CHAPTER 3

JOHN DY, Petitioner,

- versus -
PEOPLE OF THE PHILIPPINES and The HONORABLE O!RT OF APPEALS,
Res"ondents#
$#R# No# %&'(%) Nove*+er %,, )--'
DECISION
QUISUMBING, Acting C.J.:
This a""ea. "ra/s 0or the reversa. o0 the De1ision
[1]
dated Januar/ )(, )--( and the
Reso.ution
[2]
dated 2a/ %,, )--( o0 the ourt o0 A""ea.s in A-$#R# R No#
)('-)# The a""e..ate 1ourt a3r*ed 4ith *odi51ation the De1ision
[3]
dated
Nove*+er %6, %777 o0 the Re8iona. Tria. ourt 9RT:, Bran1h ') o0 ;ue<on it/,
4hi1h had 1onvi1ted "etitioner John D/ o0 t4o 1ounts o0 estafa in ri*ina. ases
Nos# ;-7(-,=6%% and ;-7(-,=6%(, and t4o 1ounts o0 vio.ation o0 Batas Pambansa
Bilang ))
[4]
9B.P. Blg. 22: in ri*ina. ases Nos# ;-7(-,=6%) and ;-7(-,=6%,#
The 0a1ts are undis"uted>
Sin1e %77-, John D/ has +een the distri+utor o0 ?#L# Food Produ1ts 9?#L# Foods: in
Na8a it/, Bi1o., under the +usiness na*e D/na 2ar@etin8# D/ 4ou.d "a/ ?#L#
Foods in either 1ash or 1he1@ u"on "i1@ u" o0 sto1@s o0 sna1@ 0oods at the .atterAs
+ran1h or *ain o31e in ;ue<on it/# At ti*es, he 4ou.d entrust the "a/*ent to
one o0 his drivers#
On June ),, %77), D/As driver 4ent to the +ran1h o31e o0 ?#L# Foods to "i1@ u"
sto1@s o0 sna1@ 0oods# He introdu1ed hi*se.0 to the 1he1@er, 2ar/ Jane D# 2ara1a,
4ho u"on 1on5r*in8 D/As 1redit 4ith the *ain o31e, 8ave hi* *er1handise
4orth P%-=,&67#=-# In return, the driver handed her a +.an@ Far East Ban@ and Trust
o*"an/ 9FEBT: he1@ 4ith he1@ No# &&(=-) "ostdated Ju./ )), %77)# The
1he1@ 4as si8ned +/ D/ thou8h it did not indi1ate a s"e1i51 a*ount#
Yet a8ain, on Ju./ %, %77), the sa*e driver o+tained sna1@ 0oods 0ro* 2ara1a in the
a*ount o0 P))=,67,#(= in eB1han8e 0or a +.an@ FEBT he1@ 4ith he1@ No#
&&(=%& "ostdated Ju./ (%, %77)#
In +oth instan1es, the driver 4as issued an unsi8ned de.iver/ re1ei"t# The a*ounts
0or the "ur1hases 4ere 5..ed in .ater +/ Eve./n On8, a11ountant o0 ?#L# Foods, +ased
on the va.ue o0 the 8oods de.ivered#
?hen "resented 0or "a/*ent, FEBT dishonored the 1he1@s 0or insu31ien1/ o0
0unds# Rau. D# $on<a.es, *ana8er o0 FEBT-Na8a Bran1h, noti5ed Att/# Rita Linda
Ji*eno, 1ounse. o0 ?#L# Foods, o0 the dishonor# A""arent./, D/ on./ had an avai.a+.e
+a.an1e o0 P),--- as o0 Ju./ )), %77) and Ju./ (%, %77)#
Later, $on<a.es sent Att/# Ji*eno another .etter
[5]
advisin8 her that FEBT he1@ No#
&&(=-) 0or P%-=,&67#=- 4as returned to the dra4ee +an@ 0or the reasons sto"
"a/*ent order and dra4n a8ainst un1o..e1ted de"osit 9DA!D:, and not +e1ause it
