A I,!%+ with %odification6 @'5 is held lia*le for '5<7,))5, the total value of the for#ed checAs less the a%ount alread+ recovered *+ CA$A fro% "eonardo &. Ha*ut, plus interest at the le#al rate of siB percent /,=0 per annum -- co%pounded annuall+, fro% the filin# of the co%plaint until paid in full> and attorne+Ss fees of ten percent /)0=0 thereof, su*;ect to rei%*urse%ent fro% Respondent Ha*ut for the entire a%ount, eBceptin# attorne+Ss fees. "et a cop+ of this Decision *e furnished the @oard of Accountanc+ of the 'rofessional Re#ulation Co%%ission for such action as it %a+ dee% appropriate a#ainst Respondent Ha*ut. No costs. SO OR/ R /.

R N

S. ONG, 0AG/AL NO -. AL-ARRACIN, JR., P TRONIO C. AALI4IN an! J. O. N RIT, petitioners, vs. P OPL OF TH PHILIPPIN S an! COURT OF APP ALS, respondents. / CISION

0 LO, J.3

@efore us is a petition for certiorari and prohi*ition with pra+er for issuance of a writ of preli%inar+ in;unction, wherein petitioners, accused *efore the 1etropolitan &rial Court /1e&C0 of 1aAati Cit+, char#e said court with havin# co%%itted #rave a*use of discretion when it denied their de%urrer to evidence. &he facts of the case are as follows6 :n e*ruar+ -, )((2, Len+ Alfonso purchased a paper *a#-%aAin# %achine for '2,3,000.00 fro% the $olid Ce%ent Corporation. 7hen she went to the corporation?s Antipolo plant, however, no %achine could *e #iven to her, it appearin# that the %achine sold had *een earlier %ort#a#ed to a creditor, who, unfortunatel+, refused to release the %ort#a#e. 8erein petitioners offered to return the %one+ paid *+ 1rs. Alfonso *ut she refused and instead filed a cri%inal co%plaint with the Cit+ 'rosecutor of 1aAati. &he Cit+ 'rosecutor dis%issed the co%plaint on the #round that lia*ilit+, if an+, would *e civil and not cri%inal in nature. &his dis%issal was, however, reversed *+ the Depart%ent of .ustice. :n :cto*er )-, )((<, an 5nfor%ation for estafa and other deceit *ased on Article 2)- of the Revised 'enal Code was filed with the 1e&C of 1aAati Cit+. After pre-trial, the prosecution presented as its sole witness co%plainant Len+ Alfonso. &he prosecution then for%all+ offered its docu%entar+ evidence and rested its case. &he ad%issi*ilit+ of these docu%ents was 4uestioned *+ petitioners. &he disputed docu%ents are alle#ed photo copies of /)0 the approval of the sale of the paper *a#-%aAin# %achine supposedl+ si#ned *+ petitioners> /30 an official receipt of $olid Ce%ent Corporation evidencin# pa+%ent of '2,3,000.00> /20 a plant #ate pass fro% one ..'. Valencia dated e*ruar+ ),, )((2 for entr+ into the Antipolo co%pound and pull-out of the %achine> /<0 a letter fro% one Att+. 1aBi%ino Ro*les de%andin# deliver+ of the %achine to

the co%plainant> /50 a letter of $olid Ce%ent?s Rene $. :n# offerin# to return '2,3,000.00 plus interest> /,0 a letter fro% Att+. Ro*les infor%in# $olid Ce%ent of co%plainant?s refusal to accept the refund of the '2,3,000.00> /70 a %e%orandu% fro% five officers or e%plo+ees of $olid Ce%ent Corporation reco%%endin# the sale of the paper *a#-%aAin#-%achine> /-0 another #atepass dated Dece%*er 2, )((3 fro% one Ra%on 9nri4ueC allowin# the pull out of the %achine> /(0 a letter fro% one "orenCo '. "i#ot thanAin# $olid Ce%ent, throu#h one 'eter Aaliwin, for the for%er?s #rant of a ri#ht of first refusal> and /)00 a cop+ of the resolution dated .ul+ 3,, )((2 of the 'rovincial 'rosecutor?s :ffice of RiCal. &he defense o*;ected to the ad%ission of these pieces of evidence, clai%in# that the sa%e were onl+ unauthenticated photocopies of the ori#inals. :n .ul+ )3, )((,, petitioners filed a %otion for leave to file de%urrer to evidence, attachin# thereto their de%urrer. 5n their pleadin#, petitioners stressed that all the a*ove-%entioned docu%ents *ein# uncertified photocopies *earin# unidentified or unauthenticated si#natures are inad%issi*le in evidence. 7ithout rulin# on the %otion for leave to file de%urrer, the 1e&C, on Au#ust )(, )((,, held6 WHEREFORE, the instant demurrer is hereby denied and the motion to hold de!arture order of all accused 6ranted% 8et a co!y of this Order be sent to the Commissioner of Bureau of Dmmigration and .e!ortation for !ro!er dis!osition and im!lementation against the accused RE<E O<6, A"6."8E<O "8B"RR"CD<, 2R%, #E$RO<DO C% ""8DWD< and 2%O% <ERD$ of 3olid Cement Cor!oration, <o% *(+ 3alcedo 3treet, 'rd Floor, 6olden Roc; Building, Aa;ati City% (!!% **'>**0, Rollo% 5n its :rder den+in# the de%urrer to evidence, 1e&C .ud#e elicidad H. Navarro-Ruia%*ao su%%ariCed private co%plainant?s testi%on+ as follows6 $he !rosecutor !resented the !rivate com!lainant Neny "lfonso who testified that on February +, *//', she was awarded by the accused the sale of a #a!er Bag Aa;ing Aachine including its s!are !arts% On February *(, *//', she !aid in full the !urchase !rice of the machine including the charges for its freight to Cebu in the amount of #'(),???%?? and as a conseCuence of said !ayment she was issued a #lant 6ate #ass for the !ull out of shi!ment of the machine to Cebu@ that the following day, she !roceeded to the !lant site of the 3olid Cement Cor!oration in "nti!olo where she was told that accused Rene 3% Ong has ordered to sto! and discontinue with the shi!ment of the machine@ that on the same day, she rushed to see Ar% Ong in Aa;ati and she was told to wait for a wee;@ that on Aarch *, *//', she went again to Ar% Ong

who informed her to go bac; to the !lant site for final arrangement regarding the shi!ment of the !a!er bag machine so she !roceeded to the !lant only to be told that the machine cannot be released on order of Ar% Ong@ that u!on the demand of her lawyer to the 3olid Cor!oration for its com!liance with their obligation under the transaction, Ar% Ong offered a com!romise which was turned down by her% (!!% **)>**', Rollo% &he 1e&C, in fact, found that there was a prima facie case a#ainst petitioners on the *asis of the docu%ents su*%itted *+ the prosecution, statin#6 $he Court noted from the documentary evidence on record that the machine subject of the transaction between the com!lainant and the accused is mortgaged to another creditor, who, incidentally, refused to release the mortgage on said subject machine% Dndeed, this strongly suggest (sic the e&istence of a prima facie case that would warrant a trial on the merits% "ccordingly, the motion for hold de!arture order is hereby 6ranted% (!% **', Rollo% Actin# on a petition for certiorari and prohi*ition filed *+ the accused, the Re#ional &rial Court of 1aAati, per .ud#e &eofilo GuadiC, .r., reversed the a*ove rulin# in its order dated 1a+ )(, )((7, disposin#6 WHEREFORE, in view of the foregoing, the !etition is hereby granted% $he Order dated "ugust */, *//( denying the .emurrer to Evidence and the Order dated 3e!tember *+, *//(, insofar as it declares the e&istence of cause to hold the !etitioners for further trial, are hereby set aside and declared null and void% $he res!ondent judge is hereby ordered to dismiss Criminal Case <o% *-,)/? entitled #eo!le of the #hili!!ines v% Rene Ong, et al% (!% *-/, Rollo% &he &uadi: resolution was raised to the Court of Appeals *+ the 'eople. :n April -, )(((, the )2th Division thereof /1a*utas MPN, A4uino, and Rivera, JJ.0 rendered a reversal decision, the dispositive portion of which reads6 WHEREFORE, !remises considered, the !etition is hereby 6R"<$E. > and the assailed resolution (dated Aay */, *//, and order (dated October *(, *//, of the res!ondent judge 3E$ "3D.E% $he writ of !reliminary injunction issued by this Court

on 2une -, *//+ is made !ermanent% $he !rivate res!ondents herein are given the o!tion to either !resent their evidence (in Criminal Case <o% *-,)/? which is reinstated before the trial court below (Aetro!olitan $rial Court or to submit the case for decision based solely on the !rosecutorMs evidence% (!% ,*, Rollo% 'etitioners su*%it that the Court of Appeals acted contrar+ to law and ;urisprudence and co%%itted #rave a*use of discretion in6
)0 findin# that appeal and not certiorari was the re%ed+ that should have *een availed of *+ petitioners> 30 findin# that R&C .ud#e &eofilo GuadiC, .r. erred in evaluatin# the prosecution?s evidence for sufficienc+ and inad%issi*ilit+> 20 not findin# that the R&C resolution dated 1a+ )(, )((7 was an ac4uittal and not appl+in# dou*le ;eopard+ in their favor>

&he petition is %eritorious. 5n settin# aside the re#ional trial court?s decision which ordered the 1e&C to dis%iss the cri%inal case filed a#ainst petitioners, the Court of Appeals held that petitioners, after the denial *+ the 1e&C of their de%urrer to evidence, should not have filed a petition for certiorari with the re#ional trial court. 5n its words6 "s !ointed out, the 3u!reme Court, in the case of Joseph v. Villaluz (+/ 3CR" ')0 , held that it would not annul an interlocutory order denying a motion to dismiss in a criminal case% "!!eal is the !ro!er remedy of the !etitioners in order to have the findings of fact reviewed by a su!erior court (Manalo v. Mariano, (/ 3CR" +? % 3uch ruling was a reiteration of an earlier one in People v. omero ()) #hil% -(- wherein the Highest $ribunal stressed that the Cuestion of whether or not the evidence by the !rosecution is sufficient to convince the court that the accused is guilty beyond reasonable doubt of the crime charged, rests entirely within the sound judgment of the trial court% $he error, if any is committed by the denial of the demurrer to evidence, can only be corrected by a!!eal (Cruz v. People, *00 3CR" (,, % 3imilarly, the 3u!reme Court held in People v. Court of Appeals (**/ 3CR" *() that it has been the long settled rule that certiorari does not lie to challenge the trial courtMs interlocutory order denying the accusedMs motion to dismiss% O$he a!!ellate courts will not review in such s!ecial civil action the !rosecutionMs evidence and decide in advance that such evidence has or has not yet established the guilt of the accused beyond reasonable doubt% $he orderly !rocedure !rescribed by the Rules of Court is for the accused to !resent his evidence after which the trial court, on its own

assessment of the evidence submitted by both the !rosecution and defense, will then !ro!erly render its judgment of acCuittal or conviction% Df the verdict is one of acCuittal, the case ends there% But if it is one of conviction, then a!!eal is the !ro!er recourse (Cruz v. People, supra % (!!% (0>(-, Rollo% 5n other words, the position of the Court of Appeals is to the effect that after the denial of their de%urrer to evidence, petitioners instead of filin# a petition for certiorari with the re#ional trial court, should have presented their evidence and in case of an adverse decision, appealed the sa%e to the re#ional trial court. "iAewise, the Court of Appeals *rushed aside petitioners? invocation of their ri#ht a#ainst dou*le ;eopard+, statin# that the order of the re#ional trial court dis%issin# the cri%inal case filed a#ainst petitioners did not a%ount to their ac4uittal. 8eld thus the appellate court6 "s a!tly !osited by the !etitioner ($he #eo!le the reCuisites that must concur for legal jeo!ardy to attach areF (a a valid com!laint or information@ (b a court of com!etent jurisdiction@ (c the accused has !leaded to the charge@ and (d the accused has been convicted or acCuitted, or the case dismissed or terminated without the e&!ress consent of the accused (People v. !ines, */, 3CR" 0+*, "e la osa v. Court of Appeals, )-' 3CR" 0// % $he fourth reCuisite is lac;ing, because res!ondent courtMs resolution of Aay */, *//, is a OfruitO emerging from a grave abuse of discretion > thus it cannot ri!en to an acCuittal of the !rivate res!ondents, whose demurrer to evidence had been denied by the trial court below% Dt is true that an accused is !resumed innocent until his guilt is shown beyond reasonable doubt% However, after the !rosecution has adduced evidence, the constitutional !resum!tion of innocence must yield to what has been so am!ly and !ersuasively demonstrated (People v. An#al, ,? 3CR" '? % $he res!ondent judge could not decide in the s!ecial civil action before him whether or not the evidence adduced by the !rosecution had established beyond reasonable doubt the guilt of !etitioners (!rivate res!ondents herein , because factual matters are not !ro!er for consideration in !roceedings brought either as an original action for certiorari or as an a!!eal by certiorari ($nsular %an& of Asia an# America v. Court of Appeals , ))+ 3CR" 0)?@ 'avarro v. Commission on (lections, ))+ 3CR" -/( % Dt is, therefore, incumbent on the !art of the accused (!rivate res!ondents herein to neutraliLe the evidence of the 3tate in order to maintain the !resum!tion of their innocence of the crime of which they were charged%Df convicted, a!!eal will be their (!rivate res!ondentsM !ro!er remedy to have the findings of fact by the trial judge reviewed by a su!erior court (Manalo v. Mariano, et al%, (/ 3CR" +? %

5ndeed, the rule #enerall+ prevailin# is that "certiorari does not lie to review a trial court?s interlocutor+ order den+in# a %otion to dis%iss /or to ac4uit0, which is e4uivalent to a de%urrer to evidence, filed after the prosecution had presented its evidence and rested its case. An order den+in# a de%urrer to evidence is interlocutor+. 5t is not appeala*le. Neither can it *e the su*;ect of a petition for certiorari /#adeo v. People, 200 $CRA 7<< M)((-N0." 8owever, #adeo itself states that "MfNro% such denial /of the de%urrer to evidence0, appeal in due ti%e is the proper re%ed+, not certiorari, in t>e absence of grave abuse of discretion or e@cess of Burisdiction, or an oppressive e@ercise of Budicial aut>ority." Conse4uentl+, if the denial of the de%urrer to evidence is attended *+ #rave a*use of discretion, the denial %a+ *e assailed throu#h a petition for certiorari. &his eBception was eBplicitl+ reco#niCed *+ the Court in CruC v. 'eople /202 $CRA 522 M)(((N0, where we stated that6 $he general rule that the e&traordinary writ of certiorari is not available to challenge (the denial of the demurrer to evidence may be subject to e&ce!tions% When the assailed interlocutory orders are !atently erroneous or issued with grave abuse of discretion, the remedy of certiorari lies% "iAewise, in Guti* v. Court of Appeals /2)3 $CRA 2,5 M)(((N0, we declared that "the rule is not a*solute and ad%its of an eBception. &hus where, as in the instant case, the denial of the %otion to dis%iss *+ the trial court was tainted wit> grave abuse of discretion a%ountin# to lacA or eBcess of ;urisdiction, the a##rieved part+ %a+ assail the order of denial on certiorari." &he present case presents one such eBception warrantin# the resort to the re%ed+ of certiorari, the trial court ;ud#e havin# co%%itted #rave a*use of discretion a%ountin# to lacA or eBcess of ;urisdiction in den+in# petitioners? de%urrer to evidence. A de%urrer to evidence is an o*;ection *+ one of the parties in an action, to the effect that the evidence which his adversar+ produced is insufficient in point of law, whether true or not, to %aAe out a case or sustain the issue. &he part+ de%urrin# challen#es the sufficienc+ of the whole evidence to sustain a verdict. &he court, in passin# upon the sufficienc+ of the evidence raised in a de%urrer, is %erel+ re4uired to ascertain whether there is competent or sufficient evidence to sustain the indict%ent or to support a verdict of #uilt /Guti* v. CA, supra0. 5n the instant case, there is no co%petent and sufficient evidence to sustain the indict%ent or to support a verdict of #uilt a#ainst petitioners. As pointed out *+ petitioners, all docu%entar+ evidence su*%itted *+ the private

co%plainant were uncertified photocopies of certain docu%ents, the si#natures on which were either unidentified or unauthenticated. $ection 30, Rule )23 of the Revised Rules of Court provides that "*efore an+ private docu%ent offered as authentic is received in evidence, its due eBecution and authenticit+ %ust *e proved either6
/a0 *+ an+one who saw the docu%ent eBecuted or written> or /*0 *+ evidence of the #enuineness of the si#nature or handwritin# of the %aAer.

&hus, prior to the ad%ission in evidence of a private writin#, the identit+ and authenticit+ of the docu%ent sou#ht to *e presented %ust first *e reasona*l+ esta*lished. 7here there is no proof as to the authenticit+ of the eBecutor?s si#nature appearin# in a private docu%ent, such private docu%ent should *e eBcluded /Pa: v. "antiago, <7 'hil 22< M)(35N0. &he docu%entar+ evidence su*%itted *+ the co%plainin# witness are private instru%ents, *ein# instru%ents eBecuted *+ private persons without the intervention of a pu*lic notar+ or of other persons le#all+ authoriCed, *+ which docu%ent so%e disposition or a#ree%ent is proved, evidenced, or set forth /).". v. (rera, )) 'hil. 5(, M)(07N0. @ein# private instru%ents, their due and valid eBecution and their #enuineness and authenticit+ %ust first *e esta*lished, either *+ the testi%on+ of an+ one who saw the writin# eBecuted or *+ evidence of the #enuineness of the handwritin# of the %aAer hereof. A painstaAin# perusal of the testi%on+ of the prosecution?s sole witness reveals, however, that the due eBecution and authenticit+ of these docu%ents were never proved. 5n fact, the prosecution tooA no effort to prove the due eBecution and authenticit+ of these docu%ents durin# the presentation of their sole witness. A*sent such proof, these docu%ents are inco%petent as evidence. 5t is ele%entar+ that this Court cannot ri#htl+ appreciate firsthand the #enuineness of an unverified and unidentified docu%ent> %uch less, accord it evidentiar+ value /People v. "umalpong, 3-< $CRA <,< M)((-N0. 5n People v. &amiao /3<0 $CRA 35< M)((5N0, we declared, "MpNarentheticall+, appellant failed to present in evidence the ori#inals or the BeroB copies of the docu%ents herein*efore discussed. &he re4uire%ents for the ad%ission of such secondar+ evidence in court were not satisfied. &he Rules of Court provide that private docu%ents re4uire proof of their due eBecution and authentication *efore the+ can *e received in evidence. 7hen there is no such proof, the su*stitutionar+ docu%ents %a+ *e eBcluded." 1oreover, the docu%ents su*%itted are %ere photocopies of the ori#inals. &hus, the+ are secondar+ evidence and as such are not ad%issi*le

unless there is a%ple proof of the loss of the ori#inals /$ection 2, Rule )20, Revised Rules of Court0. 8owever, the loss of the ori#inals have not *een proved *+ the prosecution, neither have the+ shown that the ori#inal is a pu*lic record in the custod+ of a pu*lic office or is recorded in a pu*lic office, nor that the sa%e is in the custod+ or under the control of petitioners. &he due eBecution and authenticit+ of the docu%entar+ evidence presented not havin# *een proved, and since these are %ere photocopies, the loss of the ori#inals of which was not previousl+ esta*lished, the sa%e are clearl+ inad%issi*le in evidence. @ein# inco%petent evidence, the onl+ evidence the prosecution could rel+ on to prove petitioners? #uilt would *e the sole testi%on+ of the private co%plainant. Gnsupported *+ an+ other evidence, said testi%on+ is insufficient to sustain a findin# of culpa*ilit+. $ufficient evidence for purposes of frustratin# a de%urrer thereto is such evidence in character, wei#ht or a%ount as will le#all+ ;ustif+ the ;udicial or official action de%anded accordin# to the circu%stances. &o *e considered sufficient, therefore, the evidence %ust prove6 /a0 the co%%ission of the cri%e, and /*0 the precise de#ree of participation therein *+ the accused. 5n the instant case, the prosecution %isera*l+ failed to esta*lish *+ sufficient evidence the eBistence of the cri%e of estafa and other deceit. Aside fro% co%plainant?s testi%on+, the onl+ evidence of petitioners? supposed co%plicit+ in the alle#ed offense is the photocop+ of the approval of the sale of the paper *a#-%aAin# %achine, said docu%ent containin# the na%es of petitioners :n#, Nerit, Aaliwin, and Al*arracin. As stated earlier, however, said docu%ent is inad%issi*le in evidence. &hus, there is no evidence as to their participation in the cri%e. 5n fact, a%on# the petitioners, private co%plainant had personal contact onl+ with :n#, who% she %et onl+ after the alle#ed approval of the sale of the %achine. 8avin# %et :n# after the sale, :n# could not have %isrepresented an+thin# to co%plainant to induce her to part with her %one+. As to the others, not havin# had personal dealin#s with private co%plainant, it *o##les one?s %ind to even entertain the speculation that the+ could have %isrepresented an+thin# to the latter. 7ith our rulin# that the docu%entar+ evidence su*%itted *+ the prosecution is inad%issi*le in evidence, the prosecution?s evidence a#ainst petitioners is #rossl+ and patentl+ insufficient to support a findin# of #uilt. 7ithal, it was #rave a*use of discretion for the 1e&C to consider that there was a prima facie case a#ainst petitioners warrantin# a trial on the %erits #iven the paucit+ of evidence a#ainst petitioners. 8ad said court *een %ore punctilious and thorou#h in its stud+ and preparation of the case, it could have full+ appreciated the weaAness of the

state evidence a#ainst petitioners, and that it was useless, not to sa+ a waste of ti%e and %one+, *ut %ost of all unfair to the accused, to proceed with the tedious process of trial and direct petitioners to adduce evidence in their defense, since it was o*vious fro% the *e#innin# that petitioners could not *e convicted of the cri%e char#ed. 5n rulin# a#ainst petitioners, the appellate court also held that petitioners could not avail of their constitutional ri#ht a#ainst dou*le ;eopard+, alle#edl+ *ecause the re#ional trial court?s reversal of the 1e&C denial of their de%urrer to evidence is a "fruit" e%er#in# fro% #rave a*use of discretion. 5t declared that .ud#e GuadiC could not decide in the special civil action filed *efore hi% whether or not the evidence adduced *+ the prosecution had esta*lished *e+ond reasona*le dou*t the #uilt of petitioners, factual %atters not *ein# proper for consideration in certiorariproceedin#s. 5t is true that the prero#ative writ of certiorari does not lie to correct ever+ controversial interlocutor+ order *ut is confined %erel+ to 4uestions of ;urisdiction. 5ts function is to Aeep an inferior court within its ;urisdiction and to relieve persons fro% ar*itrar+ acts, %eanin# acts which courts or ;ud#es have no power or authorit+ in law to perfor%. 5t is not desi#ned to correct procedural errors or the court?s erroneous findin#s and conclusions /+e Vera v. Pineda, 3)2 $CRA <2< M)((3N0. 8owever, certiorari can *e properl+ resorted to where the factual findin#s co%plained of are not supported *+ the evidence on record /Congregation of t>e ,eligious of t>e Virgin !ary v. CA , 3() $CRA 2-5 M)((-N0. As earlier o*served, with the inad%issi*ilit+ of the prosecution?s docu%entar+ evidence, the trial court?s findin# of a prima facie case a#ainst petitioners is #larin#l+ unsupported *+ the sole testi%on+ of private co%plainant, hence the R&C resolution reversin# the 1e&C?s denial of the de%urrer to evidence cannot *e said to *e the "fruit" of #rave a*use of discretion. $ince the factual findin#s of the 1e&C are devoid of support in the evidence on record, it was proper for the R&C to review said findin#s. 1oreover, in order to deter%ine whether or not there was #rave a*use of discretion in den+in# the de%urrer to evidence, the R&C had to in4uire into the ad%issi*ilit+ and sufficienc+ of the docu%entar+ and testi%onial evidence su*%itted *+ the prosecution. 7ith the #rant *+ the R&C of the de%urrer to evidence, the sa%e constituted a valid ac4uittal and an+ further prosecution of petitioners on the sa%e char#e would eBpose the% to *ein# put twice in ;eopard+ for the sa%e offense. A dis%issal of a cri%inal case *+ the #rant of a de%urrer to evidence is not appeala*le as the accused would there*+ *e placed in dou*le ;eopard+ /$ee,egalado, Re%edial "aw Co%pendiu%, p. <<)0.

"astl+, it has *een said that a wide *readth of discretion is #ranted a court of ;ustice in certiorari proceedin#s. &he cases in which certiorari will issue cannot *e defined, *ecause to do so would *e to destro+ its co%prehensiveness and usefulness. $o wide is the discretion of the court that authorit+ is not wantin# to show that certiorari is %ore discretionar+ than either prohi*ition ormandamus. 5n the eBercise of our superintendin# control over other courts, we are to *e #uided *+ all the circu%stances of each particular case "as the ends of ;ustice %a+ re4uire." $o it is that the writ will *e #ranted where necessar+ to prevent a su*stantial wron# or to do su*stantial ;ustice /Guti* v. CA, supra0. &he case at *ar presents one such instance callin# for this appropriate re%ed+. As discussed elsewhere, petitioners have satisfactoril+ de%onstrated in their de%urrer that the prosecution failed to prove the cri%e char#ed a#ainst the%, hence, there re%ains no reason to hold the% for trial. 5ndeed, an accused is alwa+s presu%ed innocent until the contrar+ is proved. 'arentheticall+, petitioners have the ri#ht to *e protected a#ainst hast+, %alicious, and oppressive prosecution> to *e secure fro% an open and pu*lic accusation of a cri%e> and, fro% the trou*le, eBpenses and anBiet+ of a pu*lic trial. $i%ilarl+ situated is the $tate, which %ust *e shielded at all ti%es fro% useless and eBpensive liti#ations that onl+ contri*ute to the clo##in# of court docAets and taAe a heav+ toll on its li%ited ti%e and %ea#er resources. 4H R FOR , pre%ises considered, the petition is GRAN&9D. &he decision of the Court of Appeals dated April -, )((( settin# aside the Re#ional &rial Court?s resolution dated 1a+ )(, )((7, as well as respondent appellate court?s Resolution dated Nove%*er ),, )((( den+in# reconsideration of its decision, are R9V9R$9D and $9& A$5D9. &he dis%issal of Cri%inal Case No. )573(0 entitled "'eople of the 'hilippines v. Rene $. :n#, et al. is A 5R19D, without pre;udice to the filin# of an appropriate civil action. SO OR/ R /.

C L, ,ANG, petitioner, vs. HON. COURT OF APP ALS, PHILIPPIN CO00 RCIAL INT RNATIONAL -AN., FAR AST -AN. " TRUST CO., FUITA-L -AN.ING CORPORATION, PR 0 CHAN/IRA0ANI an! F RNAN/O /A;I/, respondents. /
FUISU0-ING, J.3

CISION

or review on certiorari is the decision of the Court of Appeals, dated 1arch 35, )(((, in CA-G.R. CV No. 532(-, which affir%ed with %odification the ;oint decision of the Re#ional &rial Court /R&C0 of 'asa+ Cit+, @ranch ))7, dated .ul+ <, )((5, in Civil Cases Nos. 5<7( and 5<(3. &he trial court dis%issed the co%plaint a#ainst herein respondents ar 9ast @anA ! &rust Co%pan+ / 9@&C0, 94uita*le @anAin# Corporation /94uita*le0, and 'hilippine Co%%ercial 5nternational @anA /'C5@0 and ruled in favor of respondent ernando David as to the proceeds of the two cashierSs checAs, includin# the earnin#s thereof pendente lite. 'etitioner Cel+ Han# was ordered to pa+ David %oral da%a#es of ')00,000.00 and attorne+Ss fees also in the a%ount of')00,000.00.
M)N M3N M2N

&he facts of this case are not disputed, to wit6 :n or *efore Dece%*er 33, )(-7, petitioner Cel+ Han# and private respondent 're% Chandira%ani entered into an a#ree%ent where*+ the latter was to #ive Han# a 'C5@ %ana#erSs checA in the a%ount of '<.3 %illion in eBchan#e for two /30 of Han#Ss %ana#erSs checAs, each in the a%ount of '3.0-7 %illion, *oth pa+a*le to the order of private respondent ernando David. Han# and Chandira%ani a#reed that the difference of '3,,000.00 in the eBchan#e would *e their profit to *e divided e4uall+ *etween the%. Han# and Chandira%ani also further a#reed that the for%er would secure fro% 9@&C a dollar draft in the a%ount of G$Z300,000.00, pa+a*le to 'C5@ CDG Account No. <)(5-0)),5-3, which Chandira%ani would eBchan#e for another dollar draft in the sa%e a%ount to *e issued *+ 8an# $en# @anA "td. of 8on# Pon#. Accordin#l+, on Dece%*er 33, )(-7, Han# procured the followin#6 a ECuitable Cashier7s Chec; <o% CC#3 *0>??/0(, in the sum of #),?+,,???%??, dated .ecember )), */+,, !ayable to the order of Fernando .avid@

FEB$C Cashier7s Chec; <o% )+,?,+, in the amount of #),?+,,???%??, dated .ecember )), */+,, li;ewise !ayable to the order of Fernando .avid@ and FEB$C .ollar .raft <o% 0,,*, drawn on Chemical Ban;, <ew Hor;, in the amount of J3P)??,???%??, dated .ecember )), */+,, !ayable to #CDB FC.J "ccount <o% 0*/->?**(->)%

At a*out one oSclocA in the afternoon of the sa%e da+, Han# #ave the afore%entioned cashierSs checAs and dollar drafts to her *usiness associate, Al*ert "ion#, to *e delivered to Chandira%ani *+ "ion#Ss %essen#er, Danilo Rani#o. Rani#o was to %eet Chandira%ani at 'hilippine &rust @anA, A+ala Avenue, 1aAati Cit+, 1etro 1anila where he would turn over Han#Ss cashierSs checAs and dollar draft to Chandira%ani who, in turn, would deliver to Rani#o a 'C5@ %ana#erSs checA in the su% of '<.3 %illion and a 8an# $en# @anA dollar draft for G$Z300,000.00 in eBchan#e. Chandira%ani did not appear at the rendeCvous and Rani#o alle#edl+ lost the two cashierSs checAs and the dollar draft *ou#ht *+ petitioner. Rani#o reported the alle#ed loss of the checAs and the dollar draft to "ion# at half past four in the afternoon of Dece%*er 33, )(-7. "ion#, in turn, infor%ed Han#, and the loss was then reported to the police. 5t transpired, however, that the checAs and the dollar draft were not lost, for Chandira%ani was a*le to #et hold of said instru%ents, without deliverin# the eBchan#e consideration consistin# of the 'C5@ %ana#erSs checA and the 8an# $en# @anA dollar draft. At three oSclocA in the afternoon or so%e two /30 hours after Chandira%ani and Rani#o were to %eet in 1aAati Cit+, Chandira%ani delivered to respondent ernando David at China @anAin# Corporation *ranch in $an ernando Cit+, 'a%pan#a, the followin#6 /a0 9@&C CashierSs ChecA No. 3-707-, dated Dece%*er 33, )(-7, in the su% of '3.0-7 %illion> and /*0 94uita*le CashierSs ChecA No. CC'$ )<-00(<,7, dated Dece%*er 33, )(-7, also in the a%ount of '3.0-7 %illion. 5n eBchan#e, Chandira%ani #ot G$Z2,0,000.00 fro% David, which Chandira%ani deposited in the savin#s account of his wife, 'ushpa Chandira%ani> and his %other, Rani Re+nandas, who held CDG Account No. )3< with the Gnited Coconut 'lanters @anA *ranch in Greenhills, $an .uan, 1etro 1anila. Chandira%ani also deposited 9@&C Dollar Draft No. <77), dated Dece%*er 33, )(-7, drawn upon the Che%ical @anA, New HorA for G$Z300,000.00 in 'C5@ CDG Account No. <)(5-0)),5-3 on the sa%e date.

1eanwhile, Han# re4uested 9@&C and 94uita*le to stop pa+%ent on the instru%ents she *elieved to *e lost. @oth *anAs co%plied with her re4uest, *ut upon the representation of 'C5@, 9@&C su*se4uentl+ lifted the stop pa+%ent order on 9@&C Dollar Draft No. <77), thus ena*lin# the holder of 'C5@ CDG Account No. <)(5-0)),5-3 to receive the a%ount of G$Z300,000.00. :n Dece%*er 3-, )(-7, herein petitioner Han# lod#ed a Co%plaint for in;unction and da%a#es a#ainst 94uita*le, Chandira%ani, and David, with pra+er for a te%porar+ restrainin# order, with the Re#ional &rial Court of 'asa+ Cit+. &he Co%plaint was docAeted as Civil Case No. 5<7(. &he Co%plaint was su*se4uentl+ a%ended to include a pra+er for 94uita*le to return to Han# the a%ount of '3.0-7 %illion, with interest thereon until full+ paid.
M<N M5N

:n .anuar+ )3, )(--, Han# filed a separate case for in;unction and da%a#es, with pra+er for a writ of preli%inar+ in;unction a#ainst 9@&C, 'C5@, Chandira%ani and David, with the R&C of 'asa+ Cit+, docAeted as Civil Case No. 5<(3. &his co%plaint was later a%ended to include a pra+er that defendants therein return to Han# the a%ount of '3.0-7 %illion, the value of 9@&C Dollar Draft No. <77), with interest at )-= annuall+ until full+ paid.
M,N

:n e*ruar+ (, )(--, upon the filin# of a *ond *+ Han#, the trial court issued a writ of preli%inar+ in;unction in Civil Case No. 5<7(. A writ of preli%inar+ in;unction was su*se4uentl+ issued in Civil Case No. 5<(3 also. 1eanwhile, herein respondent David %oved for dis%issal of the cases a#ainst hi% and for reconsideration of the :rders #rantin# the writ of preli%inar+ in;unction, *ut these %otions were denied. David then elevated the %atter to the Court of Appeals in a special civil action for certiorari docAeted as CA-G.R. $' No. )<-<2, which was dis%issed *+ the appellate court. As Civil Cases Nos. 5<7( and 5<(3 arose fro% the sa%e set of facts, the two cases were consolidated. &he trial court then conducted pre-trial and trial of the two cases, *ut the proceedin#s had to *e suspended after a fire #utted the 'asa+ Cit+ 8all and destro+ed the records of the courts. After the records were reconstituted, the proceedin#s resu%ed and the parties a#reed that the %one+ in dispute *e invested in &reasur+ @ills to *e awarded in favor of the prevailin# side. 5t was also a#reed *+ the parties to li%it the issues at the trial to the followin#6
). 7ho, *etween David and Han#, is le#all+ entitled to the proceeds of 94uita*le @anAin# Corporation /9@C0 CashierSs ChecA No. CC'$ )<-00(<,7 in the su% of '3,0-7,000.00 dated Dece%*er 33, )(-7, and ar 9ast @anA and &rust Co%pan+ / 9@&C0 CashierSs ChecA No. 3-707- in the su% of '3,0-7,000.00 dated Dece%*er 33, )(-7, to#ether with the earnin#s derived therefro%pendente liteQ

3. Are the defendants 9@&C and 'C5@ solidaril+ lia*le to Han# for havin# allowed the encash%ent of 9@&C Dollar Draft No. <77), in the su% of G$Z300,000.00 plus interest thereon despite the stop pa+%ent order of Cel+ Han#QM7N

:n .ul+ <, )((5, the trial court handed down its decision in Civil Cases Nos. 5<7( and 5<(3, to wit6 WHEREFORE, the Court renders judgment in favor of defendant Fernando .avid against the !laintiff Cely Hang and declaring the former entitled to the !roceeds of the two () cashier7s chec;s, together with the earnings derived therefrom pen#ente lite@ ordering the !laintiff to !ay the defendant Fernando .avid moral damages in the amount of #*??,???%??@ attorney7s fees in the amount of #*??,???%?? and to !ay the costs% $he com!laint against Far East Ban; and $rust Com!any (FEB$C , #hili!!ine Commercial Dnternational Ban; (#CDB and ECuitable Ban;ing Cor!oration (EBC is dismissed% $he decision is without !rejudice to whatever action !laintiff Cely Hang will file against defendant #rem Chandiramani for reimbursement of the amounts received by him from defendant Fernando .avid% 3O OR.ERE.%
4+5

5n findin# for David, the trial court ratiocinated6 $he evidence shows that defendant .avid was a holder in due course for the reason that the cashier7s chec;s were com!lete on their face when they were negotiated to him% $hey were not yet overdue when he became the holder thereof and he had no notice that said chec;s were !reviously dishonored@ he too; the cashier7s chec;s in good faith and for value% He !arted some P)??,???%?? for the two () cashier7s chec;s which were given to defendant Chandiramani@ he had also no notice of any infirmity in the cashier7s chec;s or defect in the title of the drawer% "s a matter of fact, he as;ed the manager of the China Ban;ing Cor!oration to inCuire as to the genuineness of the cashier7s chec;s (tsn, February -, */++, !% )*, 3e!tember )?, *//*, !!% *'>*0 % "nother !roof that defendant .avid is a holder in due course is the fact that the sto! !ayment order on 4the5 FEB$C cashier7s chec; was lifted u!on his inCuiry at the head office (tsn, 3e!tember )?, *//*, !!% )0>)- % $he a!!arent reason for lifting the sto! !ayment order was because of the fact that FEB$C realiLed that the chec;s were not actually lost but indeed reached the !ayee defendant .avid%
4/5

Han# then %oved for reconsideration of the R&C ;ud#%ent, *ut the trial court denied her %otion in its :rder of $epte%*er 30, )((5. 5n the *elief that the trial court %isunderstood the concept of a holder in due course and %isapprehended the factual %ilieu, Han# seasona*l+ filed an appeal with the Court of Appeals, docAeted as CA-G.R. CV No. 532(-.

:n 1arch 35, )(((, the appellate court decided CA-G.R. CV No. 532(- in this wise6 WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby o"%!"s the !laintiff>a!!ellant to #y %!+!n%#nt0# !ll#nt PCI1 th! #-o*nt o+ Tw!nty0Fi$! Tho*s#n% P!sos 2P34,555/556/ 3O OR.ERE.%
4*?5

5n affir%in# the trial courtSs ;ud#%ent with respect to herein respondent David, the appellate court found that6 Dn this case, defendant>a!!ellee had ta;en the necessary !recautions to verify, through his ban;, China Ban;ing Cor!oration, the genuineness of whether (sic the cashier7s chec;s he received from Chandiramani% "s no sto! !ayment order was made yet (at the time of the inCuiry, defendant>a!!ellee had no notice of what had trans!ired earlier between the !laintiff>a!!ellant and Chandiramani% "ll he ;new was that the chec;s were issued to Chandiramani with whom he was he had (sic a transaction% Further on, .avid received the chec;s in Cuestion in due course because Chandiramani, who at the time the chec;s were delivered to .avid, was acting as Hang7s agent% .avid had no notice, real or constructive, cogent for him to ma;e further inCuiry as to any infirmity in the instrument(s and defect of title of the holder% $o mandate that each holder inCuire about every as!ect on how the instrument came about will unduly im!ede commercial transactions, "lthough n!&oti#'l! inst"*-!nts %o not (onstit*t! l!&#l t!n%!", th!y o+t!n t#.! th! l#(! o+ -on!y #s # -!#ns o+ #y-!nt % $he mere fact that .avid and Chandiramani ;new one another for a long time is not sufficient to establish that they connived with each other to defraud Hang% $here was no concrete !roof !resented by Hang to su!!ort her theory%
4**5

&he appellate court awarded '35,000.00 in attorne+Ss fees to 'C5@ as it found the action filed *+ Han# a#ainst said *anA to *e Tclearl+ unfounded and *aseless.U $ince 'C5@ was co%pelled to liti#ate to protect itself, then it was entitled under Article 330- of the Civil Code to attorne+Ss fees and liti#ation eBpenses.
M)3N

8ence, the instant recourse wherein petitioner su*%its the followin# issues for resolution6 a> WHE$HER $HE CHECK3 WERE D33JE. $O #REA CH"<.DR"A"<D BH #E$D$DO<ER@

b>

WHE$HER $HE "88E6E. $R"<3"C$DO< BE$WEE< #REA CH"<.DR"A"<D "<. FER<"<.O ."ID. D3 8E6D$DA"$E OR " 3CHEAE BH BO$H #RDI"$E RE3#O<.E<$3 $O 3WD<.8E #E$D$DO<ER@ WHE$HER FER<"<.O ."ID. 6"IE #REA CH"<.DR"A"<D J3P'(?,???%?? OR 2J3$ " FR"C$DO< OF $HE "AOJ<$ RE#RE3E<$D<6 HD3 3H"RE OF $HE 8OO$@ WHE$HER #RDI"$E RE3#O<.E<$3 FER<"<.O ."ID. "<. #CDB "RE E<$D$8E. $O ."A"6E3 "<. "$$OR<EH73 FEE3%

c>

d>

4*'5

At the outset, we %ust stress that this is a petition for review under Rule <5 of the )((7 Rules of Civil 'rocedure. 5t is *asic that in petitions for review under Rule <5, the ;urisdiction of this Court is li%ited to reviewin# 4uestions of law, 4uestions of fact are not entertained a*sent a showin# that the factual findin#s co%plained of are totall+ devoid of support in the record or are #larin#l+ erroneous. Given the facts in the instant case, despite petitionerSs for%ulation, we find that the followin# are the pertinent issues to *e resolved6
M)<N

a b

Whether the Court of "!!eals erred in holding herein res!ondent Fernando .avid to be a holder in due course@ and Whether the a!!ellate court committed a reversible error in awarding damages and attorney7s fees to .avid and #CDB%

:n the first issue, petitioner Han# contends that private respondent ernando David is not a holder in due course of the checAs in 4uestion. 7hile it is true that he was na%ed the pa+ee thereof, David failed to in4uire fro% Chandira%ani a*out how the latter ac4uired possession of said checAs. Given his failure to do so, it cannot *e said that David was unaware of an+ defect or infir%it+ in the title of Chandira%ani to the checAs at the ti%e of their ne#otiation. 1oreover, inas%uch as the checAs were crossed, then David should have, pursuant to our rulin# in 9ataan Cigar & Cigarette actory, Inc. v. Court of Appeals, G.R. No. (20<-, 1arch 2, )((<, 320 $CRA ,<2, *een put on #uard that the checAs were issued for a definite purpose and accordin#l+, %ade in4uiries to deter%ine if he received the checAs pursuant to that purpose. 8is failure to do so ne#ates the findin# in the proceedin#s *elow that he was a holder in due course.

inall+, the petitioner ar#ues that there is no showin# whatsoever that David #ave Chandira%ani an+ consideration of value in eBchan#e for the afore%entioned checAs. 'rivate respondent ernando David counters that the evidence on record shows that when he received the checAs, he verified their #enuineness with his *anA, and onl+ after said verification did he deposit the%. David stresses that he had no notice of previous dishonor or an+ infir%it+ that would have aroused his suspicions, the instru%ents *ein# co%plete and re#ular upon their face. David stresses that the checAs in 4uestion were cashierSs checAs. ro% the ver+ nature of cashierSs checAs, it is hi#hl+ unliAel+ that he would have suspected that so%ethin# was a%iss. David also stresses ne#otia*le instru%ents are presu%ed to have *een issued for valua*le consideration, and he who alle#es otherwise %ust controvert the presu%ption with sufficient evidence. &he petitioner failed to dischar#e this *urden, accordin# to David. 8e points out that the checAs were delivered to hi% as the pa+ee, and he tooA the% as holder and pa+ee thereof. Clearl+, he concludes, he should *e dee%ed to *e their holder in due course. 7e shall now resolve the first issue. 9ver+ holder of a ne#otia*le instru%ent is dee%ed prima facie a holder in due course. 8owever, this presu%ption arises onl+ in favor of a person who is a holder as defined in $ection )() of the Ne#otia*le 5nstru%ents "aw, %eanin# a Tpa+ee or indorsee of a *ill or note, who is in possession of it, or the *earer thereof.U
M)5N

5n the present case, it is not disputed that David was the pa+ee of the checAs in 4uestion. &he wei#ht of authorit+ sustains the view that a pa+ee %a+ *e a holder in due course. 8ence, the presu%ption that he is a prima facie holder in due course applies in his favor. 8owever, said presu%ption %a+ *e re*utted. 8ence, what is vital to the resolution of this issue is whether David tooA possession of the checAs under the conditions provided for in $ection 53 of the Ne#otia*le 5nstru%ents "aw. All the re4uisites provided for in $ection 53 %ust concur in DavidSs case, otherwise he cannot *e dee%ed a holder in due course.
M),N M)7N

7e find that the petitionerSs challen#e to DavidSs status as a holder in due course hin#es on two ar#u%ents6 /)0 the lacA of proof to show that David tendered an+ valua*le consideration for the disputed checAs> and /30 DavidSs failure to in4uire fro% Chandira%ani as to how the latter ac4uired possession of the checAs, thus resultin# in DavidSs intentional i#norance tanta%ount to *ad faith. 5n su%, petitioner posits that the last two re4uisites of $ection 53 are %issin#, there*+ preventin# David fro% *ein# considered a holder in due

course. Gnfortunatel+ for the petitioner, her ar#u%ents on this score are less than %eritorious and far fro% persuasive. irst, with respect to consideration, $ection 3< of the Ne#otia*le 5nstru%ents "aw creates a presu%ption that ever+ part+ to an instru%ent ac4uired the sa%e for a consideration or for value. &hus, the law itself creates a presu%ption in DavidSs favor that he #ave valua*le consideration for the checAs in 4uestion. 5n alle#in# otherwise, the petitioner has the onus to prove that David #ot hold of the checAs a*sent said consideration. 5n other words, the petitioner %ust present convincin# evidence to overthrow the presu%ption. :ur scrutin+ of the records, however, shows that the petitioner failed to dischar#e her *urden of proof. &he petitionerSs aver%ent that David did not #ive valua*le consideration when he tooA possession of the checAs is unsupported, devoid of an+ concrete proof to sustain it. Note that *oth the trial court and the appellate court found that David did not receive the checAs gratis, *ut instead #ave Chandira%ani G$Z2,0,000.00 as consideration for the said instru%ents. actual findin#s of the Court of Appeals are conclusive on the parties and not reviewa*le *+ this Court> the+ carr+ #reat wei#ht when the factual findin#s of the trial court are affir%ed *+ the appellate court.
M)-N M)(N M30N M3)N

$econd, petitioner fails to point an+ circu%stance which should have put David on in4uir+ as to the wh+ and wherefore of the possession of the checAs *+ Chandira%ani. David was not priv+ to the transaction *etween petitioner and Chandira%ani. 5nstead, Chandira%ani and David had a separate dealin# in which it was precisel+ Chandira%aniSs dut+ to deliver the checAs to David as pa+ee. &he evidence shows that Chandira%ani perfor%ed said tasA to the letter. 'etitioner ad%its that David tooA the step of asAin# the %ana#er of his *anA to verif+ fro% 9@&C and 94uita*le as to the #enuineness of the checAs and onl+ accepted the sa%e after *ein# assured that there was nothin# wron# with said checAs. At that ti%e, David was not aware of an+ Tstop pa+%entU order. Gnder these circu%stances, David thus had no o*li#ation to ascertain fro% Chandira%ani what the nature of the latterSs title to the checAs was, if an+, or the nature of his possession. &hus, we cannot hold hi% #uilt+ of #ross ne#lect a%ountin# to le#al a*sence of #ood faith, a*sent an+ showin# that there was so%ethin# a%iss a*out Chandira%aniSs ac4uisition or possession of the checAs. David did not close his e+es deli*eratel+ to the nature or the particulars of a fraud alle#edl+ co%%itted *+ Chandira%ani upon the petitioner, a*sent an+ Anowled#e on his part that the action in taAin# the instru%ents a%ounted to *ad faith.
M33N

@elatedl+, and we sa+ *elatedl+ since petitioner did not raise this %atter in the proceedin#s *elow, petitioner now clai%s that David should have *een put

on alert as the instru%ents in 4uestion were crossed checAs. 'ursuant to 9ataan Cigar & Cigarette actory, Inc. v. Court of Appeals, David should at least have in4uired as to whether he was ac4uirin# said checAs for the purpose for which the+ were issued, accordin# to petitionerSs su*%ission. 'etitionerSs reliance on the 9ataan Cigar case, however, is %isplaced. &he facts in the present case are not on all fours with 9ataan Cigar. 5n the latter case, the crossed checAs were ne#otiated and sold at a discount *+ the pa+ee, while in the instant case, the pa+ee did not ne#otiate further the checAs in 4uestion *ut pro%ptl+ deposited the% in his *anA account. &he Ne#otia*le 5nstru%ents "aw is silent with respect to crossed checAs, althou#h the Code of Co%%erce %aAes reference to such instru%ents. Nonetheless, this Court has taAen ;udicial co#niCance of the practice that a checA with two parallel lines in the upper left hand corner %eans that it could onl+ *e deposited and not converted into cash. &he effects of crossin# a checA, thus, relates to the %ode of pa+%ent, %eanin# that the drawer had intended the checA for deposit onl+ *+ the ri#htful person, i.e., the pa+ee na%ed therein. 5n 9ataan Cigar, the rediscountin# of the checA *+ the pa+ee Anowin#l+ violated the avowed intention of crossin# the checA. &hus, in acceptin# the cross checAs and pa+in# cash for the%, despite the warnin# of the crossin#, the su*se4uent holder could not *e considered in #ood faith and thus, not a holder in due course. :ur rulin# in 9ataan Cigar reiterates that in +e (campo & Co. v. &atc>alian.
M32N M3<N M35N