4as dra4n a8ainst insu31ient 0unds as stated in the 5rst .etter# D/As savin8s
de"osit a11ount .ed8er reCe1ted a +a.an1e o0 P%=-,=&7#(7 as o0 Ju./ )), %77)# This,
ho4ever, in1.uded a re8iona. 1.earin8 1he1@ 0or P&&,--- 4hi1h he de"osited on Ju./
)-, %77), and 4hi1h too@ 5ve 9&: +an@in8 da/s to 1.ear# Hen1e, the in4ard 1he1@
4as dra4n a8ainst the /et un1o..e1ted de"osit#
?hen ?i..ia* Li*, o4ner o0 ?#L# Foods, "honed D/ a+out the *atter, the .atter
eB".ained that he 1ou.d not "a/ sin1e he had no 0unds /et# This "ro*"ted the
0or*er to send "etitioner a de*and .etter, 4hi1h the .atter i8nored#
On Ju./ %=, %77(, Li* 1har8ed D/ 4ith t4o 1ounts o0 estafa under Arti1.e (%&,
"ara8ra"h )9d:
[6]
o0 the Revised Pena. ode in t4o In0or*ations, 4hi1h eB1e"t 0or
the dates and a*ounts invo.ved, si*i.ar./ read as 0o..o4s>
That on or a+out the ),
th
da/ o0 June, %77), in ;ue<on it/, Phi.i""ines, the said
a11used, did then and there D4i..0u../E and 0e.onious./ de0raud ?#L# PROD!TS, a
1or"oration du./ or8ani<ed and eBistin8 under the .a4s o0 the Re"u+.i1 o0 the
Phi.i""ines 4ith +usiness address at No# &(% $en# Luis St#, Nova.i1hes, this it/, in
the 0o..o4in8 *anner, to 4it> the said a11used, +/ *eans o0 0a.se *ani0estations
and 0raudu.ent re"resentation 4hi1h he *ade to 1o*".ainant to the eFe1t that Far
East Ban@ and Trust o# 1he1@ No# &&(=-) dated Ju./ )), %77) in the a*ount
o0 P%-=,&67#=-, "a/a+.e to ?#L# Produ1ts is a 8ood 1he1@ and 4i.. +e honored +/ the
+an@ on its *aturit/ date, and +/ *eans o0 other de1eit o0 si*i.ar i*"ort, indu1ed
and su11eeded in indu1in8 the said 1o*".ainant to re1eive and a11e"t the a0oresaid
1he1@ in "a/*ent o0 sna1@ 0oods, the said a11used @no4in8 0u../ 4e.. that a.. his
*ani0estations and re"resentations 4ere 0a.se and untrue and 4ere *ade so.e./ 0or
the "ur"ose o0 o+tainin8, as in 0a1t he did o+tain the a0oresaid sna1@ 0oods va.ued
at P%-=,&67#=- 0ro* said 1o*".ainant as u"on "resentation o0 said 1he1@ to the
+an@ 0or "a/*ent, the sa*e 4as dishonored and "a/*ent thereo0 re0used 0or the
reason sto" "a/*ent and the said a11used, on1e in "ossession o0 the a0oresaid
sna1@ 0oods, 4ith intent to de0raud, D4i..0u../E, un.a40u../ and 0e.onious./ *isa"".ied,
*isa""ro"riated and 1onverted the sa*e or the va.ue thereo0 to his o4n "ersona.
use and +ene5t, to the da*a8e and "reGudi1e o0 said ?#L# Produ1ts, herein
re"resented +/ RODOLFO BORJAL, in the a0ore*entioned a*ount o0 P%-=,&67#=-,
Phi.i""ine urren1/#
ontrar/ to .a4#
[7]
On even date, Li* a.so 1har8ed D/ 4ith t4o 1ounts o0 vio.ation o0 B.P. Blg.