&he factual circu%stances in +e (campo and in 9ataan Cigar are not present in this case. or here, there is no dispute that the crossed checAs were delivered and dul+ deposited *+ David, the pa+ee na%ed therein, in his *anA account. 5n other words, the purpose *ehind the crossin# of the checAs was satisfied *+ the pa+ee. 'roceedin# to the issue of da%a#es, petitioner %erel+ ar#ues that respondents David and 'C5@ are not entitled to da%a#es, attorne+Ss fees, and costs of suit as *oth acted in *ad faith towards her, as shown *+ her version of the facts which #ave rise to the instant case. Respondent David counters that he was %aliciousl+ and uncere%oniousl+ dra##ed into this suit for reasons which have nothin# to do with hi% at all, *ut which arose fro% petitionerSs failure to receive her share of the profit pro%ised her *+ Chandira%ani. 1oreover, in filin# this suit which has lasted for over a decade now, the petitioner deprived David of the ri#htful en;o+%ent of the two checAs, to which he is entitled, under the law, co%pelled hi% to hire the services of counsel to vindicate his ri#hts, and su*;ected hi% to social hu%iliation and *es%irched reputation, thus har%in# his standin# as a person

of #ood repute in the *usiness co%%unit+ of 'a%pan#a. David thus contends that it is *ut proper that %oral da%a#es, attorne+Ss fees, and costs of suit *e awarded hi%. or its part, respondent 'C5@ stresses that it was esta*lished *+ *oth the trial court and the appellate court that it was needlessl+ dra##ed into this case. 8ence, no error was co%%itted *+ the appellate court in declarin# 'C5@ entitled to attorne+Ss fees as it was co%pelled to liti#ate to protect itself. 7e have thorou#hl+ perused the records of this case and find no reason to disa#ree with the findin# of the trial court, as affir%ed *+ the appellate court, that6 4.5efendant .avid is entitled to 4the5 award of moral damages as he has been needlessly and unceremoniously dragged into this case which should have been brought only between the !laintiff and defendant Chandiramani%
4)(5

A careful readin# of the findin#s of facts %ade *+ *oth the trial court and appellate court clearl+ shows that the petitioner, in includin# David as a part+ in these proceedin#s, is *arAin# up the wron# tree. 5t is apparent fro% the factual findin#s that David had no dealin#s with the petitioner and was not priv+ to the a#ree%ent of the latter with Chandira%ani. 1oreover, an+ loss which the petitioner incurred was apparentl+ due to the acts or o%issions of Chandira%ani, and hence, her recourse should have *een a#ainst hi% and not a#ainst David. @+ needlessl+ dra##in# David into this case all *ecause he and Chandira%ani Anew each other, the petitioner not onl+ undul+ dela+ed David fro% o*tainin# the value of the checAs, *ut also caused hi% anBiet+ and in;ured his *usiness reputation while waitin# for its outco%e. Recall that under Article 33)7 of the Civil Code, %oral da%a#es include %ental an#uish, serious anBiet+, *es%irched reputation, wounded feelin#s, social hu%iliation, and si%ilar in;ur+. 8ence, we find the award of %oral da%a#es to *e in order.
M37N

&he appellate court liAewise found that liAe David, 'C5@ was dra##ed into this case on unfounded and *aseless #rounds. @oth were thus co%pelled to liti#ate to protect their interests, which %aAes an award of attorne+Ss fees ;ustified under Article 330- /30 of the Civil Code. 8ence, we rule that the award of attorne+Ss fees to David and 'C5@ was proper.
M3-N

4H R FOR , the instant petition is D9N59D. &he assailed decision of the Court of Appeals, dated 1arch 35, )(((, in CA-G.R. CV No. 532(- is A 5R19D. Costs a#ainst the petitioner. SO OR/ R /.

G.R. No. 81#22 F69ruary %, 1990 GR GORIO /. CAN /A, JR., petitioner, vs. HON. COURT OF APP ALS, HON. R GIONAL TRIAL COURT OF /A;AO, -RANCH I), IN; STORS FINANC CORPORATION, !o>n& 9u'>n6'' un!6r (<6 na86 an! '(y=6, GFNCFINANC G, AN/ -U NA; NTURA GU SON, respondents. &regorio +. Caneda, Jr. for and in >is own be>alf as petitioner. A9C Law (ffices for respondent *C9 inance.

PARAS, J.: &his is a petition for certiorari and prohi*ition with preli%inar+ in;unction seeAin# the cancellation of the entr+ of ;ud#%ent in CA-G.R. CV No. 022(0 entitled "5nvestors inance Corporation, doin# *usiness under the na%e and st+le " NC@ 5NANC9", 'laintiff v. @uenaventura Gueson and .ohn Doe, Defendants and &hird 'art+ 'laintiffs-Appellees v. Gre#orio Caneda, .r., &hird 'art+ Defendant-Appellant." 5t appears on record that so%eti%e on Nove%*er -, )(77, @uenaventura Gueson for value received, eBecuted a pro%issor+ note for the su% of ')-,(,0.00 in favor of Gre#orio Caneda, .r. pro%isin# to pa+ a %onthl+ install%ent of '7(0.00 for 3< %onths with )<= interest per annum> that to secure the o*li#ation Gueson eBecuted a chattel %ort#a#e and used a &o+ota .iff+ ;eep as a collateral> that it is eBpressl+ stipulated in the pro%issor+ note and chattel %ort#a#e that default in the pa+%ent of an+ install%ent will %aAe the entire o*li#ation due and de%anda*le. &his pro%issor+ note and chattel %ort#a#e was assi#ned *+ Gre#orio Caneda in favor of 5nvestors inance Corporation / NC@0. Defendant Gueson defaulted in his o*li#ation and as of $epte%*er 3<, )(-0 had an outstandin# *alance of ')),320.00 eBclusive of interest and other char#es. Despite repeated de%ands defendant Gueson alle#edl+ failed and refused to pa+ the entire o*li#ation. 8ence, NC@ on Dece%*er, )(-0 filed a co%plaint for replevin andIor su% of %one+ a#ainst @uenaventura Gueson and .ohn Doe. As relief, NC@ pra+ed for the seiCure of the &o+ota .iff+ ;eep and its deliver+ to it, the pa+%ent of 35= of the total a%ount due as attorne+?s fees plus )0= thereof as li4uidated da%a#es and costs. 5n the alternative NC@ also pra+ed for the pa+%ent of the su% of ')),320.00 with interest at )5= per annum to *e co%puted fro% $epte%*er 35, )(7- until full+ paid /,ollo, pp. )3<-)370. :n .anuar+ 3, )(-), @uenaventura Gueson filed his answer with third part+ co%plaint. 5n his answer Gueson interposed the defense that he did not receive an+ value for the pro%issor+ note he eBecuted as he %erel+ acco%%odated the real de*tor Gre#orio Caneda, .r.> that as the acco%%odated part+ Caneda, .r. eBecuted a deed of sale in Gueson?s favor coverin# the .iff+ ;eep su*;ect %atter of the chattel %ort#a#e and he also eBecuted a counter deed of sale in favor of Caneda, .r.> that with the consent of NC@, Caneda .r. eBecuted an "undertaAin#" where*+ he *ound hi%self to pa+ and assu%e the o*li#ation stipulated in the pro%issor+ note and chattel %ort#a#e> that NC@ is not a holder in due course of the pro%issor+ note nor an assi#nee in #ood faith> that as the real de*tor Caneda, .r. is pri%aril+ lia*le to NC@> that *ecause of Caneda?s un;ustifia*le refusal to honor his o*li#ation Gueson suffered da%a#es. 8e, therefore, pra+ed that Caneda, .r. *e ordered to pa+ directl+ NC@ and in the event that he *e re4uired to pa+ NC@ that he should *e rei%*ursed *+ Caneda, .r. As counterclai%, he also asAed for the pa+%ent of actual and %oral da%a#es, attorne+?s fees and liti#ation eBpenses /,ollo, p. )<,0.

:n 1arch )-, )(-), Gre#orio D. Caneda, .r. filed his answer to the third part+ co%plaint. 8e denied that he is the real de*tor or the part+ acco%%odated. 8e alle#ed that he had not incurred an+ %onetar+ o*li#ation in favor of NC@. 8e pointed out that Gueson a#reed to *u+ his .iff+ ;eep, *ut since he has no cash, the+ a#reed that Gueson will appl+ for financin# with NC@> that he eBecuted a deed of sale on the condition that if the financin# will not *e approved the sale shall not %aterialiCe and Gueson shall deed *acA the ;eep to hi%> that since the loan was approved the "counter deed of sale" was rendered %oot and acade%ic> that Gueson was not relieved of his o*li#ation to NC@ since the "undertaAin#" was "with recourse to @uenaventura Gueson in case of default"> that under $ection )( of the Ne#otia*le 5nstru%ents "aw, Gueson is still lia*le to NC@ even assu%in# that he is %erel+ an acco%%odation part+. Accordin#l+, he pra+ed for the dis%issal of the co%plaint a#ainst hi% /,ollo, pp. )2<-)25> )<,-)<70. :n .une )-, )(-), the pre-trial conference was ter%inated as no settle%ent could *e reached *+ the parties /,ollo, p. )2<0. &rial ensued thereafter. :n e*ruar+ )(, )(-3 hearin#, the .ohn Doe na%ed on the co%plaint was identified as Gre#orio Caneda, .r. Gpon NC@?$ %otion the third part+ co%plaint was treated as a cross-clai% and the pleadin# filed *+ Caneda, .r. was considered as an answer to the co%plaint and cross-clai% / ,ollo, pp. 7-)00. 5n said hearin# NC@ presented @ethoven $ur, its ield Collector as its lone witness who identified the pro%issor+ note /9Bhi*it A0 and the chattel %ort#a#e /9Bhi*it @0 and testified on the transaction. @uenaventura Gueson also testified in the hearin# and identified the undated counter deed of sale /9Bhi*it )0 and the undertaAin# /9Bhi*it 30. 5n his testi%on+ he acco%%odated Att+. Gre#orio Caneda, .r. upon the proddin# of the Rivera spouses, his town%ates. 8e also pointed out that the t+pewritten words "with recourse to @uenaventura Gueson in case of default? appearin# in 9Bhi*it 3 was not there when Att+. Caneda, .r. si#ned the docu%ent> that the ;eep and its re#istration papers were alwa+s in the possession of Att+. Caneda, .r. / ,ollo, pp. )<-)50. Gueson for%all+ offered his eBhi*its and rested his case on .une 3, )(-7. @ecause of Caneda?s failure to attend the hearin#, who instead filed an e@Aparte %otion for postpone%ent despite the previous warnin# of the Court that the :cto*er 33, )(-3 hearin# could not *e %oved as the previous scheduled hearin# for the reception of Caneda, .r.?s evidence was postponed at his instance, the trial court in its order dated :cto*er 33, )(-3 declared that Caneda waived his ri#ht to present evidence and the case would *e decided on the evidence on record. Caneda filed a %otion for reconsideration, *ut it was denied in the order of the trial court dated Nove%*er 33, )(-3. &he a*ove incident was elevated to the Court of Appeals. @ut for lacA of %erit the petition for certiorari and prohi*ition filed *+ Caneda .r. was dis%issed on 1arch )5, )(-2 *+ the Appellate Court in AC G.R. $p. No. )5330. &hereafter, Caneda, .r. filed a petition for review on certiorari, *ut this Court in G.R. No. ,<5,7 resolved on Au#ust )5, )(-2 to den+ the petition for lacA of %erit / Ibid.0. :n Nove%*er 3,, )(-2, the trial court rendered its decision H on the %ain case, findin# that @uenaventura Gueson was %erel+ an acco%%odation part+ for the *enefit of Caneda, .r.> that there was novation in the for% of su*stitution of de*tors when Gre#orio Caneda, .r. eBecuted the undertaAin# assu%in# the lia*ilit+ of @. Gueson in favor of NC@> that the phrase "7ith recourse to @uenaventura Gueson in case of default" found in the undertaAin# was inserted onl+ after Caneda and NC@ had alread+ si#ned the undertaAin# and without the Anowled#e of @. Gueson and that Caneda was in *ad faith in tr+in# to evade pa+%ent of a ;ustl+-secured le#al o*li#ation. &he dispositive portion of said decision reads6 789R9 :R9, pre%ises dul+ considered, ;ud#%ent is here*+ rendered

5. (n t>e complaint6 a0 Dis%issin# the sa%e as a#ainst DefendantICross-clai%ant @uenaventura Gueson> *0 :rderin# DefendantICross-defendant Gre#orio D. Caneda, .r., to pa+ plaintiff the su% of 9"9V9N &8:G$AND &7: 8GNDR9D &85R&H /')),320.000 '9$:$, 'hilippine Currenc+, with interest at the rate of )3= per annum co%puted fro% $epte%*er 35, )(7- until full+ paid> plus the su% e4uivalent to 35= of the total a%ount due and pa+a*le as and for attorne+?s fees, includin# costs of pre%iu% of the Replevin @ond, and filin# fees. 55. (n t>e Counterclaim and CrossAclaim of +efendant0CrossAClaimant 9uenaventura &ueson6 a0 :rderin# the defendantIcross-defendant Gre#orio D. Caneda, .r., to pa+ the defendantIcross-clai%ant @uenaventura Gueson the a%ount of &9N &8:G$AND /')0,000.000 '9$:$, 'hilippine Currenc+, as %oral da%a#es he suffered esta*lished under his Counterclai%> *0 :rderin# the defendantIcross defendant Gre#orio D. Caneda, .r., to pa+ defendantIcross-clai%ant @uenaventura Gueson the su% of 5V9 &8:G$AND /'5,000.000 '9$:$, 'hilippine Currenc+, as eBe%plar+ da%a#es> and c0 :rderin# the defendantIcross-defendant Gre#orio D. Caneda, .r., to pa+ defendant-cross-clai%ant @uenaventura Gueson the su% of &8R99 &8:G$AND /'2,000.000 '9$:$, 'hilippine Currenc+, as and for attorne+?s fees plus &7: &8:G$AND /'3,000.000 '9$:$, 'hilippine Currenc+, for eBpenses of liti#ation. inall+, said defendantIcross-defendant Gre#orio D. Caneda, .r., is here*+ ordered to pa+ the costs of the suit. 5& 5$ $: :RD9R9D. ro% the a*ove decision, Caneda, .r. interposed an appeal. 5n its decision HH in CA-G.R. CV No. 022(0 pro%ul#ated on Nove%*er 3-, )(-,, the &hird Division of the Court of Appeals affir%ed the decision of the trial court with costs a#ainst appellant Caneda, .r. / ,ollo, pp. )<<-)530. :n .une 3,)(-7, the Court of Appeals %ade an entr+ of ;ud#%ent of its decision in CA-G.R. CV No. 022(0 as it *eca%e final and eBecutor+ on Dece%*er 3-, )(-, /,ollo, p. ))0. :ri#inal records of the case were re%anded to the trial court on .une 2, )(-7 /,ollo, p. ))70. :n .une )-, )(-7, Caneda .r. filed with the Court of Appeals a %otion to cancel entr+ of ;ud#%ent alle#in# that the appellate court?s decision is not +et final and eBecutor+ as he has not received a cop+ of the said decision. 5n its resolution dated .ul+ 32, )(-7, the Court of Appeals denied said %otion.

8ence, this petition. &he %ain issue in this case is whether or not a cop+ of the Nove%*er 3-, )(-, decision of the Court of Appeals has *een properl+ served on herein petitioner and therefore has *eco%e final and eBecutor+. After all the re4uired pleadin#s had *een filed, the petition was #iven due course in the resolution of .ul+ 35, )(-- /,ollo, p. )020 and the parties were re4uired to su*%it si%ultaneousl+ their respective %e%oranda. 'rivate respondent Gueson filed his %e%orandu% on :cto*er 2,)(-- / ,ollo, p. ))30 while NC@ waived its ri#ht to file %e%orandu% /,ollo, p. )7<0. 'etitioner filed his %e%orandu% on :cto*er )0, )(-- /,ollo, p. )5<0. 'etitioner clai%ed a%on# others that the Court of Appeals ar*itraril+ denied his %otion to cancel entr+ of ;ud#%ent, despite the fact that on .une 2, )(-7, he learned for the first ti%e that a decision dated Nove%*er 3-, )(-, was rendered *+ the Court of Appeals *ecause he was not furnished a cop+ of said decision which was delivered instead *+ letter carrier Anastacio Ar*iCo of the 'ost :ffice of Davao Cit+ on Dece%*er )), )(-, at a*out )36)0 noon to a certain @o+ Re+es, petitioner?s nei#h*or, livin# ;ust in front of his office as shown *+ the record *ooA of said letter carrier and the certification of Cresenciano C. &a#aCa, 'ost%aster V5 /AnneB "@"> ,ollo, p. (50. &o date, @o+ Re+es who %oved with his fa%il+ to Cateel, Davao del Norte a*out siB %onths fro% the filin# of the petition, has not delivered to petitioner su*;ect decision. 'etitioner ar#ued that @o+ Re+es is not authoriCed to receive his %ails so that the ne#li#ence of Re+es is not *indin# on hi%. 8ence, he clai%ed that the Court of Appeals? denial of his %otion to cancel entr+ of ;ud#%ent is tanta%ount to a denial of his funda%ental ri#ht to due process of law and pra+ed for6 /a0 the cancellation of the entr+ of ;ud#%ent> /*0 the settin# aside of the order dated .ul+ 32, )(-7 of the Court of Appeals> and /c0 the deliver+ to hi% of a cop+ of the decision dated Nove%*er 3-, )(-,, so that he can appeal. 'endin# the deter%ination of the instant petition he also pra+ed for the issuance of a restrainin# order or a writ of preli%inar+ in;unction to prohi*it the enforce%ent of the decision of the trial court as affir%ed *+ the Court of Appeals. :n the other hand, while respondents pointed out that previous su%%ons and other pleadin#s were dul+ served in petitioner?s office, the+ were not a*le to show that the cop+ of the decision in 4uestion was properl+ served on the petitioner as re4uired *+ $ection -, Rule )< of the Rules of Court. 5n fact, petitioner?s clai% that as appearin# in the re#istr+ *ooA of the @ureau of 'ost as well as the Certification of the 'ost%aster that the cop+ of the Court of Appeals? decision was delivered to @o+ Re+es, his nei#h*or, was not successfull+ re*utted. 5nstead respondents resorted to suppositions and sur%ises clai%in# that it is unthinAa*le that @o+ Re+es, petitioner?s nei#h*or, "livin# ;ust ri#ht in front of the office" which office also serve as petitioner?s residence would not deliver the %ail %atter containin# the decision to petitioner, considerin# the fact that no incident has *een cited that would show an+ %otive wh+ @o+ Re+es did not infor% hi% or deliver to hi% the %ail containin# the decision> and that it is i%possi*le to *elieve that petitioner failed to receive the %ail containin# the decision when all %ails sent to hi% *+ the Court of Appeals were received *+ hi% at the sa%e address. inall+, private respondent concluded that there is no practical *enefit *+ #ivin# due course to the petition / ,ollo, pp. ,<-,70. @e that as it %a+, suppositions and sur%ises are not evidence sufficient to show co%pliance with the Rules. 8ence, as ruled *+ this Court under si%ilar. circu%stances where service was %ade at an address which was neither the "residence" nor the "dwellin# house" of the petitioner nor his office or re#ular place of *usiness at the ti%e of service and served on a person who is not the proper person to who% the papers should *e left, the sa%e is not the service conte%plated *+ the Rules. &he statutor+ re4uire%ents of su*stituted service %ust *e followed strictl+, faithfull+ and full+ and an+

su*stituted service other than that authoriCed *+ statute is considered ineffective / il%erco Co%%ercial Co., 5nc. v. 5AC, )<( $CRA )(<-)(, M)(-7N0. 5n fine, Caneda?s %otion to cancel the assailed entr+ of ;ud#%ent should have *een #ranted *+ the Court of Appeals *ut to re%and this case to respondent Court for that purpose alone, after which the sa%e will *e returned a#ain to this Court on appeal or review, would *e an eBercise that would onl+ dela+ the final ad;udication of the liti#ation. &here are sufficient facts on record not to %ention the findin#s of the trial court and the Court of Appeals *+ which the %erits of the appeal can *e resolved. 7ell-settled is the rule that re%andin# of a case for the reception of evidence is not necessar+ if the $upre%e Court could resolve the dispute *ased on the records *efore it /Ruisu%*in# v. Court of Appeals, )33 $CRA 702 M)(-2N> @oard of "i4uidators v. Lulueta, ))5 $CRA 5<- M)(-3N0. 1ore so in this case, where a decision has alread+ *een pro%ul#ated and in fact read+ for appeal. &hus, it was held that where there is enou#h *asis for the Court to end the *asic controvers+ *etween the parties here and now, procedural steps can *e dispensed with, which would not an+wa+ affect su*stantiall+ the %erits of their respective clai%s /Velasco v. Court of Appeals, (5 $CRA ,3),33 M)(-0N0. As to the %erits of the %ain case, it is undisputed that @uenaventura Gueson eBecuted a pro%issor+ note in favor of petitioner Caneda, secured *+ a chattel %ort#a#e on a &o+ota .iff+ ;eep as collateral> which pro%issor+ note and chattel %ort#a#e were assi#ned *+ Caneda in favor of NC@ evidentl+ to secure his o*li#ation with said co%pan+, with the Anowled#e and consent of Gueson. &he records also show that when NC@ tried to collect fro% Gueson, Caneda consented and affiBed his si#nature on an "undertaAin#" there*+ acAnowled#in# inde*tedness in favor of NC@. &he principal 4uestion that arises is the effect of the assi#n%ent on the o*li#ations of Gueson and Caneda to NC@. As *etween Gueson and Caneda, it is o*vious that whether private a#ree%ent or understandin# transpired *etween the% is *indin# on the% alone and not on NC@ whose onl+ concern in the whole transaction is the repa+%ent of the loan it has eBtended. As re#ard NC@, *oth the trial court and the Court of Appeals are of the view that Caneda is the real de*tor of said co%pan+ and Gueson is onl+ an acco%%odation part+ of Caneda. 8owever, the trial court concluded that there was novation in the for% of su*stitution of de*tors when Caneda eBecuted the undertaAin# assu%in# the lia*ilit+ of Gueson in favor of NC@. Novation has *een defined as the eBtin#uish%ent of an o*li#ation *+ a su*se4uent one which ter%inates it, either *+ chan#in# its o*;ect or principal conditions, referred to as o*;ective or real novation or *+ su*stitutin# a new de*tor in place of the old one, or *+ su*ro#atin# a third person to the ri#hts of the creditor, also called as su*;ective or personal novation /Cochin#+an, .r. v. R ! @ $uret+ and 5nsurance Co., 5nc., )5) $CRA 2<( M)(-7N0. @ut as eBplained *+ this Court, novation is never presu%ed> it %ust *e eBplicitl+ stated or there %ust *e a %anifest inco%pati*ilit+ *etween the old and the new o*li#ations in ever+ aspect. &he test of inco%pati*ilit+ *etween two o*li#ations or contracts, is whether or not the+ can stand to#ether, each one havin# an independent eBistence. 5f the+ cannot, the+ are inco%pati*le, and the later o*li#ation novates the first /@isa+a "and &ransportation Co., 5nc. v. $ancheC, )52 $CRA 52<-525 M)(-7N0. As correctl+ o*served *+ the Court of Appeals, there is no novation, whether eBpress or i%plied. &here is no eBpress novation since the undertaAin# eBecuted on :cto*er 3, )(-0 does not state in clear ter%s that the pro%issor+ note and chattel %ort#a#e eBecuted *+ Gueson is eBtin#uished and in lieu thereof the undertaAin# will *e su*stituted. Neither is there an i%plied novation since the pro%issor+ note and chattel %ort#a#e are not inco%pati*le with the undertaAin#.