22 in t4o In0or*ations 4hi1h .i@e4ise save 0or the dates and a*ounts invo.ved
si*i.ar./ read as 0o..o4s>
That on or a+out the ),
th
da/ o0 June, %77), the said a11used, did then and there
D4i..0u../E, un.a40u../ and 0e.onious./ *a@e or dra4 and issue to ?#L# FOOD
PROD!TS to a""./ on a11ount or 0or va.ue a Far East Ban@ and Trust o# he1@ no#
&&(=-) dated Ju./ )), %77) "a/a+.e to ?#L# FOOD PROD!TS in the a*ount
o0 P%-=,&67#=- Phi.i""ine urren1/, said a11used @no4in8 0u../ 4e.. that at the ti*e
o0 issue heHsheHthe/ did not have su31ient 0unds in or 1redit 4ith the dra4ee +an@
0or "a/*ent o0 su1h 1he1@ in 0u.. u"on its "resent*ent, 4hi1h 1he1@ 4hen
"resented 7- da/s 0ro* the date thereo0 4as su+seIuent./ dishonored +/ the
dra4ee +an@ 0or the reason JPa/*ent sto""edK +ut the sa*e 4ou.d have +een
dishonored 0or insu31ient 0unds had not the a11used 4ithout an/ va.id reason,
ordered the +an@ to sto" "a/*ent, the said a11used des"ite re1ei"t o0 noti1e o0
su1h dishonor, 0ai.ed to "a/ said ?#L# Food Produ1ts the a*ount o0 said 1he1@ or to
*a@e arran8e*ent 0or "a/*ent in 0u.. o0 the sa*e 4ithin 5ve 9&: +an@in8 da/s a0ter
re1eivin8 said noti1e#
ONTRARY TO LA?#
[8]
On Nove*+er )(, %77,, D/ 4as arrested in Na8a it/# On arrai8n*ent, he ".eaded
not 8ui.t/ to a.. 1har8es# Therea0ter, the 1ases a8ainst hi* 4ere tried Goint./#
On Nove*+er %6, %777 the RT 1onvi1ted D/ on t4o 1ounts ea1h o0 estafa and
vio.ation o0 B.P. Blg. 22# The tria. 1ourt dis"osed o0 the 1ase as 0o..o4s>
?HEREFORE, a11used JOHN JERRY DY ALDEN 9JOHN DY: is here+/ 0ound $!ILTY
+e/ond reasona+.e dou+t o0 s4ind.in8 9ESTAFA: as 1har8ed in the In0or*ations in
ri*ina. ase No# 7(-,=6%% and in ri*ina. ase No# ;-7(-,=6%(,
res"e1tive./# A11ordin8./, a0ter a""./in8 the "rovisions o0 the Indeter*inate
Senten1e La4 and P#D# No# '%', said a11used is here+/ senten1ed to suFer the
indeter*inate "ena.t/ o0 ten 9%-: /ears and one 9%: da/ to t4e.ve 9%): /ears
o0 "rision *a/or, as *ini*u*, to t4ent/ 9)-: /ears o0 re1.usion te*"ora., as
*aBi*u*, in ri*ina. ase No# ;-7(-,=6%% and o0 ten 9%-: /ears and one 9%: da/
to t4e.ve 9%): /ears o0 "rision *a/or, as *ini*u*, to thirt/ 9(-: /ears o0 re1.usion
"er"etua, as *aBi*u*, in ri*ina. ase No# ;-7(-,=6%(#
Li@e4ise, said a11used is here+/ 0ound $!ILTY +e/ond reasona+.e dou+t o0 Lio.ation
o0 B#P# )) as 1har8ed in the In0or*ations in ri*ina. ase No# ;-7(-,=6%) and in
ri*ina. ase No# ;-7(-,=6%, and is a11ordin8./ senten1ed to i*"rison*ent o0 one
9%: /ear 0or ea1h o0 the said oFense and to "a/ a 5ne in the tota. a*ount
o0 P(((,(6(#7=, 4ith su+sidiar/ i*"rison*ent in 1ase o0 inso.ven1/#
FINALLY, Gud8*ent is here+/ rendered in 0avor o0 "rivate 1o*".ainant, ?# L# Food
Produ1ts, herein re"resented +/ Rodo.0o BorGa., and a8ainst herein a11used JOHN
JERRY DY ALDEN 9JOHN DY:, orderin8 the .atter to "a/ to the 0or*er the tota. su*
o0 P(((,(6(#7= ".us interest thereon at the rate o0 %)M "er annu* 0ro* Se"te*+er
)', %77) unti. 0u../ "aidN and, 9): the 1osts o0 this suit#
SO ORDERED#
[]
D/ +rou8ht the 1ase to the ourt o0 A""ea.s# In the assai.ed De1ision o0 Januar/ )(,
)--(, the a""e..ate 1ourt a3r*ed the RT# It, ho4ever, *odi5ed the senten1e and
de.eted the "a/*ent o0 interests in this 4ise>
?HEREFORE, in vie4 o0 the 0ore8oin8, the de1ision a""ea.ed 0ro* is
here+/ A!!IRMED "#$% MODI!ICATION# In C&#'#()* C)+, N-. Q.3.46711 /0-&
,+$)0)1, the a11used-a""e..ant JOHN JERRY DY ALDEN 9JOHN DY: is here+/
senten1ed to suFer an indeter*inate "ena.t/ o0 i*"rison*ent ran8in8 0ro* siB 9=:
/ears and one 9%: da/ o0 prision mayor as *ini*u* to t4ent/ 9)-: /ears o0reclusion
temporal as *aBi*u* ".us ei8ht 9': /ears in eB1ess o0 DPE)),---#--# In C&#'#()*
C)+, N-. Q.3.46712 /0-& 2#-*)$#-( -0 BP 221, a11used-a""e..ant is senten1ed
to suFer an i*"rison*ent o0 one 9%: /ear and to inde*ni0/ ?#L# Food Produ1ts,
re"resented +/ Rodo.0o BorGa., the a*ount o0 ONE H!NDRED SIO THO!SAND FILE
H!NDRED SELENTY NINE PESOS and =-H%-- 9DPE%-=,&67#=-:# In C&#'#()* C)+, N-.