Neither is there su*stitution of de*tors. 'etitioner Caneda in eBecutin# the undertaAin# assu%in# the lia*ilit+ with NC@, %erel+ confir%ed that he is the real or principal de*tor while Gueson in si#nin# the pro%issor+ note and the chattel %ort#a#e acco%%odated Caneda in his o*li#ation with NC@. :therwise stated, he *eca%e a suret+. &hus, this Court has ruled, that a person who has si#ned the instru%ent as %aAer, drawer, acceptor, or indorser, without receivin# value therefor, and for the purpose of lendin# his na%e to so%e other person is lia*le on the instru%ent to a holder for value, notwithstandin# the fact that such holder at the ti%e of taAin# the instru%ent Anew hi% to *e onl+ an acco%%odation part+. Nonetheless, after pa+in# the holder, such acco%%odation part+ has the ri#ht to o*tain rei%*urse%ent fro% the part+ acco%%odated, since the relation *etween the% is in effect that of principal and suret+, the acco%%odation part+ *ein# the suret+ /'eople v. 1anie#o, )<$CRA 2) M)(-7N0. "iAewise, it is no defense to state on the part of either Gueson or Caneda that the+ did not receive an+ value for the pro%issor+ note eBecuted, *oth clai%in# to *e onl+ an acco%%odation part+. As held *+ this Court, a third person advances the face value of the note to the acco%%odated part+ at the ti%e of the creation of the note, the consideration for the note as re#ards its %aAer is the %one+ advanced to the acco%%odated part+, and it cannot *e said that the note is lacAin# in consideration as to the acco%%odatin# part+ ;ust *ecause he hi%self received none of the %one+. 5t is enou#h that value was #iven for the note at the ti%e of its creation /Acuna v. Veloso and Eavier, 50 'hil. 3<)-3<3 M)(37N0. 5n resu%e, NC@ can #o a#ainst *oth Caneda, the principal de*tor and Gueson as the suret+ or either of the%. @ut the lower court erred in dis%issin# the clai% a#ainst Gueson. NC@ did not however, appeal there*+ renderin# this case %oot as a#ainst Gueson. 5t does not however, follow that NC@ cannot recover the full a%ount fro% Caneda *ein# the acco%%odated part+. @+ not appealin# the decision of the lower court, NC@ %erel+ opted to recover its credit fro% Caneda and waived its ri#ht to recover fro% Gueson. 5n liAe %anner, the disputed phrase "with recourse to @uenaventura Gueson in case of default" is i%%aterial insofar as the lia*ilit+ of Caneda is concerned. 5f at all, said phrase %erel+ confir%s the fact that Gueson is %erel+ an acco%%odation part+ and will not a*solve Caneda, the principal de*tor, fro% pa+%ent of the inde*tedness with NC@. After a careful stud+ of the records, no plausi*le reason can *e found to distur* the findin#s and conclusions of the Court of Appeals. 'R915$9$ C:N$5D9R9D, the appeal of petitioner is here*+ A"":79D, *ut considerin# this case on the %erits, the assailed decision of the Court of Appeals of Nove%*er 3-, )(-, %aAin# Caneda, .r. lia*le to NC@, is here*+ A 5R19D. $: :RD9R9D.

G.R. No. 96160 Jun6 17, 1992 ST LCO 0AR. TING CORPORATION, petitioner, vs. HON. COURT OF APP ALS an! ST L4 L/ CORPORATION OF TH PHILIPPIN S, INC., respondent.

NAR;ASA, c.J.3 $telco 1arAetin# Corporation is en#a#ed in the distri*ution and sale to the pu*lic of structural steel *ars. 1 :n seven /70 different occasions in $epte%*er and :cto*er, )(-0, it sold to RH" Construction, 5nc. 4uantities of steels *ars of various siCes and rolls of G.5. wire. &hese *ars and wire were delivered at different places at the indication of RH" Construction, 5nc. &he a##re#ate price for the purchases was ')3,,-5(.,). Althou#h the correspondin# invoices issued *+ $&9"C: stipulated that RH" pa+ "C:D" /cash on deliver+0, the latter %ade no pa+%ents for the construction %aterials thus ordered and delivered despite insistent de%ands for pa+%ent *+ the for%er. :n April <, )(-), RH" #ave to Ar%stron#, 5ndustries F descri*ed *+ $&9"C: as its "sister corporation" and "%anufacturin# ar%" 2 F a checA drawn a#ainst 1etro*anA in the a%ount of ')3,,)3(.-,, nu%*ered 7,52-0 and dated April <, )(-). &hat checA was a co%pan+ checA of another corporation, $teelweld Corporation of the 'hilippines, si#ned *+ its 'resident, 'eter Rafael "i%son, and its Vice-'resident, Arte%io &orres. &he checA was issued *+ "i%son at the *ehest of his friend, Ro%eo H. "i%, 'resident of RH". Ro%eo "i% had asAed "i%son, for financial assistance, and the latter had a#reed to #ive "i% a checA onl+ *+ wa+ of acco%%odation, "onl+ as #uarant+ *ut not to pa+ for an+thin#." # 7h+ the checA was %ade out in the a%ount of ')3,,)3(.-, is not eBplained. An+wa+, the checA was actuall+ issued in said a%ount of ')3,, )3(.-,, and as alread+ stated, was #iven *+ R.H. "i% to Ar%stron# 5ndustries, $ in pa+%ent of an o*li#ation. 7hen the latter deposited the checA at its *anA, it was dishonored *ecause "drawn a#ainst insufficient funds." % 7hen so deposited, the checA *ore two/30 endorse%ents, that of "RH" Construction," followed *+ that of "Ar%stron# 5ndustries." 6 :n account of the dishonor of 1etro*anA ChecA No. 7,52-0, and on co%plaint of Ar%stron# 5ndustries /throu#h a 1r. Houn#0, Rafael "i%son and Arte%io &orres were char#ed in the Re#ional &rial Court of 1anila with a violation of 9atas Pambansa 9ilang --. 7 &he+ were ac4uitted in a decision rendered on .une 3-, )(-< "on the #round that the checA in 4uestion was not issued *+ the drawer "to appl+ on account for value," it *ein# %erel+ for acco%%odation purposes. 8 &he ;ud#%ent however conditioned the ac4uittal with the followin# pronounce%ent6 &his is not however to release $teelweld Corporation fro% its lia*ilit+ under $ec. 3( of the Ne#otia*le 5nstru%ents "aw for havin# issued it for the acco%%odation of Ro%eo "i%. 9leven %onths or so later F and so%e four /<0 +ears after issuance of the checA in 4uestion F in 1a+, )(-5, $&9"C: filed with the Re#ional &rial Court at Caloocan Cit+ a civil co%plaint 9 a#ainst *oth RH" and $&99"79"D for the recover+ of the valued of the steel *ars and wire sold to and delivered to RH" /as alread+ narrated0 in the a%ount of ')3,,)3(.-,, "plus )-= interest fro%

Au#ust 30, )(-0 . . . /and0 35= of the total a%ount sou#ht to *e recovered as and *+ wa+ of attorne+?s fees . . . ." 10 A%on# the alle#ations of its co%plaint was that 1etro*anA ChecA No. 7,52-0 a*ove %entioned had *een #iven to it in pa+%ent of RH"?s inde*tedness, dul+ indorsed *+ R.H. "i%. 11 A preli%inar+ attach%ent was issued *+ the trial court on the *asis of the aver%ents of the co%plaint *ut was shortl+ dissolved upon the filin# of a counter-*ond *+ $&99"79"D. RH" could no lon#er *e located and could not *e served with su%%ons. 12 5t never appeared. :nl+ $&99"79"D filed an answer, under date of .ul+ ),, )(-5. said pleadin#, it specificall+ denied the facts alle#ed in the co%plaint, the truth, accordin# to $teelweld, *ein# *asicall+ that F

1#

5n

)0 $&9"C: "is a co%plete stran#er to it>" it had "not entered into an+ transaction or *usiness dealin# of an+ Aind" with $&9"C:, the transactions descri*ed in the co%plaint havin# *een solel+ and eBclusivel+ *etween the plaintiff and RH" Construction> 30 the checA in 4uestion was "onl+ #iven to a certain R. "i% to *e used as collateral for another o*li#ation . . . /*ut0 in *reach of his a#ree%ent /"i%0 utiliCed and ne#otiated the checA for another purpose. . . .> 20 nevertheless, the checA "is wholl+ inoperative since . . . $teelweld . . . did not issue it for an+ valua*le consideration either to R. "i% or to the plaintiff not to %ention also the fact that the said plaintiff failed to co%pl+ with the re4uire%ents of the law to hold the said defendant /$&99"79"D0 lia*le . . ." &rial ensued upon these issues, after which ;ud#%ent was rendered on .une 3,, )(-,. 1$ &he ;ud#%ent sentenced "the defendant $teelweld Corporation to pa+ to . . . /$telco 1arAetin# Corporation0 the a%ount of ')3,,)3(.-, with le#al rate of interest fro% 1a+ (, )(-5, when this case was instituted until full+ paid, plus another su% e4uivalent to 35= of the total a%ount due as and for attorne+?s fees . . . 1% &hat disposition was ;ustified in the ;ud#%ent as follows6 16 &here is no 4uestion, then, that as far as an+ co%%ercial transaction is concerned *etween plaintiff and defendant $teelweld no such transaction ever occurred. :rdinaril+, under civil law rules, there havin# *een no transaction *etween the% involvin# the purchase of certain %erchandise there would *e no privit+ of contract *etween the%, and plaintiff will have no ri#ht to sue the defendant for pa+%ent of said %erchandise for the si%ple reason that the defendant did not order the%, such less receive the%. @ut we have here a case where the defendant $teelweld thru its 'resident 'eter Rafael "i%son ad%itted to have issued a checA pa+a*le to cash in favor of his friend Ro%eo "i% who was the 'resident of RH" Construction *+ wa+ of acco%%odation. Gnder the Ne#otia*le 5nstru%ents "aw an acco%%odation part+ is lia*le. $ec. 3(. Liability of an accommodation party. F An acco%%odation part+ is one who has si#ned the instru%ent as %aAer, drawer, acceptor, or indorser, without receivin# value therefor, and for the purpose of lendin# his na%e to so%e other person. $uch a person is lia*le on the instru%ent to a holder for value notwithstandin# such holder at the ti%e of taAin# the instru%ent Anew hi% to *e onl+ an acco%%odation part+.

ro% this adverse ;ud#%ent $&99"79"D appealed to the Court of Appeals 17 and there succeeded in reversin# the ;ud#%ent. @+ Decision pro%ul#ated on 1a+ 3(, )((0, 18 the Court of Appeals 19 ordered "the co%plaint a#ainst appellant /$&99"79"D0 D5$15$$9D> /and the appellee, $&9"C:0 to pa+ appellant the su% of ')5,000.00 as attorne+?s fees and cost of liti#ation, the suit . . . /*ein#0 a *aseless one that dra##ed appellant in court and caused it to incur attorne+?s fees and eBpense of liti#ation. $&9"C:?s %otion for reconsideration was denied *+ the Appellate &ri*unal?s resolution dated Nove%*er )2, )((0.20 &he Court stressed that F . . . as far as $teelweld is concerned, there was no co%%ercial transaction *etween said appellant and appellee. 1oreover, there is no evidence that appellee $telco 1arAetin# *eca%e a holder for value. Nowhere in the checA itself does the na%e of $telco 1arAetin# appear as pa+ee, indorsee or depositor thereof. inall+, appellee?s co%plaint is for the collection of the unpaid accounts for deliver+ of steels *ars and construction %aterials. 5t havin# *een esta*lished that appellee had no co%%ercial transaction with appellant $telco, appellee had no cause of action a#ainst said appellant. $&9"C: appealed to this Court in accordance with Rule <5 of the Rules of Court. 5n this Court it seeAs to %aAe the followin# points in connection with its plea for the overthrow of the Appellate &ri*unal?s aforesaid decision, vi:.6 )0 said decision is "not in accord with law and ;urisprudence>" 30 "$&9"C: is a "holder" within the %eanin# of the Ne#otia*le 5nstru%ents "aw>" 20 "$&9"C: is a holder in due course of 1etro*anA ChecA No. 7,52-0 . . . /and hence0 holds the sa%e free fro% personal or e4uita*le defense>" and <0 "Ne#otiation in *reach of faith is a personal defense . . . /and hence0 not effective as a#ainst a holder in due course." &he points are not well taAen. &he crucial 4uestion is whether or not $&9"C: ever *eca%e a >older in due course of ChecA No. 7,52-0, a *earer instru%ent, within the conte%plation of the Ne#otia*le 5nstru%ents "aw. 5t never did. $&9"C: evidentl+ places %uch reliance on the pronounce%ent of the Re#ional &rial Court in Cri%inal Case No. ,,57), 21 that the ac4uittal of the two /30 accused /"i%son and &orres0 did not operate "to release $teelweld Corporation fro% its lia*ilit+ under $ec. 3( of the Ne#otia*le 5nstru%ents "aw for havin# issued . . . /the checA0 for the acco%%odation of Ro%eo "i%." &he cited provision reads as follows6 $ec. 3(. Liability of accommodation party. F An acco%%odation part+ is one who has sin#ed the instru%ent as %aAer, drawer, acceptor, or indorser, without receivin# valued therefor, and for the purpose of lendin# his na%e to so%e other person. $uch a person is lia*le on the instru%ent to a holder for value, notwithstandin# such holder, at the ti%e of taAin# the instru%ent, Anew hi% to *e onl+ an acco%%odation part+.

5t is noteworth+ that the &rial Court?s pronounce%ent containin# reference to said $ection 3( did not specif+ to w>om $&99"79"D, as acco%%odation part+, is supposed to *e lia*le> and certain it is that neither said pronounce%ent nor an+ other part of the ;ud#%ent of ac4uittal declared it lia*le to $&9"C:.
"A holder in due course," sa+s the law, the followin# conditions6
22

"is a holder who has taAen the instru%ent under

/a0 &hat is co%plete and re#ular upon its face> /*0 &hat he *eca%e the holder of it *efore it was overdue, and without notice that it had *een previousl+ dishonored, if such was the fact> /c0 &hat he tooA it in #ood faith and for value> /d0 &hat at the ti%e it was ne#otiated to hi%, he had no notice of an+ infir%it+ in the instru%ent or defect in the title of the persons ne#otiatin# it. &o *e sure, as re#ards an accommodation party /such as $&99"79"D0, the fourth condition, i.e., lacA of notice of an+ infir%it+ in the instru%ents or defect in title of the persons ne#otiatin# it, has no application. &his is *ecause $ection 3( of the law a*ove 4uoted preserves the ri#ht of recourse of a "holder for value" a#ainst the acco%%odation part+ notwithstandin# that "such holder, at the ti%e of taAin# the instru%ent, Anew hi% to *e onl+ an acco%%odation part+." 2# Now, $&9"C: theoriCes that it should *e dee%ed a "holder for value" of $&99"79"D?s ChecA No. 7,52-0 *ecause the record shows it to have *een in "actual possession" thereof> otherwise, it "could not have presented, %arAed and introduced /said checA0 in evidence . . . *efore the court a <uo." "@esides," it adds, the checA in 4uestion was presented *+ $&9"C: to the drawee *anA for pa+%ent throu#h Ar%stron# 5ndustries, the %anufacturin# ar% of $&9"C: and its sister co%pan+." 2$ &he trou*le is, there is no evidence whatever that $&9"C:?s possession of ChecA No. 7,52-0 ever dated *acA to na+ ti%e before the instru%ent?s present%ent and dishonor. &here is no evidence whatsoever that the checA was ever #iven to it, or indorsed to it in an+ %anner or for% in pa+%ent of an o*li#ation or as securit+ for an o*li#ation, or for an+ other purpose *efore it was presented for pa+%ent. :n the contrar+, the factual findin# of the Court of Appeals, which *+ traditional precept is nor%all+ conclusive on this Court, is that $&9"C: never *eca%e a holder for value and that "/n0owhere in the checA itself does the na%e of $telco 1arAetin# appear as pa+ee, indorsee or depositor thereof." 2% 7hat the record shows is that6 /)0 the $&99"79"D co%pan+ checA in 4uestion was #iven *+ its president to R.H. "i%> /30 it was #iven onl+ *+ wa+ of acco%%odation, to *e "used as collateral for another o*li#ation>" /20 in *reach of the a#ree%ent, however, R.H. "i% indorsed the checA to Ar%stron# in pa+%ent of o*li#ation> /<0 Ar%stron# deposited the checA to its account, after indorsin# it> /50 the checA was dishonored. &he record does not show an+ intervention or participation *+ $&9"C: in an+ %anner of for% whatsoever in these transactions, or an+ co%%unication of an+ sort *etween $&99"79"D and $&9"C:, or *etween either of the% and Ar%stron# 5ndustries, at an+ ti%e *efore the dishonor of the checA. &he record does show that after the checA had *een deposited and dishonored, $&9"C: ca%e into possession of it in so%e wa+, and was a*le, several +ears after the dishonor of the checA, to #ive it in evidence at the trial of the civil case it had instituted a#ainst the drawers of the checA /"i%son and

&orres0 and RH". @ut, as alread+ pointed out, possession of a ne#otia*le instru%ent after present%ent and dishonor, or pa+%ent, is utterl+ inconse4uential> it does not %aAe the possessor a holder for value within the %eanin# of the law> it #ives rise to no lia*ilit+ on the part of the %aAer or drawer and indorsers. 5t is clear fro% the relevant circu%stances that $&9"C: cannot *e dee%ed a holder of the checA for value. 5t does not %eet two of the essential re4uisites prescri*ed *+ the statute. 5t did not *eco%e "the holder of it *efore it was overdue, and without notice that it had *een previousl+ dishonored," and it did not taAe the checA "in #ood faith and for value." 26 Neither is there an+ evidence whatever that Ar%stron# 5ndustries, to who% R.H. "i% ne#otiated the checA accepted the instru%ent and atte%pted to encash it in *ehalf, and as a#ent of $&9"C:. :n the contrar+, the indications are that Ar%stron# was reall+ the intended pa+ee of the checA and was the part+ actuall+ in;ured *+ its dishonor> it was after all its representative /a 1r. Houn#0 who instituted the cri%inal prosecution of the drawers, "i%son and &orres, al*eit unsuccessfull+. &he petitioner has failed to show an+ sufficient cause for %odification or reversal of the challen#ed ;ud#%ent of the Court of Appeals which, on the contrar+, appears to *e entirel+ in accord with the facts and the applica*le law. 789R9 :R9, the petition is D9N59D and the Decision of the Court of Appeals in CA-G.R. CV No. )2<)- is A 5R19D in toto. Costs a#ainst petitioner. $: :RD9R9D

G.R. No. L11%126

NoE6896r #0, 1961

;IC NT R. / OCA0PO " CO., plaintiff-appellee, vs. ANITA GATCHALIAN, T AL., defendants-appellants. Vicente ormoso, Jr. for plaintiffAappellee. ,eyes and Pangala;gan for defendantsAappellants. LA-RA/OR, J.: Appeal fro% a ;ud#%ent of the Court of irst 5nstance of 1anila, 8on. Conrado 1. Velas4ueC, presidin#, sentencin# the defendants to pa+ the plaintiff the su% of ',00, with le#al interest fro% $epte%*er )0, )(52 until paid, and to pa+ the costs. &he action is for the recover+ of the value of a checA for ',00 pa+a*le to the plaintiff and drawn *+ defendant Anita C. Gatchalian. &he co%plaint sets forth the checA and alle#es that plaintiff received it in pa+%ent of the inde*tedness of one 1atilde GonCales> that upon receipt of said checA, plaintiff #ave 1atilde GonCales ')5-.35, the difference *etween the face value of the checA and 1atilde GonCales? inde*tedness. &he defendants ad%it the eBecution of the checA *ut the+ alle#e in their answer, as affir%ative defense, that it was issued su*;ect to a condition, which was not fulfilled, and that plaintiff was #uilt+ of #ross ne#li#ence in not taAin# steps to protect itself. At the ti%e of the trial, the parties su*%itted a stipulation of facts, which reads as follows6 'laintiff and defendants throu#h their respective undersi#ned attorne+?s respectfull+ su*%it the followin# A#reed $tipulation of acts> irst. F &hat on or a*out - $epte%*er )(52, in the evenin#, defendant Anita C. Gatchalian who was then interested in looAin# for a car for the use of her hus*and and the fa%il+, was shown and offered a car *+ 1anuel GonCales who was acco%panied *+ 9%il a;ardo, the latter *ein# personall+ Anown to defendant Anita C. Gatchalian> "econd. F &hat 1anuel GonCales represented to defend Anita C. Gatchalian that he was dul+ authoriCed *+ the owner of the car, :ca%po Clinic, to looA for a *u+er of said car and to ne#otiate for and acco%plish said sale, *ut which facts were not Anown to plaintiff> #>ird. F &hat defendant Anita C. Gatchalian, findin# the price of the car 4uoted *+ 1anuel GonCales to her satisfaction, re4uested 1anuel GonCales to *rin# the car the da+ followin# to#ether with the certificate of re#istration of the car, so that her hus*and would *e a*le to see sa%e> that on this re4uest of defendant Anita C. Gatchalian, 1anuel GonCales advised her that the owner of the car will not *e willin# to #ive the certificate of re#istration unless there is a showin# that the part+ interested in the purchase of said car is read+ and willin# to %aAe such purchase and that for this purpose 1anuel GonCales re4uested defendant Anita C. Gatchalian to #ive hi% /1anuel GonCales0 a checA which will *e shown to the owner as evidence of *u+er?s #ood faith in the intention to purchase the said car, the said checA to *e for safeAeepin# onl+ of 1anuel GonCales and to *e returned to defendant Anita C. Gatchalian the followin# da+ when 1anuel GonCales *rin#s the car and the certificate of re#istration, *ut which facts were not Anown to plaintiff>

ourt>. F &hat rel+in# on these representations of 1anuel GonCales and with his assurance that said checA will *e onl+ for safeAeepin# and which will *e returned to said defendant the followin# da+ when the car and its certificate of re#istration will *e *rou#ht *+ 1anuel GonCales to defendants, *ut which facts were not Anown to plaintiff, defendant Anita C. Gatchalian drew and issued a checA, 9Bh. "@"> that 1anuel GonCales eBecuted and issued a receipt for said checA, 9Bh. ")"> ift>. F &hat on the failure of 1anuel GonCales to appear the da+ followin# and on his failure to *rin# the car and its certificate of re#istration and to return the checA, 9Bh. "@", on the followin# da+ as previousl+ a#reed upon, defendant Anita C. Gatchalian issued a "$top 'a+%ent :rder" on the checA, 9Bh. "2", with the drawee *anA. $aid "$top 'a+%ent :rder" was issued without previous notice on plaintiff not *ein# Anow to defendant, Anita C. Gatchalian and who further%ore had no reason to Anow checA was #iven to plaintiff> "i@t>. F &hat defendants, *oth or either of the%, did not Anow personall+ 1anuel GonCales or an+ %e%*er of his fa%il+ at an+ ti%e prior to $epte%*er )(52, *ut that defendant 8ipolito Gatchalian is personall+ ac4uainted with V. R. de :ca%po> "event>. F &hat defendants, *oth or either of the%, had no arran#e%ents or a#ree%ent with the :ca%po Clinic at an+ ti%e prior to, on or after ( $epte%*er )(52 for the hospitaliCation of the wife of 1anuel GonCales and neither or *oth of said defendants had assu%ed, eBpressl+ or i%pliedl+, with the :ca%po Clinic, the o*li#ation of 1anuel GonCales or his wife for the hospitaliCation of the latter> %ig>t. F &hat defendants, *oth or either of the%, had no o*li#ation or lia*ilit+, directl+ or indirectl+ with the :ca%po Clinic *efore, or on ( $epte%*er )(52> *int>. F &hat 1anuel GonCales havin# received the checA 9Bh. "@" fro% defendant Anita C. Gatchalian under the representations and conditions herein a*ove specified, delivered the sa%e to the :ca%po Clinic, in pa+%ent of the fees and eBpenses arisin# fro% the hospitaliCation of his wife> #ent>. F &hat plaintiff for and in consideration of fees and eBpenses of hospitaliCation and the release of the wife of 1anuel GonCales fro% its hospital, accepted said checA, appl+in# '<<).75 /9Bhi*it "A"0 thereof to pa+%ent of said fees and eBpenses and deliverin# to 1anuel GonCales the a%ount of ')5-.35 /as per receipt, 9Bhi*it "D"0 representin# the *alance on the a%ount of the said checA, 9Bh. "@"> %levent>. F &hat the acts of acceptance of the checA and application of its proceeds in the %anner specified a*ove were %ade without previous in4uir+ *+ plaintiff fro% defendants6 #welft>. F &hat plaintiff filed or caused to *e filed with the :ffice of the Cit+ iscal of 1anila, a co%plaint for estafa a#ainst 1anuel GonCales *ased on and arisin# fro% the acts of said 1anuel GonCales in pa+in# his o*li#ations with plaintiff and receivin# the cash *alance of the checA, 9Bh. "@" and that said co%plaint was su*se4uentl+ dropped> #>irteent>. F &hat the eBhi*its %entioned in this stipulation and the other eBhi*its su*%itted previousl+, *e considered as parts of this stipulation, without necessit+ of for%all+ offerin# the% in evidence>