Q.3.46713 /0-& ,+$)0)1, a11used-a""e..ant is here+/ senten1ed to suFer an
indeter*inate "ena.t/ o0 i*"rison*ent ran8in8 0ro* ei8ht 9': /ears and one 9%: da/
o0prision mayor as *ini*u* to thirt/ 9(-: /ears as *aBi*u*# Fina../, in C&#'#()*
C)+, N-. Q.3.46714 /0-& 2#-*)$#-( -0 BP 221, a11used-a""e..ant is senten1ed
to suFer an i*"rison*ent o0 one 9%: /ear and to inde*ni0/ ?#L# Food Produ1ts,
re"resented +/ Rodo.0o BorGa., the a*ount o0 T?O H!NDRED T?ENTY
SIO THO!SAND SELEN H!NDRED NINETY FO!R PESOS AND (=H%-- 9DPE))=,67,#(=:#
SO ORDERED#
[13]
D/ *oved 0or re1onsideration, +ut his *otion 4as denied in the Reso.ution dated
2a/ %,, )--(#
Hen1e, this "etition 4hi1h raises the 0o..o4in8 issues>
I#
?HETHER OR NOT THE HONORABLE O!RT OF APPEALS $RALELY ERRED IN
FINDIN$ THAT THE PROSE!TION HAS PROLEN THE $!ILT OF A!SED BEYOND
REASONABLE DO!BT OF ESTAFA ON T?O 9): O!NTSP
II#
?HETHER OR NOT THE HONORABLE O!RT OF APPEALS $RALELY ERRED IN
FINDIN$ THAT THE PROSE!TION HAS PROLEN THE $!ILT OF A!SED BEYOND
REASONABLE DO!BT OF LIOLATION OF BP )) ON T?O 9): O!NTSP
III#
?HETHER OR NOT THE HONORABLE O!RT OF APPEALS $RALELY ERRED IN
A?ARDIN$ DA2A$ES TO PRILATE O2PLAINANT, ?#L# FOOD PROD!TS, THE TOTAL
S!2 OF DPE(((,(6(#7=P
[11]
Essentia../, the issue is 4hether John D/ is .ia+.e 0or estafa and 0or vio.ation o0 B.P.
Blg. 22#
First, is "etitioner 8ui.t/ o0 estafa?
2ain./, "etitioner 1ontends that the 1he1@s 4ere ineFe1tive./ issued# He stresses
that not on./ 4ere the 1he1@s +.an@, +ut a.so that ?#L# FoodsA a11ountant had no
authorit/ to 5.. the a*ounts# D/ a.so 1.ai*s 0ai.ure o0 1onsideration to ne8ate an/
o+.i8ation to ?#L# Foods# !.ti*ate./, "etitioner denies havin8 de1eived Li*
inas*u1h as on./ the t4o 1he1@s +oun1ed sin1e he +e8an dea.in8 4ith hi*# He
*aintains that it 4as his .on8 esta+.ished +usiness re.ationshi" 4ith Li* that
ena+.ed hi* to o+tain the 8oods, and not the 1he1@s issued in "a/*ent 0or
the*# Petitioner renoun1es "ersona. .ia+i.it/ on the 1he1@s sin1e he 4as a+sent
4hen the 8oods 4ere de.ivered#
The O31e o0 the So.i1itor $enera. 9OS$:, 0or the State, avers that the de.iver/ o0 the
1he1@s +/ D/As driver to 2ara1a, 1onstituted va.id issuan1e# The OS$ sustains
On8As prima facie authorit/ to 5.. the 1he1@s +ased on the va.ue o0 8oods ta@en# It
o+serves that nothin8 in the re1ords sho4ed that ?#L# FoodsA a11ountant 5..ed u"
the 1he1@s in vio.ation o0 D/As instru1tions or their "revious a8ree*ent# Fina../, the
OS$ 1ha..en8es the "resent "etition as an ina""ro"riate re*ed/ to revie4 the
0a1tua. 5ndin8s o0 the tria. 1ourt#
?e 5nd that the "etition is "art./ *eritorious#
Be0ore an a11used 1an +e he.d .ia+.e 0or estafa under Arti1.e (%&, "ara8ra"h )9d: o0
the Revised Pena. ode, as a*ended +/ Re"u+.i1 A1t No# ,''&,
[12]
the 0o..o4in8
e.e*ents *ust 1on1ur> 9%: "ostdatin8 or issuan1e o0 a 1he1@ in "a/*ent o0 an
o+.i8ation 1ontra1ted at the ti*e the 1he1@ 4as issuedN 9): insu31ien1/ o0 0unds to
1over the 1he1@N and 9(: da*a8e to the "a/ee thereo0#
[13]
These e.e*ents are
"resent in the instant 1ase#
Se1tion %7% o0 the Ne8otia+.e Instru*ents La4
[14]
de5nes JissueK as the 5rst
de.iver/ o0 an instru*ent, 1o*".ete in 0or*, to a "erson 4ho ta@es it as a
ho.der# Si8ni51ant./, de.iver/ is the 5na. a1t essentia. to the ne8otia+i.it/ o0 an
instru*ent# De.iver/ denotes "h/si1a. trans0er o0 the instru*ent +/ the *a@er or
dra4er 1ou".ed 4ith an intention to 1onve/ tit.e to the "a/ee and re1o8ni<e hi* as
a ho.der#
[15]
It *eans *ore than handin8 over to anotherN it i*"orts su1h trans0er o0
the instru*ent to another as to ena+.e the .atter to ho.d it 0or hi*se.0#
[16]
In this 1ase, even i0 the 1he1@s 4ere 8iven to ?#L# Foods in +.an@, this a.one did not
*a@e its issuan1e inva.id# ?hen the 1he1@s 4ere de.ivered to Li*, throu8h his
e*".o/ee, he +e1a*e a ho.der 4ith prima facie authorit/ to 5.. the +.an@s# This
4as, in 0a1t, a11o*".ished +/ Li*As a11ountant#
The "ertinent "rovisions o0 Se1tion %, o0 the Ne8otia+.e Instru*ents La4 are
instru1tive>
SE# %,# Blanks; when may be flled#Q?here the instru*ent is 4antin8 in an/
*ateria. "arti1u.ar, $%, 4,&+-( #( 4-++,++#-( $%,&,-0 %)+ ) prima
facie )5$%-&#$6 $- 7-'4*,$, #$ 86 9**#(: 54 $%, 8*)(;+ therein# And a si8nature
on a +.an@ "a"er de.ivered +/ the "erson *a@in8 the si8nature in order that the
"a"er *a/ +e 1onverted into a ne8otia+.e instru*ent o"erates as a prima
facie authorit/ to 5.. it u" as su1h 0or an/ a*ount# R# 9E*"hasis su"".ied#:

Hen1e, the .a4 *ere./ reIuires that the instru*ent +e in the "ossession o0 a "erson
other than the dra4er or *a@er# Fro* su1h "ossession, to8ether 4ith the 0a1t that
the instru*ent is 4antin8 in a *ateria. "arti1u.ar, the .a4 "resu*es a8en1/ to 5..