789R9 :R9, it is %ost respectfull+ pra+ed that this a#reed stipulation of facts *e ad%itted and that the parties hereto *e #iven fifteen da+s fro% toda+ within which to su*%it si%ultaneousl+ their %e%orandu% to discuss the issues of law arisin# fro% the facts, reservin# to either part+ the ri#ht to su*%it repl+ %e%orandu%, if necessar+, within ten da+s fro% receipt of their %ain %e%oranda. /pp. 3)-35, Defendant?s Record on Appeal0. No other evidence was su*%itted and upon said stipulation the court rendered the ;ud#%ent alread+ alluded a*ove. 5n their appeal defendants-appellants contend that the checA is not a ne#otia*le instru%ent, under the facts and circu%stances stated in the stipulation of facts, and that plaintiff is not a holder in due course. 5n support of the first contention, it is ar#ued that defendant Gatchalian had no intention to transfer her propert+ in the instru%ent as it was for safeAeepin# %erel+ and, therefore, there was no deliver+ re4uired *+ law /$ection ),, Ne#otia*le 5nstru%ents "aw0> that assu%in# for the saAe of ar#u%ent that deliver+ was not for safeAeepin# %erel+, deliver+ was conditional and the condition was not fulfilled. 5n support of the contention that plaintiff-appellee is not a holder in due course, the appellant ar#ues that plaintiff-appellee cannot *e a holder in due course *ecause there was no ne#otiation prior to plaintiff-appellee?s ac4uirin# the possession of the checA> that a holder in due course presupposes a prior part+ fro% whose hands ne#otiation proceeded, and in the case at *ar, plaintiff-appellee is the pa+ee, the %aAer and the pa+ee *ein# ori#inal parties. 5t is also clai%ed that the plaintiff-appellee is not a holder in due course *ecause it ac4uired the checA with notice of defect in the title of the holder, 1anuel GonCales, and *ecause under the circu%stances stated in the stipulation of facts there were circu%stances that *rou#ht suspicion a*out GonCales? possession and ne#otiation, which circu%stances should have placed the plaintiff-appellee under the dut+, to in4uire into the title of the holder. &he circu%stances are as follows6 &he checA is not a personal checA of 1anuel GonCales. /'ara#raph Ninth, $tipulation of acts0. 'laintiff could have in4uired wh+ a person would use the checA of another to pa+ his own de*t. urther%ore, plaintiff had the "%eans of Anowled#e" inas%uch as defendant 8ipolito Gatchalian is personall+ ac4uainted with V. R. de :ca%po /'ara#raph $iBth, $tipulation of acts.0. &he %aAer Anita C. Gatchalian is a co%plete stran#er to 1anuel GonCales and Dr. V. R. de :ca%po /'ara#raph $iBth, $tipulation of acts0. &he %aAer is not in an+ %anner o*li#ated to :ca%po Clinic nor to 1anuel GonCales. /'ar. 7, $tipulation of acts.0 &he checA could not have *een intended to pa+ the hospital fees which a%ounted onl+ to '<<).75. &he checA is in the a%ount of ',00.00, which is in eBcess of the a%ount due plaintiff. /'ar. )0, $tipulation of acts0. 5t was necessar+ for plaintiff to #ive 1anuel GonCales chan#e in the su% ')5-.35 /'ar. )0, $tipulation of acts0. $ince 1anuel GonCales is the part+ o*li#ed to pa+, plaintiff should have *een %ore cautious and war+ in acceptin# a piece of paper and dis*ursin# cold cash. &he checA is pa+a*le to *earer. 8ence, an+ person who holds it should have *een su*;ected to in4uiries. 9V9N 5N A @ANP, C89CP$ AR9 N:& CA$89D 75&8:G& 5NRG5RH R:1 &89 @9AR9R. &he sa%e in4uiries should have *een %ade *+ plaintiff. /Defendantsappellants? *rief, pp. 53-520

Answerin# the first contention of appellant, counsel for plaintiff-appellee ar#ues that in accordance with the *est authorit+ on the Ne#otia*le 5nstru%ents "aw, plaintiff-appellee %a+ *e considered as a holder in due course, citin# @rannan?s Ne#otia*le 5nstru%ents "aw, ,th edition, pa#e 353. :n this issue @rannan holds that a pa+ee %a+ *e a holder in due course and sa+s that to this effect is the #reater wei#ht of authorit+, thus6 7hether the pa+ee %a+ *e a holder in due course under the N. 5. "., as he was at co%%on law, is a 4uestion upon which the courts are in serious conflict. &here can *e no dou*t that a proper interpretation of the act read as a whole leads to the conclusion that a pa+ee %a+ *e a holder in due course under an+ circu%stance in which he %eets the re4uire%ents of $ec. 53. &he ar#u%ent of 'rofessor @rannan in an earlier edition of this worA has never *een successfull+ answered and is here repeated. $ection )() defines "holder" as the pa+ee or indorsee of a *ill or note, who is in possession of it, or the *earer thereof. $ec. 53 defendants defines a holder in due course as "a holder who has taAen the instru%ent under the followin# conditions6 ). &hat it is co%plete and re#ular on its face. 3. &hat he *eca%e the holder of it *efore it was overdue, and without notice that it had *een previousl+ dishonored, if such was the fact. 2. &hat he tooA it in #ood faith and for value. <. &hat at the ti%e it was ne#otiated to hi% he had no notice of an+ infir%it+ in the instru%ent or defect in the title of the person ne#otiatin# it." $ince "holder", as defined in sec. )(), includes a pa+ee who is in possession the word holder in the first clause of sec. 53 and in the second su*section %a+ *e replaced *+ the definition in sec. )() so as to read "a holder in due course is a pa+ee or indorsee who is in possession," etc. /@rannan?s on Ne#otia*le 5nstru%ents "aw, ,th ed., p. 5<20. &he first ar#u%ent of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in due course. 5f it is such a holder in due course, it is i%%aterial that it was the pa+ee and an i%%ediate part+ to the instru%ent. &he other contention of the plaintiff is that there has *een no ne#otiation of the instru%ent, *ecause the drawer did not deliver the instru%ent to 1anuel GonCales with the intention of ne#otiatin# the sa%e, or for the purpose of #ivin# effect thereto, for as the stipulation of facts declares the checA was to re%ain in the possession 1anuel GonCales, and was not to *e ne#otiated, *ut was to serve %erel+ as evidence of #ood faith of defendants in their desire to purchase the car *ein# sold to the%. Ad%ittin# that such was the intention of the drawer of the checA when she delivered it to 1anuel GonCales, it was no fault of the plaintiff-appellee drawee if 1anuel GonCales delivered the checA or ne#otiated it. As the checA was pa+a*le to the plaintiff-appellee, and was entrusted to 1anuel GonCales *+ Gatchalian, the deliver+ to 1anuel GonCales was a deliver+ *+ the drawer to his own a#ent> in other words, 1anuel GonCales was the a#ent of the drawer Anita Gatchalian insofar as the possession of the checA is concerned. $o, when the a#ent of drawer 1anuel GonCales ne#otiated the checA with the intention of #ettin# its value fro% plaintiff-appellee, ne#otiation tooA place throu#h no fault of the plaintiff-appellee, unless it can *e shown that the plaintiff-appellee should *e considered as havin# notice of the defect in the possession of the holder 1anuel GonCales. :ur resolution of this issue leads us to a consideration of the last 4uestion presented *+ the appellants, i.e., whether the plaintiff-appellee %a+ *e considered as a holder in due course. $ection 53, Ne#otia*le 5nstru%ents "aw, defines holder in due course, thus6

A holder in due course is a holder who has taAen the instru%ent under the followin# conditions6 /a0 &hat it is co%plete and re#ular upon its face> /*0 &hat he *eca%e the holder of it *efore it was overdue, and without notice that it had *een previousl+ dishonored, if such was the fact> /c0 &hat he tooA it in #ood faith and for value> /d0 &hat at the ti%e it was ne#otiated to hi% he had no notice of an+ infir%it+ in the instru%ent or defect in the title of the person ne#otiatin# it. &he stipulation of facts eBpressl+ states that plaintiff-appellee was not aware of the circu%stances under which the checA was delivered to 1anuel GonCales, *ut we a#ree with the defendantsappellants that the circu%stances indicated *+ the% in their *riefs, such as the fact that appellants had no o*li#ation or lia*ilit+ to the :ca%po Clinic> that the a%ount of the checA did not correspond eBactl+ with the o*li#ation of 1atilde GonCales to Dr. V. R. de :ca%po> and that the checA had two parallel lines in the upper left hand corner, which practice %eans that the checA could onl+ *e deposited *ut %a+ not *e converted into cash F all these circu%stances should have put the plaintiff-appellee to in4uir+ as to the wh+ and wherefore of the possession of the checA *+ 1anuel GonCales, and wh+ he used it to pa+ 1atilde?s account. 5t was pa+ee?s dut+ to ascertain fro% the holder 1anuel GonCales what the nature of the latter?s title to the checA was or the nature of his possession. 8avin# failed in this respect, we %ust declare that plaintiff-appellee was #uilt+ of #ross ne#lect in not findin# out the nature of the title and possession of 1anuel GonCales, a%ountin# to le#al a*sence of #ood faith, and it %a+ not *e considered as a holder of the checA in #ood faith. &o such effect is the consensus of authorit+. 5n order to show that the defendant had "Anowled#e of such facts that his action in taAin# the instru%ent a%ounted to *ad faith," it is not necessar+ to prove that the defendant Anew the eBact fraud that was practiced upon the plaintiff *+ the defendant?s assi#nor, it *ein# sufficient to show that the defendant had notice that there was so%ethin# wron# a*out his assi#nor?s ac4uisition of title, althou#h he did not have notice of the particular wron# that was co%%itted. 'aiAa v. 'err+, 335 1ass. 5,2, ))< N.9. -20. 5t is sufficient that the *u+er of a note had notice or Anowled#e that the note was in so%e wa+ tainted with fraud. 5t is not necessar+ that he should Anow the particulars or even the nature of the fraud, since all that is re4uired is Anowled#e of such facts that his action in taAin# the note a%ounted *ad faith. :CarA 1otor Co. v. 8orton /1o. App.0, )(, $.7. 2(5. Accord. Davis v. irst Nat. @anA, 3, AriC. ,3), 33( 'ac. 2(). "i*ert+ *onds stolen fro% the plaintiff were *rou#ht *+ the thief, a *o+ fifteen +ears old, less than five feet tall, i%%ature in appearance and *earin# on his face the sta%p a de#enerate, to the defendants? clerA for sale. &he *o+ stated that the+ *elon#ed to his %other. &he defendants paid the *o+ for the *onds without an+ further in4uir+. 8eld, the plaintiff could recover the value of the *onds. &he ter% ?*ad faith? does not necessaril+ involve furtive %otives, *ut %eans *ad faith in a co%%ercial sense. &he %anner in which the defendants conducted their "i*ert+ "oan depart%ent provided an eas+ wa+ for thieves to dispose of their plunder. 5t was a case of "no 4uestions asAed." Althou#h #ross ne#li#ence does not of itself constitute *ad faith, it is evidence fro% which *ad faith %a+ *e inferred. &he circu%stances thrust the dut+ upon the defendants to %aAe further in4uiries and the+ had no ri#ht to shut their e+es deli*eratel+ to o*vious facts. 1orris v. 1uir, ))) 1isc. Rep. 72(, )-) N.H. $upp.

()2, affd. in %e%o., )() App. Div. (<7, )-) N.H. $upp. (<5." /pp. ,<0-,<3, @rannan?s Ne#otia*le 5nstru%ents "aw, ,th ed.0. &he a*ove considerations would see% sufficient to ;ustif+ our rulin# that plaintiff-appellee should not *e allowed to recover the value of the checA. "et us now eBa%ine the eBpress provisions of the Ne#otia*le 5nstru%ents "aw pertinent to the %atter to find if our rulin# confor%s thereto. $ection 53 /c0 provides that a holder in due course is one who taAes the instru%ent "in #ood faith and for value>" $ection 5(, "that ever+ holder is dee%ed pri%a facie to *e a holder in due course>" and $ection 53 /d0, that in order that one %a+ *e a holder in due course it is necessar+ that "at the ti%e the instru%ent was ne#otiated to hi% "he had no notice of an+ . . . defect in the title of the person ne#otiatin# it>" and lastl+ $ection 5(, that ever+ holder is dee%ed prima facieto *e a holder in due course. 5n the case at *ar the rule that a possessor of the instru%ent is prima faciea holder in due course does not appl+ *ecause there was a defect in the title of the holder /1anuel GonCales0, *ecause the instru%ent is not pa+a*le to hi% or to *earer. :n the other hand, the stipulation of facts indicated *+ the appellants in their *rief, liAe the fact that the drawer had no account with the pa+ee> that the holder did not show or tell the pa+ee wh+ he had the checA in his possession and wh+ he was usin# it for the pa+%ent of his own personal account F show that holder?s title was defective or suspicious, to sa+ the least. As holder?s title was defective or suspicious, it cannot *e stated that the pa+ee ac4uired the checA without Anowled#e of said defect in holder?s title, and for this reason the presu%ption that it is a holder in due course or that it ac4uired the instru%ent in #ood faith does not eBist. And havin# presented no evidence that it ac4uired the checA in #ood faith, it /pa+ee0 cannot *e considered as a holder in due course. 5n other words, under the circu%stances of the case, instead of the presu%ption that pa+ee was a holder in #ood faith, the fact is that it ac4uired possession of the instru%ent under circu%stances that should have put it to in4uir+ as to the title of the holder who ne#otiated the checA to it. &he *urden was, therefore, placed upon it to show that notwithstandin# the suspicious circu%stances, it ac4uired the checA in actual #ood faith. &he rule applica*le to the case at *ar is that descri*ed in the case of 8oward National @anA v. 7ilson, et al., (, Vt. <2-, )30 At. --(, -(<, where the $upre%e Court of Ver%ont %ade the followin# dis4uisition6 'rior to the Ne#otia*le 5nstru%ents Act, two distinct lines of cases had developed in this countr+. &he first had its ori#in in Gill v. Cu*itt, 2 @. ! C. <,,, )0 9. ". 3)5, where the rule was distinctl+ laid down *+ the court of Pin#?s @ench that the purchaser of ne#otia*le paper %ust eBercise reasona*le prudence and caution, and that, if the circu%stances were such as ou#ht to have eBcited the suspicion of a prudent and careful %an, and he %ade no in4uir+, he did not stand in the le#al position of a *ona fide holder. &he rule was adopted *+ the courts of this countr+ #enerall+ and see% to have *eco%e a fiBed rule in the law of ne#otia*le paper. "ater in Good%an v. 8arve+, < A. ! 9. -70, 2) 9. C. ". 2-), the 9n#lish court a*andoned its for%er position and adopted the rule that nothin# short of actual *ad faith or fraud in the purchaser would deprive hi% of the character of a *ona fide purchaser and let in defenses eBistin# *etween prior parties, that no circu%stances of suspicion %erel+, or want of proper caution in the purchaser, would have this effect, and that even #ross ne#li#ence would have no effect, eBcept as evidence tendin# to esta*lish *ad faith or fraud. $o%e of the A%erican courts adhered to the earlier rule, while others followed the chan#e inau#urated in Good%an v. 8arve+. &he 4uestion was *efore this court in Roth v. Colvin, 23 Vt. )35, and, on full consideration of the 4uestion, a rule was adopted in har%on+ with that announced in Gill v. Cu*itt, which has *een adhered to in su*se4uent cases, includin# those cited a*ove. $tated *riefl+, one line of cases includin# our own had adopted the test of the reasona*l+ prudent %an and the other that of actual #ood faith. 5t would see% that it was the

intent of the Ne#otia*le 5nstru%ents Act to har%oniCe this disa#ree%ent *+ adoptin# the latter test. &hat such is the view #enerall+ accepted *+ the courts appears fro% a recent review of the cases concernin# what constitutes notice of defect. @rannan on Ne#. 5ns. "aw, )-7-30). &o effectuate the #eneral purpose of the act to %aAe unifor% the Ne#otia*le 5nstru%ents "aw of those states which should enact it, we are constrained to hold /contrar+ to the rule adopted in our for%er decisions0 that ne#li#ence on the part of the plaintiff, or suspicious circu%stances sufficient to put a prudent %an on in4uir+, will not of the%selves prevent a recover+, *ut are to *e considered %erel+ as evidence *earin# on the 4uestion of *ad faith. $ee G. ". 2))2, 2)73, where such a course is re4uired in construin# other unifor% acts. 5t co%es to this then6 7hen the case has taAen such shape that the plaintiff is called upon to prove hi%self a holder in due course to *e entitled to recover, he is re4uired to esta*lish the conditions entitlin# hi% to standin# as such, includin# #ood faith in taAin# the instru%ent. 5t devolves upon hi% to disclose the facts and circu%stances attendin# the transfer, fro% which #ood or *ad faith in the transaction %a+ *e inferred. 5n the case at *ar as the pa+ee ac4uired the checA under circu%stances which should have put it to in4uir+, wh+ the holder had the checA and used it to pa+ his own personal account, the dut+ devolved upon it, plaintiff-appellee, to prove that it actuall+ ac4uired said checA in #ood faith. &he stipulation of facts contains no state%ent of such #ood faith, hence we are forced to the conclusion that plaintiff pa+ee has not proved that it ac4uired the checA in #ood faith and %a+ not *e dee%ed a holder in due course thereof. or the fore#oin# considerations, the decision appealed fro% should *e, as it is here*+, reversed, and the defendants are a*solved fro% the co%plaint. 7ith costs a#ainst plaintiff-appellee.

G.R. No. L11%#80

S6@(6896r #0, 1960

CHAN 4AN, plaintiff-appellant, vs. TAN .I0 an! CH N SO, defendants-appellees. !anuel +omingo for appellant. C.!. de los ,eyes for appellees. - NG2ON, J.: &his suit to collect eleven checAs totallin# '<,3(0.00 is here for decision *ecause it involves no issue of fact. $uch checAs pa+a*le to "cash or *earer" and drawn *+ defendant &an Pi% /the other defendant is her hus*and0 upon the 94uita*le @anAin# Corporation, were all presented for pa+%ent *+ Chan 7an to the drawee *anA, *ut the+ "were all dishonored and returned to hi% unpaid due to insufficient funds andIor causes attri*uta*le to the drawer." At the hearin# of the case, in the 1anila court of first instance, the plaintiff did not taAe the witness stand. 8is attorne+, however, testified onl+ to identif+ the checAs F which are 9Bhi*its A to P F plus the letters of de%and upon defendants. :n the other hand, &an Pi% declared without contradiction that the checAs had *een issued to two persons na%ed 'inon# and 1u+ for so%e shoes the for%er had pro%ised to %aAe and "were intended as %ere receipts". 5n view of such circu%stances, the court declined to order pa+%ent for two principal reasons6 /a0 plaintiff failed to prove he was a holder in due course, and /*0 the checAs *ein# crossed checAs should not have *een deposited instead with the *anA %entioned in the crossin#. 5t %a+ *e stated in this connection, that defendants asserted a counterclai%, the court dis%issed it for failure of proof, and fro% such dis%issal the+ did not appeal. &he onl+ issue is, therefore, the plaintiff?s ri#ht to collect on the eleven co%%ercial docu%ents. &he Ne#otia*le 5nstru%ents "aw re#ulatin# the issuance of ne#otia*le checAs, the ri#hts and the lia*ilities arisin# therefro%, does not %ention "crossed checAs". Art. 5<) of the Code of Co%%erce refers to such instru%ents. ) &he *ills of 9Bchan#e Act of 9n#land of )--3, contains several provisions a*out the%, so%e of which are 4uoted in the %ar#in. 3 5n the P>ilippine *ational 9an? vs. Culueta, )0) 'hil., )07)> 55 :ff. GaC., 333, we applied so%e provisions of said @ills of 9Bchan#e Act *ecause the Ne#otia*le "aw, ori#inatin# fro% 9n#land and codified in the Gnited $tates, per%its resort thereto in %atters not covered *+ it and local le#islation. 2 9i#ht of the checAs here in 4uestion *ear across their face two parallel transverse lines *etween which these words are written6 non-ne#otia*le F China @anAin# Corporation. &hese checAs have, therefore, *een crossed speciall+ to the China @anAin# Corporation, and should have *een presented for pa+%ent *+ China @anAin#, and not *+ Chan 7an. < 5nas%uch as Chan 7an did present the% for pa+%ent hi%self F the 1anila court said F there was no proper present%ent, and the lia*ilit+ did not attach to the drawer.

7e a#ree to the le#al pre%ises and conclusion. 5t %ust *e re%e%*ered, at this point, that the drawer in drawin# the checA en#a#ed that "on due presentment, the checA would *e paid, and that if it *e dishonored . . . he will pa+ the a%ount thereof to the holder". 5 7herefore, in the a*sence of due presentment, the drawer did not *eco%e lia*le. Nevertheless we find, on the *acAs of the checAs, endorse%ents which apparentl+ show the+ had *een deposited with the China @anAin# Corporation and were, *+ the latter, presented to the drawee *anA for collection. or instance, on the *acA of the checA 9Bhi*it A /sa%e as in 9Bh. @0, this endorse%ent appears6 or deposit to the account of 7hite 8ouse $hoe $uppl+ with the China @anAin# Corporation. and then this6 Cleared throu#h the clearin# office of Central @anA of the 'hilippines. All prior endorse%ents andIor lacA of endorse%ents #uaranteed. China @anAin# Corporation. And on the *acA of 9Bh. G6 or deposit to the credit of our account. Viuda e 8i;os de Chua Chion# 'io. 'eople?s $hoe Co%pan+. followed *+ the endorse%ent of China @anAin# Corporation as in 9Bhi*its A and @. All the crossed checAs have the "clearance" endorse%ent of China @anAin# Corporation. &hese circu%stances would see% to show deposit of the checAs with China @anAin# Corporation and su*se4uent presentation *+ the latter throu#h the clearin# office> *ut as drawee had no funds, the+ were unpaid and returned, so%e of the% sta%ped "account closed". 8ow the+ reached his hands, plaintiff did not indicate. 1ost pro*a*l+, as the trial court sur%ised, F this is not a findin# of fact F he #ot the% after t>ey >ad been t>usreturned, *ecause he presented the% in court with such "account closed" sta%ps, without *otherin# to eBplain. Naturall+ and ri#htl+, the lower court held hi% not to *e a holder in due course under the circu%stances, since he Anew, upon taAin# the% up, that the checAs had alread+ *een dishonored. , Het it does not follow as a le#al proposition, that si%pl+ *ecause he was not a holder in due course Chan 7an could not recover on the checAs. &he Ne#otia*le 5nstru%ents "aw does not provide that a holder7 who is not a holder in due course, %a+ not in an+ case, recover on the instru%ent. 5f @ purchases an overdue ne#otia*le pro%issor+ note si#ned *+ A, he is not a holder in due course> *ut he %a+ recover fro% A,- if the latter has no valid eBcuse for refusin# pa+%ent. &he onl+ disadvanta#e of holder who is not a holder in due course is that the ne#otia*le instru%ent is su*;ect to defense as if it were non- ne#otia*le.( Now what defense did the defendant &an Pi% proveQ &he lower court?s decision does not %ention an+> evidentl+ 8is 8onor had in %ind the defense pleaded in defendant?s answer, *ut thou#h it unnecessar+ to specif+, *ecause the "crossin#" and presentation incidents sufficed to *ar recover+, in his opinion.
/awp>Dl.nEt

&an Pi% ad%itted on cross-eBa%ination either that the checAs had *een issued as evidence of de*ts to 'inon# and 1u+, andIor that the+ had *een issued in pa+%ent of shoes which 'inon# had pro%ised to %aAe for her.

$ee%in# to i%pl+ that 'inon# had to %aAe the shoes, she asserted 'inon# had "pro%ised to pa+ the checAs for %e". Het she did not co%plete the idea, perhaps *ecause she was ;ust answerin# cross- 4uestions, her %ain testi%on+ havin# referred %erel+ to their counter-clai%. Needless to sa+, if it were true that the checAs had *een issued in pa+%ent for shoes that were never %ade and delivered, &an Pi% would have a #ood defense as a#ainst a holder who is not a holder in due course. )0 Considerin# the deficienc+ of i%portant details on which a fair ad;udication of the parties? ri#ht depends, we thinA the record should *e and is here*+ returned, in the interest of ;ustice, to the court *elow for additional evidence, and such further proceedin#s as are not inconsistent with this opinion. 7ith the understandin# that, as defendants did not appeal, their counterclai% %ust *e and is here*+ definitel+ dis%issed. $o ordered. Paras, C.J., Padilla, 9autista Angelo, Labrador, Concepcion, ,eyes, J.9.L., 9arrera, &utierre: +avid, Paredes and +i:on, JJ., concur.