u" the +.an@s#
[17]
Be1ause o0 this, the +urden o0 "rovin8 4ant o0 authorit/ or that
the authorit/ 8ranted 4as eB1eeded, is ".a1ed on the "erson Iuestionin8 su1h
authorit/#
[18]
Petitioner 0ai.ed to 0u.5.. this reIuire*ent#
NeBt, "etitioner 1.ai*s 0ai.ure o0 1onsideration# Neverthe.ess, in a .etter
[1]
dated
Nove*+er %-, %77), he eB"ressed 4i..in8ness to "a/ ?#L# Foods, or to re".a1e the
dishonored 1he1@s# This 4as a 1.ear a1@no4.ed8*ent o0 re1ei"t o0 the 8oods, 4hi1h
8ave rise to his dut/ to *aintain or de"osit su31ient 0unds to 1over the a*ount o0
the 1he1@s#
2ore si8ni51ant./, 4e are not s4a/ed +/ "etitionerAs ar8u*ents that the sin8.e
in1ident o0 dishonor and his a+sen1e 4hen the 1he1@s 4ere de.ivered +e.ie
0raud# Indeed da*a8e and de1eit are essentia. e.e*ents o0 the oFense and *ust
+e esta+.ished 4ith satis0a1tor/ "roo0 to 4arrant 1onvi1tion#
[23]
De1eit as an
e.e*ent o0 estafa is a s"e1ie o0 0raud# It is a1tua. 0raud 4hi1h 1onsists in an/
*isre"resentation or 1ontrivan1e 4here a "erson de.udes another, to his
hurt# There is de1eit 4hen one is *is.ed -- +/ 8ui.e, tri1@er/ or +/ other *eans -- to
+e.ieve as true 4hat is rea../ 0a.se#
[21]
Prima facie eviden1e o0 de1eit 4as esta+.ished a8ainst "etitioner 4ith re8ard to
FEBT he1@ No# &&(=%& 4hi1h 4as dishonored 0or insu31ien1/ o0 0unds# The
.etter
[22]
o0 "etitionerAs 1ounse. dated Nove*+er %-, %77) sho4s +e/ond reasona+.e
dou+t that "etitioner re1eived noti1e o0 the dishonor o0 the said 1he1@ 0or
insu31ien1/ o0 0unds# Petitioner, ho4ever, 0ai.ed to de"osit the a*ounts ne1essar/
to 1over his 1he1@ 4ithin three +an@in8 da/s 0ro* re1ei"t o0 the noti1e o0
dishonor# Hen1e, as "rovided 0or +/ .a4,
[23]
the "resen1e o0 de1eit 4as su31ient./
"roven#
Petitioner 0ai.ed to over1o*e the said "roo0 o0 de1eit# The tria. 1ourt 0ound no "re-
eBistin8 o+.i8ation +et4een the "arties# The eBisten1e o0 "rior transa1tions
+et4een Li* and D/ a.one did not ru.e out de1eit +e1ause ea1h transa1tion 4as
se"arate, and had a diFerent 1onsideration 0ro* the others# Even as "etitioner 4as
a+sent 4hen the 8oods 4ere de.ivered, +/ the "rin1i".e o0 a8en1/, de.iver/ o0 the
1he1@s +/ his driver 4as dee*ed as his a1t as the e*".o/er# The eviden1e sho4s
that as a *atter o0 1ourse, D/, or his e*".o/ee, 4ou.d "a/ ?#L# Foods in either 1ash
or 1he1@ u"on "i1@ u" o0 the sto1@s o0 sna1@ 0oods at the .atterAs +ran1h or *ain
o31e# Des"ite their t4o-/ear standin8 +usiness re.ations "rior to the issuan1e o0
the su+Ge1t 1he1@, ?#L Foods e*".o/ees 4ou.d not have "arted 4ith the sto1@s 4ere
it not 0or the si*u.taneous de.iver/ o0 the 1he1@ issued +/ "etitioner#
D),E
Aside 0ro*
the eBistin8 +usiness re.ations +et4een "etitioner and ?#L# Foods, the "ri*ar/
indu1e*ent 0or the .atter to "art 4ith its sto1@s o0 sna1@ 0oods 4as the issuan1e o0
the 1he1@ in "a/*ent o0 the va.ue o0 the said sto1@s#
In a nu*+er o0 1ases,
[25]