G.R. No. L1%6169 Jun6 26, 1992 TRA; L1ON, INC., petitioner, vs. COURT OF APP ALS an! ARTURO S. 0IRAN/A, respondents. R9$:"G&5:N

F LICIANO, J.: 'etitioner &ravel-:n. 5nc. /"&ravel-:n"0 is a travel a#enc+ sellin# airline ticAets on co%%ission *asis for and in *ehalf of different airline co%panies. 'rivate respondent Arturo $. 1iranda had a revolvin# credit line with petitioner. 8e procured ticAets fro% petitioner on *ehalf of airline passen#ers and derived co%%issions therefro%. :n )< .une )(73, &ravel-:n filed suit *efore the Court of irst 5nstance /"C 5"0 of 1anila to collect on siB /,0 checAs issued *+ private respondent with a total face a%ount of '))5,000.00. &he co%plaint, with a pra+er for the issuance of a writ of preli%inar+ attach%ent and attorne+?s fees, averred that fro% 5 Au#ust )(,( to ), .anuar+ )(70, petitioner sold and delivered various airline ticAets to respondent at a total price of '37-,30).57> that to settle said account, private respondent paid various a%ounts in cash and in Aind, and thereafter issued siB /,0 postdated checAs a%ountin# to '))5,000.00 which were all dishonored *+ the drawee *anAs. &ravel-:n further alle#ed that in 1arch )(73, private respondent %ade another pa+%ent of ')0,000.00 reducin# his inde*tedness to ')05,000.00. &he writ of attach%ent was #ranted *+ the court a <uo. 5n his answer, private respondent ad%itted havin# had transactions with &ravel-:n durin# the period stipulated in the co%plaint. 'rivate respondent, however, clai%ed that he had alread+ full+ paid and even overpaid his o*li#ations and that refunds were in fact due to hi%. 8e ar#ued that he had issued the postdated checAs for purposes of acco%%odation, as he had in the past accorded si%ilar favors to petitioner. Durin# the proceedin#s, private respondent contested several ticAets alle#ed to have *een erroneousl+ de*ited to his account. 8e clai%ed rei%*urse%ent of his alle#ed over pa+%ents, plus liti#ation eBpenses, and eBe%plar+ and %oral da%a#es *+ reason of the alle#edl+ i%proper attach%ent of his properties. 5n support of his theor+ that the checAs were issued for acco%%odation, private respondent testified that he *ad issued the checAs in the na%e of &ravel-:n in order that its General 1ana#er, 9lita 1ontilla, could show to &ravel-:n?s @oard of Directors that the accounts receiva*le of the co%pan+ were still #ood. 8e further stated that 9lita 1ontilla tried to encash the sa%e, *ut that these were dishonored and were su*se4uentl+ returned to hi% after the acco%%odation purpose had *een attained. &ravel-:n?s witness, 9lita 1ontilla, on the other hand eBplained that the "acco%%odation" eBtended to &ravel-:n *+ private respondent related to situations where one or %ore of its passen#ers needed %one+ in 8on#Aon#, and upon re4uest of &ravel-:n respondent would contact his friends in 8on#Aon# to advance 8on#Aon# %one+ to the passen#er. &he passen#er then paid &ravel-:n upon his return to 1anila and which pa+%ent would *e credited *+ &ravel-:n to respondent?s runnin# account with it.

5n its decision dated 2) .anuar+ )(75, the court a <uo ordered &ravel-:n to pa+ private respondent the a%ount of '-,-(<.() representin# net overpa+%ents *+ private respondent, %oral da%a#es of ')0,000.00 for the wron#ful issuance of the writ of attach%ent and for the filin# of this case, '5,000.00 for attorne+?s fees and the costs of the suit. &he trial court ruled that private respondent?s inde*tedness to petitioner was not satisfactoril+ esta*lished and that the postdated checAs were issued not for the purpose of encash%ent to pa+ his inde*tedness *ut to acco%%odate the General 1ana#er of &ravel-:n to ena*le her to show to the @oard of Directors that &ravel-:n was financiall+ sta*le. 'etitioner filed a %otion for reconsideration that was, however, denied *+ the trial court, which in fact then increased the award of %oral da%a#es to '50,000.00. :n appeal, the Court of Appeals affir%ed the decision of the trial court, *ut reduced the award of %oral da%a#es to '30,000.00, with interest at the le#al rate fro% the date of the filin# of the Answer on 3- Au#ust )(73. 'etitioner %oved for reconsideration of the Court of Appeal?s? decision, without success. 5n the instant 'etition for Review, it is ur#ed that the postdated checAs are per se evidence of lia*ilit+ on the part of private respondent. 'etitioner further ar#ues that even assu%in# that the checAs were for acco%%odation, private respondent is still lia*le thereunder considerin# that petitioner is a holder for value. @oth the trial and appellate courts had re;ected the checAs as evidence of inde*tedness on the #round that the various state%ents of account prepared *+ petitioner did not show that 'rivate respondent had an outstandin# *alance of '))5,000.00 which is the total a%ount of the checAs he issued. 5t was pointed out that while the various eBhi*its of petitioner showed various accounta*ilities of private respondent, the+ did not satisfactoril+ esta*lish the a%ount of the outstandin# inde*tedness of private respondent. &he appellate court %ade %uch of the fact that the fi#ures representin# private respondent?s unpaid accounts found in the "$chedule of :utstandin# Account" dated 2) .anuar+ )(70 did not tall+ with the fi#ures found in the state%ent which showed private respondent?s transactions with petitioner for the +ears )(,( and )(70> that there was no satisfactor+ eBplanation as to wh+ the total outstandin# a%ount of P-F3,74-.F7 was still used as *asis in the accountin# of 7 April )(73 considerin# that accordin# to the ta*le of transactions for the +ear )(,( and )(70, the total unpaid account of private respondent a%ounted to P-48,F87.2F. 7e have, however, eBa%ined the record and it shows that the 7 April )(73 $tate%ent of Account had si%pl+ not *een updated> that if we use as *asis the fi#ure as of 2) .anuar+ )(70 which is '37-,<23.7< and fro% it deduct '2-,,2-.)7 which represents so%e of the pa+%ents su*se4uentl+ %ade *+ private respondent, the fi#ure F '32(,7(<.57 will *e o*tained. Also, the fact alone that the various state%ents of account had variances in fi#ures, si%pl+ did not %ean that private respondent had no %ore financial o*li#ations to petitioner. 5t %ust *e stressed that private respondent?s account with petitioner was a running or open one, which eBplains the var+in# fi#ures in each of the state%ents rendered as of a #iven date. &he appellate court erred in considerin# onl+ the state%ents of account in deter%inin# whether private respondent was inde*ted to petitioner under the checAs. @+ doin# so, it failed to #ive due i%portance to the %ost tellin# piece of evidence of private respondent?s inde*tedness F the checAs the%selves which he had issued.

Contrar+ to the view held *+ the Court of Appeals, this Court finds that the checAs are the all i%portant evidence of petitioner?s case> that these checAs clearl+ esta*lished private respondent?s inde*tedness to petitioner> that private respondent was lia*le thereunder. 5t is i%portant to stress that a checA which is re#ular on its face is dee%ed prima facie to have *een issued for a valua*le consideration and ever+ person whose si#nature appears thereon is dee%ed to have *eco%e a part+ thereto for value. 1 &hus, the %ere introduction of the instru%ent sued on in evidence prima facie entitles the plaintiff to recover+. urther, the rule is 4uite settled that a ne#otia*le instru%ent is presu%ed to have *een #iven or indorsed for a sufficient consideration unless otherwise contradicted and overco%e *+ other co%petent evidence. 2 5n the case at *ar, the Court of Appeals, contrar+ to these esta*lished rules, placed the *urden of provin# the eBistence of valua*le consideration upon petitioner. &his cannot *e countenanced> it was up to private respondent to show that he had indeed issued the checAs without sufficient consideration. &he Court considers that 'rivate respondent was una*le to re*ut satisfactoril+ this le#al presu%ption. 5t %ust also *e noted that those checAs were issued i%%ediatel+ after a letter de%andin# pa+%ent had *een sent to private respondent *+ petitioner &ravel-:n. &he fact that all the checAs issued *+ private respondent to petitioner were presented for pa+%ent *+ the latter would lead to no other conclusion than that these checAs were intended for encash%ent. &here is nothin# in the checAs the%selves /or in an+ other docu%ent for that %atter0 that states otherwise. 7e are una*le to accept the Court of Appeals? conclusion that the checAs here involved were issued for "acco%%odation" and that accordin#l+ private respondent %aAer of those checAs was not lia*le thereon to petitioner pa+ee of those checAs. 5n the first place, while the Ne#otia*le 5nstru%ents "aw does refer to acco%%odation transactions, no such transaction was here shown. $ection 3( of the Ne#otia*le 5nstru%ents "aw provides as follows6 $ec. 3(. Liability of accommodation party. F An acco%%odation part+ is one who has si#ned the instru%ent as %aAer, drawer, acceptor, or indorser, without receivin# value therefor, and for the purpose of lendin# his na%e to so%e other person. $uch a person is lia*le on the instru%ent to a holder for value, notwithstandin# such holder, at the ti%e of taAin# the instru%ent, Anew hi% to *e onl+ an acco%%odation part+. 5n acco%%odation transactions reco#niCed *+ the Ne#otia*le 5nstru%ents "aw, an acco%%odatin# part+ lends his credit to the acco%%odated part+, *+ issuin# or indorsin# a checA which is held *+ a pa+ee or indorsee as a holder in due course, who #ave full value therefor to the acco%%odated part+. &he latter, in other words, receives or realiCes full value which the acco%%odated part+ then %ust repa+ to the acco%%odatin# part+, unless of course the acco%%odatin# part+ intended to %aAe a donation to the acco%%odated part+. 9ut t>e accommodating party is bound on t>e c>ec? to t>e >older in due course w>o is necessarily a third part+ and is not the acco%%odated part+. 8avin# issued or indorsed the checA, the acco%%odatin# part+ has warranted to the holder in due course that he will pa+ the sa%e accordin# to its tenor. # 5n the case at *ar, &ravel-:n was pa+ee of all siB /,0 checAs, it presented these checAs for pa+%ent at the drawee *anA *ut the checAs *ounced. #ravelA(n obviously was not an accommodated partyG it reali:ed no value on t>e c>ec?s w>ic> bounced.

&ravel-:n was entitled to the *enefit of the statutor+ presu%ption that it was a holder in due course, $ that the checAs were supported *+ valua*le consideration. % 'rivate respondent %aAer of the checAs did not successfull+ re*ut these presu%ptions. &he onl+ evidence aliunde that private respondent offered was his own self-servin# uncorro*orated testi%on+. 8e clai%ed that he had issued the checAs to &ravel-:n as pa+ee to "acco%%odate" its General 1ana#er who alle#edl+ wished to show those checAs to the @oard of Directors of &ravel-:n to "prove" that &ravel-:n?s account receiva*les were so%ehow "still #ood." 5t will *e seen that this clai% was in fact a clai% that the checAs were %erel+ si%ulated, that private respondent did not intend to *ind hi%self thereon. :nl+ evidence of the clearest and %ost convincin# Aind will suffice for that purpose> 6 no such evidence was su*%itted *+ private respondent. &he latter?s eBplanation was denied *+ &ravel-:n?s General 1ana#er> that eBplanation, in an+ case, appears %erel+ contrived and 4uite hollow to us. Gpon the other hand, the "acco%%odation" or assistance eBtended to &ravel-:n?s passen#ers a*road as testified *+ petitioner?s General 1ana#er involved, not the acco%%odation transactions reco#niCed *+ the N5", *ut rather the circu%vention of then eBistin# forei#n eBchan#e re#ulations *+ passen#ers *ooAed *+ &ravel-:n, which incidentall+ involved receipt of full consideration *+ private respondent. &hus, we *elieve and so hold that private respondent %ust *e held lia*le on the siB /,0 checAs here involved. &hose checAs in the%selves constituted evidence of inde*tedness of private respondent, evidence not successfull+ overturned or re*utted *+ private respondent. $ince the checAs constitute the *est evidence of private respondent?s lia*ilit+ to petitioner &ravel-:n, the a%ount of such lia*ilit+ is the face a%ount of the checAs, reduced onl+ *+ the ')0,000.00 which &ravel-:n ad%itted in its co%plaint to have *een paid *+ private respondent so%eti%e in 1arch )((3. &he award of %oral da%a#es to 'rivate respondent %ust *e set aside, for the reason that 'etitioner?s application for the writ of attach%ent rested on sufficient *asis and no *ad faith was shown on the part of &ravel-:n. 5f an+one was in *ad faith, it was private respondent who issued *ad checAs and then pretended to have "acco%%odated" petitioner?s General 1ana#er *+ assistin# her in a supposed sche%e to deceive petitioner?s @oard of Directors and to %isrepresent &ravel-:n?s financial condition. ACC:RD5NG"H, the Court Resolved to GRAN& due course to the 'etition for Review on Certiorari and to R9V9R$9 and $9& A$5D9 the Decision dated 33 :cto*er )(-0 and the Resolution of 32 .anuar+ )(-) of the Court of Appeals, as well as the Decision dated 2) .anuar+ )(75 of the trial court, and to enter a new decision re4uirin# private respondent Arturo $. 1iranda to pa+ to petitioner &ravel-:n the a%ount of ')05,000.00 with le#al interest thereon fro% )< .une )(73, plus ten percent /)0=0 of the total a%ount due as attorne+?s fees. Costs a#ainst 'rivate respondent.

-AN. OF TH PHILIPPIN ISLAN/S, petitioner, vs. COURT OF APP ALS an! - NJA0IN C. NAPI2A, respondents. / ,NAR S1SANTIAGO, J.3 &his is a petition for review on certiorari of the Decision of the Court of Appeals in CA-G.R. CV No. 272(3 affir%in# in toto that of the Re#ional &rial Court of 1aAati, @ranch )2(, which dis%issed the co%plaint filed *+ petitioner @anA of the 'hilippine 5slands a#ainst private respondent @en;a%in C. NapiCa for su% of %one+. $daad
M)N M3N

CISION

:n $epte%*er 2, )(-7, private respondent deposited in orei#n Currenc+ Deposit Gnit / CDG0 $avin#s Account No. 03--)-7 which he %aintained in petitioner *anASs @uendia Avenue 9Btension @ranch, Continental @anA 1ana#erSs ChecA No. 000)<757 dated Au#ust )7, )(-<, pa+a*le to "cash" in the a%ount of &wo &housand ive 8undred Dollars /Z3,500.000 and dul+ endorsed *+ private respondent on its dorsal side. 5t appears that the checA *elon#ed to a certain 8enr+ Chan who went to the office of private respondent and re4uested hi% to deposit the checA in his dollar account *+ wa+ of acco%%odation and for the purpose of clearin# the sa%e. 'rivate respondent acceded, and a#reed to deliver to Chan a si#ned *lanA withdrawal slip, with the understandin# that as soon as the checA is cleared, *oth of the% would #o to the *anA to withdraw the a%ount of the checA upon private respondentSs presentation to the *anA of his pass*ooA.
M2N M<N M5N

Gsin# the *lanA withdrawal slip #iven *+ private respondent to Chan, on :cto*er 32, )(-<, one Ru*en Ga+on, .r. was a*le to withdraw the a%ount of Z3,5<).,7 fro% CDG $avin#s Account No. 03--)-7. Nota*l+, the withdrawal slip shows that the a%ount was pa+a*le to Ra%on A. de GuC%an and A#nes C. de GuC%an and was dul+ initialed *+ the *ranch assistant %ana#er, &eresita "indo.
M,N

:n Nove%*er 30, )(-<, petitioner received co%%unication fro% the 7ells ar#o @anA 5nternational of New HorA that the said checA deposited *+ private respondent was a counterfeit checA *ecause it was "not of the t+pe or st+le of checAs issued *+ Continental @anA 5nternational." Conse4uentl+, 1r. Ariel Re+es, the %ana#er of petitionerSs @uendia Avenue 9Btension @ranch, instructed one of its e%plo+ees, @en;a%in D. NapiCa 5V, who is private respondentSs son, to infor% his father that the checA *ounced. Re+es hi%self sent a tele#ra% to private respondent re#ardin# the dishonor of the checA. 5n
M7N M-N M(N

turn, private respondentSs son wrote to Re+es statin# that the checA had *een assi#ned "for encash%ent" to Ra%on A. de GuC%an andIor A#nes C. de GuC%an after it shall have *een cleared upon instruction of Chan. 8e also said that upon learnin# of the dishonor of the checA, his father i%%ediatel+ tried to contact Chan *ut the latter was out of town.
M)0N

'rivate respondentSs son undertooA to return the a%ount of Z3,500.00 to petitioner *anA. :n Dece%*er )-, )(-<, Re+es re%inded private respondent of his sonSs pro%ise and warned that should he fail to return that a%ount within seven /70 da+s, the %atter would *e referred to the *anASs law+ers for appropriate action to protect the *anASs interest. &his was followed *+ a letter of the *anASs law+er dated April -, )(-5 de%andin# the return of the Z3,500.00.
M))N M)3N

5n repl+, private respondent wrote petitionerSs counsel on April 30, )(-5 statin# that he deposited the checA "for clearin# purposes" onl+ to acco%%odate Chan. 8e added6
M)2N

" urther, please taAe notice that said checA was deposited on $epte%*er 2, )(-< and withdrawn on :cto*er 32, )(-<, or a total period of fift+ /500 da+s had elapsed at the ti%e of withdrawal. Also, it %a+ not *e a%iss to %ention here that 5 %erel+ si#ned an authorit+ to withdraw said deposit su*;ect to its clearin#, the reason wh+ the transaction is not reflected in the pass*ooA of the account. @esides, 5 did not receive its proceeds as %a+ *e #leaned fro% the withdrawal slip under the captioned si#nature of recipient. 5f at all, %+ o*li#ation on the transaction is %oral in nature, which /sic0 5 have *een and is /sic0 still eBertin# ut%ost and %aBi%u% efforts to collect fro% 1r. 8enr+ Chan who is directl+ lia*le under the circu%stances. $csdaad BBB......BBB......BBB." :n Au#ust )3, )(-,, petitioner filed a co%plaint a#ainst private respondent, pra+in# for the return of the a%ount of Z3,500.00 or the prevailin# peso e4uivalent plus le#al interest fro% date of de%and to date of full pa+%ent, a su% e4uivalent to 30= of the total a%ount due as attorne+?s fees, and liti#ation andIor costs of suit.

'rivate respondent filed his answer, ad%ittin# that he indeed si#ned a "*lanA" withdrawal slip with the understandin# that the a%ount deposited would *e withdrawn onl+ after the checA in 4uestion has *een cleared. 8e liAewise alle#ed that he instructed the part+ to who% he issued the si#ned *lanA withdrawal slip to return it to hi% after the *anA draftSs clearance so that he could lend that part+ his pass*ooA for the purpose of withdrawin# the a%ount of Z3,500.00. 8owever, without his Anowled#e, said part+ was a*le to withdraw the a%ount of Z3,5<).,7 fro% his dollar savin#s account throu#h collusion with one of petitionerSs e%plo+ees. 'rivate respondent added that he had "#iven the 'laintiff fift+ one /5)0 da+s with which to clear the *anA draft in 4uestion." 'etitioner should have disallowed the withdrawal *ecause his pass*ooA was not presented. 8e clai%ed that petitioner had no one to *la%e eBcept itself "for *ein# #rossl+ ne#li#ent>" in fact, it had alle#edl+ ad%itted havin# paid the a%ount in the checA "*+ %istaAe" B B B "if not alto#ether due to collusion andIor *ad faith on the part of /its0 e%plo+ees." Char#in# petitioner with "apparent i#norance of routine *anA procedures," *+ wa+ of counterclai%, private respondent pra+ed for %oral da%a#es of ')00,000.00, eBe%plar+ da%a#es of '50,000.00 and attorne+Ss fees of 20= of whatever a%ount that would *e awarded to hi% plus an honorariu% of '500.00 per appearance in court. 'rivate respondent also filed a %otion for ad%ission of a third part+ co%plaint a#ainst Chan. 8e alle#ed that "thru strate#e% andIor %anipulation," Chan was a*le to withdraw the a%ount of Z3,500.00 even without private respondentSs pass*ooA. &hus, private respondent pra+ed that third part+ defendant Chan *e %ade to refund to hi% the a%ount withdrawn and to pa+ attorne+Ss fees of '5,000.00 plus '200.00 honorariu% per appearance. 'etitioner filed a co%%ent on the %otion for leave of court to ad%it the third part+ co%plaint, wherein it asserted that per para#raph 3 of the Rules and Re#ulations #overnin# @'5 savin#s accounts, private respondent alone was lia*le "for the value of the credit #iven on account of the draft or checA deposited." 5t contended that private respondent was estopped fro% disclai%in# lia*ilit+ *ecause he hi%self authoriCed the withdrawal of the a%ount *+ si#nin# the withdrawal slip. 'etitioner pra+ed for the denial of the said %otion so as not to undul+ dela+ the disposition of the %ain case assertin# that private respondentSs clai% could *e ventilated in another case. 'rivate respondent replied that for the parties to o*tain co%plete relief and to avoid %ultiplicit+ of suits, the %otion to ad%it third part+ co%plaint should *e #ranted. 1eanwhile, the trial court issued orders on Au#ust 35, )(-7 and

:cto*er 3-, )(-7 directin# private respondent to activel+ participate in locatin# Chan. After private respondent failed to co%pl+, the trial court, on 1a+ )-, )(--, dis%issed the third part+ co%plaint without pre;udice. :n Nove%*er <, )((), a decision was rendered dis%issin# the co%plaint. &he lower court held that petitioner could not hold private respondent lia*le *ased on the checASs face value alone. &o so hold hi% lia*le "would render inutile the re4uire%ent of XclearanceS fro% the drawee *anA *efore the value of a particular forei#n checA or draft can *e credited to the account of a depositor %aAin# such deposit." &he lower court further held that "it was incu%*ent upon the petitioner to credit the value of the checA in 4uestion to the account of the private respondent onl+ upon receipt of the notice of final pa+%ent and should not have authoriCed the withdrawal fro% the latterSs account of the value or proceeds of the checA." 8avin# ad%itted that it co%%itted a "%istaAe" in not waitin# for the clearance of the checA *efore authoriCin# the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. $upre%aB :n appeal, the Court of Appeals affir%ed the lower courtSs decision. &he appellate court held that petitioner co%%itted "clear #ross ne#li#ence" in allowin# Ru*en Ga+on, .r. to withdraw the %one+ without presentin# private respondentSs pass*ooA and, *efore the checA was cleared and in creditin# the a%ount indicated therein in private respondentSs account. 5t stressed that the %ere deposit of a checA in private respondentSs account did not %ean that the checA was alread+ private respondentSs propert+. &he checA still had to *e cleared and its proceeds can onl+ *e withdrawn upon presentation of a pass*ooA in accordance with the *anASs rules and re#ulations. urther%ore, petitionerSs contention that private respondent warranted the checASs #enuineness *+ endorsin# it is untena*le for it would render useless the clearance re4uire%ent. "iAewise, the re4uire%ent of presentation of a pass*ooA to ascertain the propriet+ of the accountin# reflected would *e a %eanin#less eBercise. After all, these re4uire%ents are desi#ned to protect the *anA fro% deception or fraud. &he Court of Appeals cited the case of ,oman Cat>olic 9is>op of !alolos, Inc. v. IAC, where this Court stated that a personal checA is not le#al tender or %one+, and held that the checA deposited in this case %ust *e cleared *efore its value could *e properl+ transferred to private respondent?s account.
M)<N

7ithout filin# a %otion for the reconsideration of the Court of AppealsS Decision, petitioner filed this petition for review on certiorari, raisin# the followin# issues6

).......789&89R :R N:& R9$':ND9N& NA'5LA 5$ "5A@"9 GND9R 85$ 7ARRAN&59$ A$ A G9N9RA" 5ND:R$9R. 3.......789&89R :R N:& A C:N&RAC& : AG9NCH 7A$ CR9A&9D @9&799N R9$':ND9N& NA'5LA AND RG@9N GAH:N. 2.......789&89R :R N:& '9&5&5:N9R 7A$ GR:$$"H N9G"5G9N& 5N A"":75NG &89 75&8DRA7A". 'etitioner clai%s that private respondent, havin# affiBed his si#nature at the dorsal side of the checA, should *e lia*le for the a%ount stated therein in accordance with the followin# provision of the Ne#otia*le 5nstru%ents "aw /Act No. 302)06 "$9C. ,,. Liability of general indorser. V 9ver+ indorser who indorses without 4ualification, warrants to all su*se4uent holders in due course V /a0......&he %atters and thin#s %entioned in su*divisions /a0, /b0, and /c0 of the neBt precedin# section> and /b0......&hat the instru%ent is at the ti%e of his indorse%ent, valid and su*sistin#. And, in addition, he en#a#es that on due present%ent, it shall *e accepted or paid, or *oth, as the case %a+ *e, accordin# to its tenor, and that if it *e dishonored, and the necessar+ proceedin#s on dishonor *e dul+ taAen, he will pa+ the a%ount thereof to the holder, or to an+ su*se4uent indorser who %a+ *e co%pelled to pa+ it." $ection ,5, on the other hand, provides for the followin# warranties of a person ne#otiatin# an instru%ent *+ deliver+ or *+ 4ualified indorse%ent6 /a0 that the instru%ent is #enuine and in all respects what it purports to *e> /*0 that he has a #ood title to it, and /c0 that all prior parties had capacit+ to contract. 5n People v. !aniego, this Court descri*ed the lia*ilities of an indorser as follows6 .uris
M)5N M),N

"AppellantSs contention that as %ere indorser, she %a+ not *e lia*le on account of the dishonor of the checAs indorsed *+ her, is liAewise untena*le. Gnder the law, the holder or last indorsee of a

ne#otia*le instru%ent has the ri#ht Xto enforce pa+%ent of the instru%ent for the full a%ount thereof a#ainst all parties lia*le thereon.S A%on# the Xparties lia*le thereonS is an indorser of the instru%ent, i.e., Xa person placin# his si#nature upon an instru%ent otherwise than as a %aAer, drawer or acceptor [ [ unless he clearl+ indicated *+ appropriate words his intention to *e *ound in so%e other capacit+.S $uch an indorser Xwho indorses without 4ualification,S inter alia Xen#a#es that on due present%ent, [ [ /the instru%ent0 shall *e accepted or paid, or *oth, as the case %a+ *e, accordin# to its tenor, and that if it *e dishonored, and the necessar+ proceedin#s on dishonor *e dul+ taAen, he will pa+ the a%ount thereof to the holder, or an+ su*se4uent indorser who %a+ *e co%pelled to pa+ it.S 1anie#o %a+ also *e dee%ed an Xacco%%odation part+S in the li#ht of the facts, i.e., a person Xwho has si#ned the instru%ent as %aAer, drawer, acceptor, or indorser, without receivin# value therefor, and for the purpose of lendin# his na%e to so%e other person.S As such, she is under the law Xlia*le on the instru%ent to a holder for value, notwithstandin# such holder at the ti%e of taAin# the instru%ent Anew [ [ /her0 to *e onl+ an acco%%odation part+,S althou#h she has the ri#ht, after pa+in# the holder, to o*tain rei%*urse%ent fro% the part+ acco%%odated, Xsince the relation *etween the% is in effect that of principal and suret+, the acco%%odation part+ *ein# the suret+." 5t is thus clear that ordinaril+ private respondent %a+ *e held lia*le as an indorser of the checA or even as an acco%%odation part+. 8owever, to hold private respondent lia*le for the a%ount of the checA he deposited *+ the strict application of the law and without considerin# the attendin# circu%stances in the case would result in an in;ustice and in the erosion of the pu*lic trust in the *anAin# s+ste%. &he interest of ;ustice thus de%ands looAin# into the events that led to the encash%ent of the checA.
M)7N

'etitioner asserts that *+ si#nin# the withdrawal slip, private respondent "presented the opportunit+ for the withdrawal of the a%ount in 4uestion." 'etitioner relied "on the #enuine si#nature on the withdrawal slip, the personalit+ of private respondentSs son and the lapse of %ore than fift+ /500 da+s fro% date of deposit of the Continental @anA draft, without the sa%e *ein# returned +et." 7e hold, however, that the propriet+ of the withdrawal should *e #au#ed *+ co%pliance with the rules thereon that *oth petitioner *anA and its depositors are dut+-*ound to o*serve.
M)-N

5n the pass*ooA that petitioner issued to private respondent, the followin# rules on withdrawal of deposits appear6 "<.......7ithdrawals %ust *e %ade *+ the depositor personall+ *ut in so%e eBceptional circu%stances, the @anA %a+ allow withdrawal *+ another upon the depositorSs written authorit+ dul+ authenticated> and neither a deposit nor a withdrawal will *e per%itted eBcept upon the presentation of the depositorSs savin#s pass*ooA, in which the a%ount deposited withdrawn shall *e entered onl+ *+ the @anA. 5.......7ithdrawals %a+ *e %ade *+ draft, %ail or tele#raphic transfer in currenc+ of the account at the re4uest of the depositor in writin# on the withdrawal slip or *+ authenticated ca*le. $uch re4uest %ust indicate the na%e of the pa+eeIs, a%ount and the place where the funds are to *e paid. An+ sta%p, trans%ission and other char#es related to such withdrawals shall *e for the account of the depositor and shall *e paid *+ hi%Iher upon de%and. 7ithdrawals %a+ also *e %ade in the for% of travellers checAs and in pesos. 7ithdrawals in the for% of notesI*ills are allowed su*;ect however, to their /availa*ilit+0. ,.......Deposits shall not *e su*;ect to withdrawal *+ checA, and %a+ *e withdrawn onl+ in the %anner a*ove provided, upon presentation of the depositorSs savin#s pass*ooA and with the withdrawal for% supplied *+ the @anA at the counter." $c;uris
M)(N

Gnder these rules, to *e a*le to withdraw fro% the savin#s account deposit under the 'hilippine forei#n currenc+ deposit s+ste%, two re4uisites %ust *e presented to petitioner *anA *+ the person withdrawin# an a%ount6 /a0 a dul+ filled-up withdrawal slip, and /*0 the depositorSs pass*ooA. 'rivate respondent ad%its that he si#ned a *lanA withdrawal slip ostensi*l+ in violation of Rule No. , re4uirin# that the re4uest for withdrawal %ust na%e the pa+ee, the a%ount to *e withdrawn and the place where such withdrawal should *e %ade. &hat the withdrawal slip was in fact a *lanA one with onl+ private respondentSs two si#natures affiBed on the proper spaces is *uttressed *+ petitionerSs alle#ation in the instant petition that had private respondent indicated therein the person authoriCed to receive the %one+, then Ru*en Ga+on, .r. could not have withdrawn an+ a%ount. 'etitioner contends that "/i0n failin# to do so /i.e., na%in# his authoriCed a#ent0, he practicall+ authoriCed an+ possessor thereof to write an+ a%ount and to collect the sa%e."
M30N

$uch contention would have *een valid if not for the fact that the withdrawal slip itself indicates a special instruction that the a%ount is pa+a*le to "Ra%on A. de GuC%an !Ior A#nes C. de GuC%an." $uch *ein# the case, petitionerSs personnel should have *een dul+ warned that Ga+on, who was also e%plo+ed in petitionerSs @uendia Ave. 9Btension *ranch, was not the proper pa+ee of the proceeds of the checA. :therwise, either Ra%on or A#nes de GuC%an should have issued another authorit+ to Ga+on for such withdrawal. :f course, at the dorsal side of the withdrawal slip is an "authorit+ to withdraw" na%in# Ga+on the person who can withdraw the a%ount indicated in the checA. 'rivate respondent does not den+ havin# si#ned such authorit+. 8owever, considerin# petitionerSs clear ad%ission that the withdrawal slip was a *lanA one eBcept for private respondentSs si#nature, the unavoida*le conclusion is that the t+pewritten na%e of "Ru*en C. Ga+on, .r." was intercalated and thereafter it was si#ned *+ Ga+on or whoever was allowed *+ petitioner to withdraw the a%ount. Gnder these facts, there could not have *een a principal-a#ent relationship *etween private respondent and Ga+on so as to render the for%er lia*le for the a%ount withdrawn.
M3)N

1oreover, the withdrawal slip contains a *oBed warnin# that states6 "&his receipt %ust *e si#ned and presented with the correspondin# forei#n currenc+ savin#s pass*ooA *+ the depositor in person. or withdrawals thru a representative, depositor should acco%plish the authorit+ at the *acA." &he re4uire%ent of presentation of the pass*ooA when withdrawin# an a%ount cannot *e #iven %ere lip service even thou#h the person %aAin# the withdrawal is authoriCed *+ the depositor to do so. &his is clear fro% Rule No. , set out *+ petitioner so that, for the protection of the *anASs interest and as a re%inder to the depositor, the withdrawal shall *e entered in the depositorSs pass*ooA. &he fact that private respondentSs pass*ooA was not presented durin# the withdrawal is evidenced *+ the entries therein showin# that the last transaction that he %ade with the *anA was on $epte%*er 2, )(-<, the date he deposited the controversial checA in the a%ount of Z3,500.00.
M33N

5n allowin# the withdrawal, petitioner liAewise overlooAed another rule that is printed in the pass*ooA. &hus6 "3.......All deposits will be received as current funds and will *e repaid in the sa%e %anner> provided, however, that deposits of drafts, c>ec?s, money orders, etc. will be accepted as subBect to collection only and credited to t>e account only upon receipt of t>e notice of final payment. Collection char#es *+ the @anASs forei#n correspondent in effectin# such collection shall *e for the

account of the depositor. 5f the account has sufficient *alance, the collection shall *e de*ited *+ the @anA a#ainst the account. 5f, for an+ reason, the proceeds of the deposited checAs, drafts, %one+ orders, etc., cannot *e collected or if the @anA is re4uired to return such proceeds, the provisional entr+ therefor %ade *+ the @anA in the savin#s pass*ooA and its records shall *e dee%ed auto%aticall+ cancelled re#ardless of the ti%e that has elapsed, and whether or not the defective ite%s can *e returned to the depositor> and the @anA is here*+ authoriCed to eBecute i%%ediatel+ the necessar+ corrections, a%end%ents or chan#es in its record, as well as on the savin#s pass*ooA at the first opportunit+ to reflect such cancellation." /5talics and underlinin# supplied.0 .urissc As correctl+ held *+ the Court of Appeals, in depositin# the checA in his na%e, private respondent did not *eco%e the outri#ht owner of the a%ount stated therein. Gnder the a*ove rule, *+ depositin# the checA with petitioner, private respondent was, in a wa+, %erel+ desi#natin# petitioner as the collectin# *anA. &his is in consonance with the rule that a ne#otia*le instru%ent, such as a checA, whether a %ana#erSs checA or ordinar+ checA, is not le#al tender. As such, after receivin# the deposit, under its own rules, petitioner shall credit the a%ount in private respondentSs account or infuse value thereon onl+ after the drawee *anA shall have paid the a%ount of the checA or the checA has *een cleared for deposit. A#ain, this is in accordance with ordinar+ *anAin# practices and with this CourtSs pronounce%ent that "the collectin# *anA or last endorser #enerall+ suffers the loss *ecause it has the dut+ to ascertain the #enuineness of all prior endorse%ents considerin# that the act of presentin# the checA for pa+%ent to the drawee is an assertion that the part+ %aAin# the present%ent has done its dut+ to ascertain the #enuineness of the endorse%ents." &he rule finds %ore %eanin# in this case where the checA involved is drawn on a forei#n *anA and therefore collection is %ore difficult than when the drawee *anA is a local one even thou#h the checA in 4uestion is a %ana#erSs checA. 1is;uris
M32N M3<N M35N

5n 9anco Atlantico v. Auditor &eneral, @anco Atlantico, a co%%ercial *anA in 1adrid, $pain, paid the a%ounts represented in three /20 checAs to Vir#inia @oncan, the finance officer of the 'hilippine 9%*ass+ in 1adrid. &he *anA did so without previousl+ clearin# the checAs with the drawee *anA, the 'hilippine National @anA in New HorA, on account of the "special treat%ent" that @oncan received fro% the personnel of @anco AtlanticoSs forei#n depart%ent. &he Court held that the encash%ent of the checAs without prior clearance is
H-6I

"contrar+ to nor%al or ordinar+ *anAin# practice speciall+ so where the drawee *anA is a forei#n *anA and the a%ounts involved were lar#e." Accordin#l+, the Court approved the Auditor GeneralSs denial of @anco AtlanticoSs clai% for pa+%ent of the value of the checAs that was withdrawn *+ @oncan. $aid rulin# *rin#s to li#ht the fact that the *anAin# *usiness is affected with pu*lic interest. @+ the nature of its functions, a *anA is under o*li#ation to treat the accounts of its depositors "with %eticulous care, alwa+s havin# in %ind the fiduciar+ nature of their relationship." As such, in dealin# with its depositors, a *anA should eBercise its functions not onl+ with the dili#ence of a #ood father of a fa%il+ *ut it should do so with the >ig>est degree of care.
M37N H-3I

5n the case at *ar, petitioner, in allowin# the withdrawal of private respondentSs deposit, failed to eBercise the dili#ence of a #ood father of a fa%il+. 5n total disre#ard of its own rules, petitionerSs personnel ne#li#entl+ handled private respondentSs account to petitionerSs detri%ent. As this Court once said on this %atter6 "Ne#li#ence is the o%ission to do so%ethin# which a reasona*le %an, #uided *+ those considerations which ordinaril+ re#ulate the conduct of hu%an affairs, would do, or the doin# of so%ethin# which a prudent and reasona*le %an would do. &he sevent+-ei#ht /7-0-+ear-old, +et still relevant, case of Picart v. "mit>, provides the test *+ which to deter%ine the eBistence of ne#li#ence in a particular case which %a+ *e stated as follows6 Did the defendant in doin# the alle#ed ne#li#ent act use that reasona*le care and caution which an ordinaril+ prudent person would have used in the sa%e situationQ 5f not, then he is #uilt+ of ne#li#ence. &he law here in effect adopts the standard supposed to *e supplied *+ the i%a#inar+ conduct of the discreet paterAfamilias of the Ro%an law. &he eBistence of ne#li#ence in a #iven case is not deter%ined *+ reference to the personal ;ud#%ent of the actor in the situation *efore hi%. &he law considers what would *e recAless, *la%eworth+, or ne#li#ent in the %an of ordinar+ intelli#ence and prudence and deter%ines lia*ilit+ *+ that."
M3(N

'etitioner violated its own rules *+ allowin# the withdrawal of an a%ount that is definitel+ over and a*ove the a##re#ate a%ount of private respondentSs dollar deposits that had +et to *e cleared. &he *anASs led#er on private respondentSs account shows that *efore he deposited Z3,500.00, private respondent had a *alance of onl+ Z750.00. Gpon private respondentSs
M20N

deposit of Z3,500.00 on $epte%*er 2, )(-<, that a%ount was credited in his led#er as a deposit resultin# in the correspondin# total *alance of Z2,350.00. :n $epte%*er )0, )(-<, the a%ount of Z,00.00 and the additional char#es of Z)0.00 were indicated therein as withdrawn there*+ leavin# a *alance of Z3,,<0.00. :n $epte%*er 20, )(-<, an interest of Z)).5( was reflected in the led#er and on :cto*er 32, )(-<, the a%ount of Z3,5<).,7 was entered as withdrawn with a *alance of Z)0(.(3. :n Nove%*er )(, )(-< the word "hold" was written *eside the *alance of Z)0(.(3. &hat %ust have *een the ti%e when Re+es, petitionerSs *ranch %ana#er, was infor%ed unofficiall+ of the fact that the checA deposited was a counterfeit, *ut petitionerSs @uendia Ave. 9Btension @ranch received a cop+ of the co%%unication thereon fro% 7ells ar#o @anA 5nternational in New HorA the followin# da+, Nove%*er 30, )(-<. Accordin# to Re+es, 7ells ar#o @anA 5nternational handled the clearin# of checAs drawn a#ainst G.$. *anAs that were deposited with petitioner. .;leB
M2)N M23N M22N M2<N M25N

ro% these facts on record, it is at once apparent that petitionerSs personnel allowed the withdrawal of an a%ount *i##er than the ori#inal deposit of Z750.00 and the value of the checA deposited in the a%ount of Z3,500.00 althou#h the+ had not +et received notice fro% the clearin# *anA in the Gnited $tates on whether or not the checA was funded. Re+esS contention that after the lapse of the 25-da+ period the a%ount of a deposited checA could *e withdrawn even in the a*sence of a clearance thereon, otherwise it could taAe a lon# ti%e *efore a depositor could %aAe a withdrawal, is untena*le. $aid practice a%ounts to a disre#ard of the clearance re4uire%ent of the *anAin# s+ste%.
M2,N

7hile it is true that private respondentSs havin# si#ned a *lanA withdrawal slip set in %otion the events that resulted in the withdrawal and encash%ent of the counterfeit checA, the ne#li#ence of petitionerSs personnel was the proBi%ate cause of the loss that petitioner sustained. 'roBi%ate cause, which is deter%ined *+ a %iBed consideration of lo#ic, co%%on sense, polic+ and precedent, is "that cause, which, in natural and continuous se4uence, un*roAen *+ an+ efficient intervenin# cause, produces the in;ur+, and without which the result would not have occurred." &he proBi%ate cause of the withdrawal and eventual loss of the a%ount of Z3,500.00 on petitionerSs part was its personnelSs ne#li#ence in allowin# such withdrawal in disre#ard of its own rules and the clearin# re4uire%ent in the *anAin# s+ste%. 5n so doin#, petitioner assu%ed the risA of incurrin# a loss on account of a for#ed or counterfeit forei#n checA and hence, it should suffer the resultin# da%a#e.
M27N

4H R FOR , the petition for review on certiorari is D9N59D. &he Decision of the Court of Appeals in CA-G.R. CV No. 272(3 is A 5R19D.
G.R. No. 107#82IG.R. No. 107612 January #1, 1996

ASSOCIAT / -AN., petitioner, vs. HON. COURT OF APP ALS, PRO;INC OF TARLAC an! PHILIPPIN NATIONAL -AN., respondents. BBBBBBBBBBBBBBBBBBBBB G.R. No. )07,)3 .anuar+ 2), )((,

'85"5''5N9 NA&5:NA" @ANP, petitioner, vs. HONORA-L COURT OF APP ALS, PRO;INC OF TARLAC, an! ASSOCIAT / -AN., respondents. / CISION

RO0 RO, J.3 7here thirt+ checAs *earin# for#ed endorse%ents are paid, who *ears the loss, the drawer, the drawee *anA or the collectin# *anAQ &his is the %ain issue in these consolidated petitions for review assailin# the decision of the Court of Appeals in "'rovince of &arlac v. 'hilippine National @anA v. Associated @anA v. austo 'an#ilinan, et. al." /CA-G.R. No. CV No. )7(,30. ) &he facts of the case are as follows6 &he 'rovince of &arlac %aintains a current account with the 'hilippine National @anA /'N@0 &arlac @ranch where the provincial funds are deposited. ChecAs issued *+ the 'rovince are si#ned *+ the 'rovincial &reasurer and countersi#ned *+ the 'rovincial Auditor or the $ecretar+ of the $an##unian# @a+an. A portion of the funds of the province is allocated to the Concepcion 9%er#enc+ 8ospital. 3 &he allot%ent checAs for said #overn%ent hospital are drawn to the order of "Concepcion 9%er#enc+ 8ospital, Concepcion, &arlac" or "&he Chief, Concepcion 9%er#enc+ 8ospital, Concepcion, &arlac." &he checAs are released *+ the :ffice of the 'rovincial &reasurer and received for the hospital *+ its ad%inistrative officer and cashier. 5n .anuar+ )(-), the *ooAs of account of the 'rovincial &reasurer were post-audited *+ the 'rovincial Auditor. 5t was then discovered that the hospital did not receive several allot%ent checAs drawn *+ the 'rovince. :n e*ruar+ )(, )(-), the 'rovincial &reasurer re4uested the %ana#er of the 'N@ to return all of its cleared checAs which were issued fro% )(77 to )(-0 in order to verif+ the re#ularit+ of their encash%ent. After the checAs were eBa%ined, the 'rovincial &reasurer learned that 20 checAs

a%ountin# to '302,200.00 were encashed *+ one austo 'an#ilinan, with the Associated @anA actin# as collectin# *anA. 5t turned out that austo 'an#ilinan, who was the ad%inistrative officer and cashier of pa+ee hospital until his retire%ent on e*ruar+ 3-, )(7-, collected the 4uestioned checAs fro% the office of the 'rovincial &reasurer. 8e clai%ed to *e assistin# or helpin# the hospital follow up the release of the checAs and had official receipts. 2'an#ilinan sou#ht to encash the first checA < with Associated @anA. 8owever, the %ana#er of Associated @anA refused and su##ested that 'an#ilinan deposit the checA in his personal savin#s account with the sa%e *anA. 'an#ilinan was a*le to withdraw the %one+ when the checA was cleared and paid *+ the drawee *anA, 'N@. After for#in# the si#nature of Dr. Adena Canlas who was chief of the pa+ee hospital, 'an#ilinan followed the sa%e procedure for the second checA, in the a%ount of '5,000.00 and dated April 30, )(7-, 5 as well as for twent+-ei#ht other checAs of various a%ounts and on various dates. &he last checA ne#otiated *+ 'an#ilinan was for f-,000.00 and dated e*ruar+ )0, )(-). , All the checAs *ore the sta%p of Associated @anA which reads "All prior endorse%ents #uaranteed A$$:C5A&9D @ANP." .esus David, the %ana#er of Associated @anA testified that 'an#ilinan %ade it appear that the checAs were paid to hi% for certain pro;ects with the hospital. 7 8e did not find as irre#ular the fact that the checAs were not pa+a*le to 'an#ilinan *ut to the Concepcion 9%er#enc+ 8ospital. 7hile he ad%itted that his wife and 'an#ilinan?s wife are first cousins, the %ana#er denied havin# #iven 'an#ilinan preferential treat%ent on this account. :n e*ruar+ 3,, )(-), the 'rovincial &reasurer wrote the %ana#er of the 'N@ seeAin# the restoration of the various a%ounts de*ited fro% the current account of the 'rovince. ( 5n turn, the 'N@ %ana#er de%anded rei%*urse%ent fro% the Associated @anA on 1a+ )5, )(-). As *oth *anAs resisted pa+%ent, the 'rovince of &arlac *rou#ht suit a#ainst 'N@ which, in turn, i%pleaded Associated @anA as third-part+ defendant. &he latter then filed a fourth-part+ co%plaint a#ainst Adena Canlas and austo 'an#ilinan. )) After trial on the %erits, the lower court rendered its decision on 1arch 3), )(--, disposin# as follows6 789R9 :R9, in view of the fore#oin#, ;ud#%ent is here*+ rendered6 ). :n the *asic co%plaint, in favor of plaintiff 'rovince of &arlac and a#ainst defendant 'hilippine National @anA /'N@0, orderin# the latter to pa+ to the for%er, the su% of &wo 8undred &hree &housand &hree 8undred /'302,200.000 'esos with le#al interest thereon fro% 1arch 30, )(-) until full+ paid> 3. :n the third-part+ co%plaint, in favor of defendantIthird-part+ plaintiff 'hilippine National @anA /'N@0 and a#ainst third-part+ defendantIfourth-part+ plaintiff Associated @anA orderin# the latter to rei%*urse to the for%er the a%ount of &wo 8undred &hree &housand &hree 8undred /'302,200.000 'esos with le#al interests thereon fro% 1arch 30, )(-) until full+ paid>.
)0

2. :n the fourth-part+ co%plaint, the sa%e is here*+ ordered dis%issed for lacA of cause of action as a#ainst fourth-part+ defendant Adena Canlas and lacA of ;urisdiction over the person of fourth-part+ defendant austo 'an#ilinan as a#ainst the latter. <. :n the counterclai%s on the co%plaint, third-part+ co%plaint and fourth-part+ co%plaint, the sa%e are here*+ ordered dis%issed for lacA of %erit. $: :RD9R9D. )3 'N@ and Associated @anA appealed to the Court of Appeals. court?s decision in toto on $epte%*er 20, )((3.
)2

Respondent court affir%ed the trial

8ence these consolidated petitions which seeA a reversal of respondent appellate court?s decision. 'N@ assi#ned two errors. irst, the *anA contends that respondent court erred in eBe%ptin# the 'rovince of &arlac fro% lia*ilit+ when, in fact, the latter was ne#li#ent *ecause it delivered and released the 4uestioned checAs to austo 'an#ilinan who was then alread+ retired as the hospital?s cashier and ad%inistrative officer. 'N@ also %aintains its innocence and alle#es that as *etween two innocent persons, the one whose act was the cause of the loss, in this case the 'rovince of &arlac, *ears the loss. NeBt, 'N@ asserts that it was error for the court to order it to pa+ the province and then seeA rei%*urse%ent fro% Associated @anA. Accordin# to petitioner *anA, respondent appellate Court should have directed Associated @anA to pa+ the ad;ud#ed lia*ilit+ directl+ to the 'rovince of &arlac to avoid circuit+. )< Associated @anA, on the other hand, ar#ues that the order of lia*ilit+ should *e totall+ reversed, with the drawee *anA /'N@0 solel+ and ulti%atel+ *earin# the loss. Respondent court alle#edl+ erred in appl+in# $ection 32 of the 'hilippine Clearin# 8ouse Rules instead of Central @anA Circular No. 5-0, which, *ein# an ad%inistrative re#ulation issued pursuant to law, has the force and effect of law. )5 &he 'C8C Rules are %erel+ contractual stipulations a%on# and *etween %e%*er-*anAs. As such, the+ cannot prevail over the aforesaid C@ Circular. 5t liAewise contends that 'N@, the drawee *anA, is estopped fro% assertin# the defense of #uarantee of prior indorse%ents a#ainst Associated @anA, the collectin# *anA. 5n sta%pin# the #uarantee /for all prior indorse%ents0, it %erel+ followed a %andator+ re4uire%ent for clearin# and had no choice *ut to place the sta%p of #uarantee> otherwise, there would *e no clearin#. &he *anA will *e in a "no-win" situation and will alwa+s *ear the loss as a#ainst the drawee *anA. ), Associated @anA also clai%s that since 'N@ alread+ cleared and paid the value of the for#ed checAs in 4uestion, it is now estopped fro% assertin# the defense that Associated @anA #uaranteed prior indorse%ents. &he drawee *anA alle#edl+ has the pri%ar+ dut+ to verif+ the #enuineness of pa+ee?s indorse%ent *efore pa+in# the checA. )7 7hile *oth *anAs are innocent of the for#er+, Associated @anA clai%s that 'N@ was at fault and should solel+ *ear the loss *ecause it cleared and paid the for#ed checAs. BBB BBB BBB

&he case at *ench concerns checAs pa+a*le to the order of Concepcion 9%er#enc+ 8ospital or its Chief. &he+ were properl+ issued and *ear the #enuine si#natures of the drawer, the 'rovince of &arlac. &he infir%it+ in the 4uestioned checAs lies in the pa+ee?s /Concepcion 9%er#enc+ 8ospital0 indorse%ents which are for#eries. At the ti%e of their indorse%ent, the checAs were order instru%ents. ChecAs havin# for#ed indorse%ents should *e differentiated fro% for#ed checAs or checAs *earin# the for#ed si#nature of the drawer. $ection 32 of the Ne#otia*le 5nstru%ents "aw /N5"0 provides6 $ec. 32. :RG9D $5GNA&GR9, 9 9C& : . F 7hen a si#nature is for#ed or %ade without authorit+ of the person whose si#nature it purports to *e, it is wholl+ inoperative, and no ri#ht to retain the instru%ent, or to #ive a dischar#e therefor, or to enforce pa+%ent thereof a#ainst an+ part+ thereto, can *e ac4uired throu#h or under such si#nature unless the part+ a#ainst who% it is sou#ht to enforce such ri#ht is precluded fro% settin# up the for#er+ or want of authorit+. A for#ed si#nature, whether it *e that of the drawer or the pa+ee, is wholl+ inoperative and no one can #ain title to the instru%ent throu#h it. A person whose si#nature to an instru%ent was for#ed was never a part+ and never consented to the contract which alle#edl+ #ave rise to such instru%ent. )- $ection 32 does not avoid the instru%ent *ut onl+ the for#ed si#nature. )( &hus, a for#ed indorse%ent does not operate as the pa+ee?s indorse%ent. &he eBception to the #eneral rule in $ection 32 is where "a part+ a#ainst who% it is sou#ht to enforce a ri#ht is precluded fro% settin# up the for#er+ or want of authorit+." 'arties who warrant or ad%it the #enuineness of the si#nature in 4uestion and those who, *+ their acts, silence or ne#li#ence are estopped fro% settin# up the defense of for#er+, are precluded fro% usin# this defense. 5ndorsers, persons ne#otiatin# *+ deliver+ and acceptors are warrantors of the #enuineness of the si#natures on the instru%ent. 30 5n *earer instru%ents, the si#nature of the pa+ee or holder is unnecessar+ to pass title to the instru%ent. 8ence, when the indorse%ent is a for#er+, onl+ the person whose si#nature is for#ed can raise the defense of for#er+ a#ainst a holder in due course. 3) &he checAs involved in this case are order instru%ents, hence, the followin# discussion is %ade with reference to the effects of a for#ed indorse%ent on an instru%ent pa+a*le to order. 7here the instru%ent is pa+a*le to order at the ti%e of the for#er+, such as the checAs in this case, the si#nature of its ri#htful holder /here, the pa+ee hospital0 is essential to transfer title to the sa%e instru%ent. 7hen the holder?s indorse%ent is for#ed, all parties prior to the for#er+ %a+ raise the real defense of for#er+ a#ainst all parties su*se4uent thereto. 33 An indorser of an order instru%ent warrants "that the instru%ent is #enuine and in all respects what it purports to *e> that he has a #ood title to it> that all prior parties had capacit+ to contract> and that the instru%ent is at the ti%e of his indorse%ent valid and su*sistin#." 32 8e cannot interpose the defense that si#natures prior to hi% are for#ed. A collectin# *anA where a checA is deposited and which indorses the checA upon present%ent with the drawee *anA, is such an indorser. $o even if the indorse%ent on the checA deposited *+ the

*anAs?s client is for#ed, the collectin# *anA is *ound *+ his warranties as an indorser and cannot set up the defense of for#er+ as a#ainst the drawee *anA. &he *anA on which a checA is drawn, Anown as the drawee *anA, is under strict lia*ilit+ to pa+ the checA to the order of the pa+ee. &he drawer?s instructions are reflected on the face and *+ the ter%s of the checA. 'a+%ent under a for#ed indorse%ent is not to the drawer?s order. 7hen the drawee *anA pa+s a person other than the pa+ee, it does not co%pl+ with the ter%s of the checA and violates its dut+ to char#e its custo%er?s /the drawer0 account onl+ for properl+ pa+a*le ite%s. $ince the drawee *anA did not pa+ a holder or other person entitled to receive pa+%ent, it has no ri#ht to rei%*urse%ent fro% the drawer. 3< &he #eneral rule then is that the drawee *anA %a+ not de*it the drawer?s account and is not entitled to inde%nification fro% the drawer. 35 &he risA of loss %ust perforce fall on the drawee *anA. 8owever, if the drawee *anA can prove a failure *+ the custo%erIdrawer to eBercise ordinar+ care that su*stantiall+ contri*uted to the %aAin# of the for#ed si#nature, the drawer is precluded fro% assertin# the for#er+. 5f at the sa%e ti%e the drawee *anA was also ne#li#ent to the point of su*stantiall+ contri*utin# to the loss, then such loss fro% the for#er+ can *e apportioned *etween the ne#li#ent drawer and the ne#li#ent *anA. 3, 5n cases involvin# a for#ed checA, where the drawer?s si#nature is for#ed, the drawer can recover fro% the drawee *anA. No drawee *anA has a ri#ht to pa+ a for#ed checA. 5f it does, it shall have to recredit the a%ount of the checA to the account of the drawer. &he lia*ilit+ chain ends with the drawee *anA whose responsi*ilit+ it is to Anow the drawer?s si#nature since the latter is its custo%er. 37 5n cases involvin# checAs with for#ed indorse%ents, such as the present petition, the chain of lia*ilit+ does not end with the drawee *anA. &he drawee *anA %a+ not de*it the account of the drawer *ut %a+ #enerall+ pass lia*ilit+ *acA throu#h the collection chain to the part+ who tooA fro% the for#er and, of course, to the for#er hi%self, if availa*le. 3- 5n other words, the drawee *anA canseeA rei%*urse%ent or a return of the a%ount it paid fro% the presentor *anA or person. 3( &heoreticall+, the latter can de%and rei%*urse%ent fro% the person who indorsed the checA to it and so on. &he loss falls on the part+ who tooA the checA fro% the for#er, or on the for#er hi%self. 5n this case, the checAs were indorsed *+ the collectin# *anA /Associated @anA0 to the drawee *anA /'N@0. &he for%er will necessaril+ *e lia*le to the latter for the checAs *earin# for#ed indorse%ents. 5f the for#er+ is that of the pa+ee?s or holder?s indorse%ent, the collectin# *anA is held lia*le, without pre;udice to the latter proceedin# a#ainst the for#er. $ince a for#ed indorse%ent is inoperative, the collectin# *anA had no ri#ht to *e paid *+ the drawee *anA. &he for%er %ust necessaril+ return the %one+ paid *+ the latter *ecause it was paid wron#full+. 20 1ore i%portantl+, *+ reason of the statutor+ warrant+ of a #eneral indorser in section ,, of the Ne#otia*le 5nstru%ents "aw, a collectin# *anA which indorses a checA *earin# a for#ed indorse%ent and presents it to the drawee *anA #uarantees all prior indorse%ents, includin# the for#ed indorse%ent. 5t warrants that the instru%ent is #enuine, and that it is valid and su*sistin# at the ti%e of his indorse%ent. @ecause the indorse%ent is a for#er+, the collectin# *anA co%%its a *reach of this warrant+ and will *e accounta*le to the drawee *anA. &his lia*ilit+ sche%e operates without re#ard to fault on the part of the collectin#Ipresentin# *anA. 9ven if the latter *anA was not ne#li#ent, it would still *e lia*le to the drawee *anA *ecause of its indorse%ent.

&he Court has consistentl+ ruled that "the collectin# *anA or last endorser #enerall+ suffers the loss *ecause it has the dut+ to ascertain the #enuineness of all prior endorse%ents considerin# that the act of presentin# the checA for pa+%ent to the drawee is an assertion that the part+ %aAin# the present%ent has done its dut+ to ascertain the #enuineness of the endorse%ents." 2) &he drawee *anA is not si%ilarl+ situated as the collectin# *anA *ecause the for%er %aAes no warrant+ as to the #enuineness. of an+ indorse%ent. 23 &he drawee *anA?s dut+ is *ut to verif+ the #enuineness of the drawer?s si#nature and not of the indorse%ent *ecause the drawer is its client. 1oreover, the collectin# *anA is %ade lia*le *ecause it is priv+ to the depositor who ne#otiated the checA. &he *anA Anows hi%, his address and histor+ *ecause he is a client. 5t has taAen a risA on his deposit. &he *anA is also in a *etter position to detect for#er+, fraud or irre#ularit+ in the indorse%ent. 8ence, the drawee *anA can recover the a%ount paid on the checA *earin# a for#ed indorse%ent fro% the collectin# *anA. 8owever, a drawee *anA has the dut+ to pro%ptl+ infor% the presentor of the for#er+ upon discover+. 5f the drawee *anA dela+s in infor%in# the presentor of the for#er+, there*+ deprivin# said presentor of the ri#ht to recover fro% the for#er, the for%er is dee%ed ne#li#ent and can no lon#er recover fro% the presentor. 22 Appl+in# these rules to the case at *ench, 'N@, the drawee *anA, cannot de*it the current account of the 'rovince of &arlac *ecause it paid checAs which *ore for#ed indorse%ents. 8owever, if the 'rovince of &arlac as drawer was ne#li#ent to the point of su*stantiall+ contri*utin# to the loss, then the drawee *anA 'N@ can char#e its account. 5f *oth drawee *anA-'N@ and drawer-'rovince of &arlac were ne#li#ent, the loss should *e properl+ apportioned *etween the%. &he loss incurred *+ drawee *anA-'N@ can *e passed on to the collectin# *anA-Associated @anA which presented and indorsed the checAs to it. Associated @anA can, in turn, hold the for#er, austo 'an#ilinan, lia*le. 5f 'N@ ne#li#entl+ dela+ed in infor%in# Associated @anA of the for#er+, thus deprivin# the latter of the opportunit+ to recover fro% the for#er, it forfeits its ri#ht to rei%*urse%ent and will *e %ade to *ear the loss. After careful eBa%ination of the records, the Court finds that the 'rovince of &arlac was e4uall+ ne#li#ent and should, therefore, share the *urden of loss fro% the checAs *earin# a for#ed indorse%ent. &he 'rovince of &arlac per%itted austo 'an#ilinan to collect the checAs when the latter, havin# alread+ retired fro% #overn%ent service, was no lon#er connected with the hospital. 7ith the eBception of the first checA /dated .anuar+ )7, )(7-0, all the checAs were issued and released after 'an#ilinan?s retire%ent on e*ruar+ 3-, )(7-. After nearl+ three +ears, the &reasurer?s office was still releasin# the checAs to the retired cashier. 5n addition, so%e of the aid allot%ent checAs were released to 'an#ilinan and the others to 9liCa*eth .uco, the new cashier. &he fact that there were now two persons collectin# the checAs for the hospital is an un%istaAa*le si#n of an irre#ularit+ which should have alerted e%plo+ees in the &reasurer?s office of the fraud *ein# co%%itted. &here is also evidence indicatin# that the provincial e%plo+ees were aware of 'an#ilinan?s retire%ent and conse4uent dissociation fro% the hospital. .ose 1eru, the 'rovincial &reasurer, testified6. A&&H. 1:RGA6

R Now, is it true that for a #iven %onth there were two releases of checAs, one went to 1r. 'an#ilinan and one went to 1iss .ucoQ .:$9 19RG6 A Hes, sir. R 7ill +ou please tell us how at the ti%e /sic0 when the authoriCed representative of Concepcion 9%er#enc+ 8ospital is and was supposed to *e 1iss .ucoQ A 7ell, as far as %+ investi#ation show /sic0 the assistant cashier told %e that 'an#ilinan represented hi%self as also authoriCed to help in the release of these checAs and we were apparentl+ %isled *ecause the+ accepted the representation of 'an#ilinan that he was helpin# the% in the release of the checAs and *esides accordin# to the% the+ were, 'an#ilinan, liAe the rest, was a*le to present an official receipt to acAnowled#e these receipts and accordin# to the% since this is a #overn%ent checA and *elieved that it will eventuall+ #o to the hospital followin# the standard procedure of ne#otiatin# #overn%ent checAs, the+ released the checAs to 'an#ilinan aside fro% 1iss .uco.2< &he failure of the 'rovince of &arlac to eBercise due care contri*uted to a si#nificant de#ree to the loss tanta%ount to ne#li#ence. 8ence, the 'rovince of &arlac should *e lia*le for part of the total a%ount paid on the 4uestioned checAs. &he drawee *anA 'N@ also *reached its dut+ to pa+ onl+ accordin# to the ter%s of the checA. 8ence, it cannot escape lia*ilit+ and should also *ear part of the loss. As earlier stated, 'N@ can recover fro% the collectin# *anA. 5n the case of Associated 9an? v. CA, 25 siB crossed checAs with for#ed indorse%ents were deposited in the for#er?s account with the collectin# *anA and were later paid *+ four different drawee *anAs. &he Court found the collectin# *anA /Associated0 to *e ne#li#ent and held6 &he @anA should have first verified his ri#ht to endorse the crossed checAs, of which he was not the pa+ee, and to deposit the proceeds of the checAs to his own account. &he @anA was *+ reason of the nature of the checAs put upon notice that the+ were issued for deposit onl+ to the private respondent?s account. . . . &he situation in the case at *ench is analo#ous to the a*ove case, for it was not the pa+ee who deposited the checAs with the collectin# *anA. 8ere, the checAs were all pa+a*le to Concepcion 9%er#enc+ 8ospital *ut it was austo 'an#ilinan who deposited the checAs in his personal savin#s account. Althou#h Associated @anA clai%s that the #uarantee sta%ped on the checAs /All prior andIor lacA of endorse%ents #uaranteed0 is %erel+ a re4uire%ent forced upon it *+ clearin# house rules, it cannot *ut re%ain lia*le. &he sta%p #uaranteein# prior indorse%ents is not an e%pt+ ru*ric which a *anA %ust fulfill for the saAe of convenience. A *anA is not re4uired to accept all the checAs ne#otiated to it. 5t is within the *anA?s discretion to receive a checA for no *anAin# institution would consciousl+ or deli*eratel+ accept a checA *earin# a for#ed indorse%ent. 7hen a checA is deposited with the collectin# *anA, it taAes a risA on its depositor. 5t is onl+ lo#ical that this *anA *e held accounta*le for checAs deposited *+ its custo%ers.

A dela+ in infor%in# the collectin# *anA /Associated @anA0 of the for#er+, which deprives it of the opportunit+ to #o after the for#er, si#nifies ne#li#ence on the part of the drawee *anA /'N@0 and will preclude it fro% clai%in# rei%*urse%ent. 5t is here that Associated @anA?s assi#n%ent of error concernin# C.@. Circular No. 5-0 and $ection 32 of the 'hilippine Clearin# 8ouse Corporation Rules co%es to fore. Gnder $ection </c0 of C@ Circular No. 5-0, ite%s *earin# a for#ed endorse%ent shall *e returned within twent+-$our /3<0 hours after discover+ of the for#er+ *ut in no event *e+ond the period fiBed or provided *+ law for filin# of a le#al action *+ the returnin# *anA. $ection 32 of the 'C8C Rules deleted the re4uire%ent that ite%s *earin# a for#ed endorse%ent should *e returned within twent+-four hours. Associated @anA now ar#ues that the afore%entioned Central @anA Circular is applica*le. $ince 'N@ did not return the 4uestioned checAs within twent+-four hours, *ut several da+s later, Associated @anA alle#es that 'N@ should *e considered ne#li#ent and not entitled to rei%*urse%ent of the a%ount it paid on the checAs. &he Court dee%s it unnecessar+ to discuss Associated @anA?s assertions that C@ Circular No. 5-0 is an ad%inistrative re#ulation issued pursuant to law and as such, %ust prevail over the 'C8C rule. &he Central @anA circular was in force for all *anAs until .une )(-0 when the 'hilippine Clearin# 8ouse Corporation /'C8C0 was set up and co%%enced operations. @anAs in 1etro 1anila were covered *+ the 'C8C while *anAs located elsewhere still had to #o throu#h Central @anA Clearin#. 5n an+ event, the twent+-four-hour return rule was adopted *+ the 'C8C until it was chan#ed in )(-3. &he contendin# *anAs herein, which are *oth *ranches in &arlac province, are therefore not covered *+ 'C8C Rules *ut *+ C@ Circular No. 5-0. Clearl+ then, the C@ circular was applica*le when the for#er+ of the checAs was discovered in )(-). &he rule %andates that the checAs *e returned within twent+-four hours after discover+ of the for#er+ *ut in no event *e+ond the period fiBed *+ law for filin# a le#al action. &he rationale of the rule is to #ive the collectin# *anA /which indorsed the checA0 ade4uate opportunit+ to proceed a#ainst the for#er. 5f pro%pt notice is not #iven, the collectin# *anA %a+*e pre;udiced and lose the opportunit+ to #o after its depositor. &he Court finds that even if 'N@ did not return the 4uestioned checAs to Associated @anA within twent+-four hours, as %andated *+ the rule, 'N@ did not co%%it ne#li#ent dela+. Gnder the circu%stances, 'N@ #ave pro%pt notice to Associated @anA and the latter *anA was not pre;udiced in #oin# after austo 'an#ilinan. After the 'rovince of &arlac infor%ed 'N@ of the for#eries, 'N@ necessaril+ had to inspect the checAs and conduct its own investi#ation. &hereafter, it re4uested the 'rovincial &reasurer?s office on 1arch 2), )(-) to return the checAs for verification. &he 'rovince of &arlac returned the checAs onl+ on April 33, )(-). &wo da+s later, Associated @anA received the checAs fro% 'N@. 2, Associated @anA was also furnished a cop+ of the 'rovince?s letter of de%and to 'N@ dated 1arch 30, )(-), thus #ivin# it notice of the for#eries. At this ti%e, however, 'an#ilinan?s account with Associated had onl+ '3<.,2 in it.27 8ad Associated @anA decided to de*it 'an#ilinan?s account, it could not have recovered the a%ounts paid on the 4uestioned checAs. 5n addition, while Associated @anA filed a fourth-part+ co%plaint a#ainst austo 'an#ilinan, it did not present evidence a#ainst 'an#ilinan and even presented hi% as its re*uttal witness. 2- 8ence, Associated @anA was not pre;udiced *+ 'N@?s failure to co%pl+ with the twent+-four-hour return rule. NeBt, Associated @anA contends that 'N@ is estopped fro% re4uirin# rei%*urse%ent *ecause the latter paid and cleared the checAs. &he Court finds this contention un%eritorious. 9ven if 'N@ cleared and paid the checAs, it can still recover fro% Associated @anA. &his is true even if the pa+ee?s Chief :fficer who was supposed to have indorsed the checAs is also a custo%er of the

drawee *anA. 2( 'N@?s dut+ was to verif+ the #enuineness of the drawer?s si#nature and not the #enuineness of pa+ee?s indorse%ent. Associated @anA, as the collectin# *anA, is the entit+ with the dut+ to verif+ the #enuineness of the pa+ee?s indorse%ent. 'N@ also avers that respondent court erred in ad;ud#in# circuitous lia*ilit+ *+ directin# 'N@ to return to the 'rovince of &arlac the a%ount of the checAs and then directin# Associated @anA to rei%*urse 'N@. &he Court finds nothin# wron# with the %ode of the award. &he drawer, 'rovince of &arlac, is a clientor custo%er of the 'N@, not of Associated @anA. &here is no privit+ of contract *etween the drawer and the collectin# *anA. &he trial court %ade 'N@ and Associated @anA lia*le with le#al interest fro% 1arch 30, )(-), the date of eBtra;udicial de%and %ade *+ the 'rovince of &arlac on 'N@. &he pa+%ents to *e %ade in this case ste% fro% the deposits of the 'rovince of &arlac in its current account with the 'N@. @anA deposits are considered under the law as loans. <0 Central @anA Circular No. <), prescri*es a twelve percent /)3=0 interest per annu% for loans, fore*earance of %one+, #oods or credits in the a*sence of eBpress stipulation. Nor%all+, current accounts are liAewise interest-*earin#, *+ eBpress contract, thus eBcludin# the% fro% the covera#e of C@ Circular No. <),. 5n this case, however, the actual interest rate, if an+, for the current account opened *+ the 'rovince of &arlac with 'N@ was not #iven in evidence. 8ence, the Court dee%s it wise to affir% the trial court?s use of the le#al interest rate, or siB percent /,=0 per annu%. &he interest rate shall *e co%puted fro% the date of default, or the date of ;udicial or eBtra;udicial de%and. <) &he trial court did not err in #rantin# le#al interest fro% 1arch 30, )(-), the date of eBtra;udicial de%and. &he Court finds as reasona*le, the proportionate sharin# of fift+ percent - fift+ percent /50=-50=0. Due to the ne#li#ence of the 'rovince of &arlac in releasin# the checAs to an unauthoriCed person / austo 'an#ilinan0, in allowin# the retired hospital cashier to receive the checAs for the pa+ee hospital for a period close to three +ears and in not properl+ ascertainin# wh+ the retired hospital cashier was collectin# checAs for the pa+ee hospital in addition to the hospital?s real cashier, respondent 'rovince contri*uted to the loss a%ountin# to '302,200.00 and shall *e lia*le to the 'N@ for fift+ /50=0 percent thereof. 5n effect, the 'rovince of &arlac can onl+ recover fift+ percent /50=0 of '302,200.00 fro% 'N@. &he collectin# *anA, Associated @anA, shall *e lia*le to 'N@ for fift+ /50=0 percent of '302,200.00. 5t is lia*le on its warranties as indorser of the checAs which were deposited *+ austo 'an#ilinan, havin# #uaranteed the #enuineness of all prior indorse%ents, includin# that of the chief of the pa+ee hospital, Dr. Adena Canlas. Associated @anA was also re%iss in its dut+ to ascertain the #enuineness of the pa+ee?s indorse%ent. 5N V597 : &89 :R9G:5NG, the petition for review filed *+ the 'hilippine National @anA /G.R. No. )07,)30 is here*+ 'AR&5A""H GRAN&9D. &he petition for review filed *+ the Associated @anA /G.R. No. )072-30 is here*+ D9N59D. &he decision of the trial court is 1:D5 59D. &he 'hilippine National @anA shall pa+ fift+ percent /50=0 of '302,200.00 to the 'rovince of &arlac, with le#al interest fro% 1arch 30, )(-) until the pa+%ent thereof. Associated @anA shall pa+ fift+ percent /50=0 of '302,200.00 to the 'hilippine National @anA, liAewise, with le#al interest fro% 1arch 30, )(-) until pa+%ent is %ade. $: :RD9R9D.