the ourt has 1onsidered 8ood 0aith as a de0ense to a
1har8e o0 estafa +/ "ostdatin8 a 1he1@# This 8ood 0aith *a/ +e *ani0ested +/
*a@in8 arran8e*ents 0or "a/*ent 4ith the 1reditor and eBertin8 +est eForts to
*a@e 8ood the va.ue o0 the 1he1@s# In the instant 1ase "etitioner "resented no
"roo0 o0 8ood 0aith# Noti1ea+./ a+sent 0ro* the re1ords is su31ient "roo0 o0 sin1ere
and +est eForts on the "art o0 "etitioner 0or the "a/*ent o0 the va.ue o0 the 1he1@
that 4ou.d 1onstitute 8ood 0aith and ne8ate de1eit#
?ith the 0ore8oin8 1ir1u*stan1es esta+.ished, 4e 5nd "etitioner 8ui.t/
o0 estafa 4ith re8ard to FEBT he1@ No# &&(=%& 0or P))=,67,#(=#
The sa*e, ho4ever, does not ho.d true 4ith res"e1t to FEBT he1@ No# &&(=-)
0or P%-=,&67#=-# This 1he1@ 4as dishonored 0or the reason that it 4as dra4n a8ainst
un1o..e1ted de"osit# Petitioner had P%=-,=&7#(7 in his savin8s de"osit a11ount
.ed8er as o0 Ju./ )), %77)# ?e disa8ree 4ith the 1on1.usion o0 the RT that sin1e
the +a.an1e in1.uded a re8iona. 1.earin8 1he1@ 4orth P&&,--- de"osited on Ju./ )-,
%77), 4hi1h 1.eared on./ 5ve 9&: da/s .ater, then "etitioner had inadeIuate 0unds in
this instan1e# Sin1e "etitioner te1hni1a../ and retroa1tive./ had su31ient 0unds at
the ti*e he1@ No# &&(=-) 4as "resented 0or "a/*ent then the se1ond e.e*ent
9insu31ien1/ o0 0unds to 1over the 1he1@: o0 the 1ri*e is a+sent# A.so there is
no prima facie eviden1e o0 de1eit in this instan1e +e1ause the 1he1@ 4as not
dishonored 0or .a1@ or insu31ien1/ o0 0unds# !n1o..e1ted de"osits are not the sa*e
as insu31ient 0unds# The prima facie "resu*"tion o0 de1eit arises on./ 4hen a
1he1@ has +een dishonored 0or .a1@ or insu31ien1/ o0 0unds# Nota+./, the .a4
s"ea@s o0 insu31ien1/ o0 0unds +ut not o0 un1o..e1ted de"osits# Juris"ruden1e
tea1hes that 1ri*ina. .a4s are stri1t./ 1onstrued a8ainst the $overn*ent and
.i+era../ in 0avor o0 the a11used#
[26]
Hen1e, in the instant 1ase, the .a4 1annot +e
inter"reted or a"".ied in su1h a 4a/ as to eB"and its "rovision to en1o*"ass the
situation o0 un1o..e1ted de"osits +e1ause it 4ou.d *a@e the .a4 *ore onerous on
the "art o0 the a11used#
.ear./, the estafa "unished under Arti1.e (%&, "ara8ra"h )9d: o0 the Revised Pena.
ode is 1o**itted 4hen a 1he1@ is dishonored 0or +ein8 dra4n a8ainst insu31ient
0unds or 1.osed a11ount, and not a8ainst un1o..e1ted de"osit#
[27]
oro..ari./, the
issuer o0 the 1he1@ is not .ia+.e 0or estafa i0 the re*ainin8 +a.an1e and the
un1o..e1ted de"osit, 4hi1h 4as du./ 1o..e1ted, 1ou.d satis0/ the a*ount o0 the 1he1@
4hen "resented 0or "a/*ent#
Se1ond, did "etitioner vio.ate B.P. Blg. 22P
Petitioner ar8ues that the +.an@ 1he1@s 4ere not va.id orders 0or the +an@ to "a/ the
ho.der o0 su1h 1he1@s# He reiterates .a1@ o0 @no4.ed8e o0 the insu31ien1/ o0 0unds
and reasons that the 1he1@s 1ou.d not have +een issued to a""./ on a11ount or 0or
va.ue as he did not o+tain de.iver/ o0 the 8oods#
The OS$ *aintains that the 8ui.t o0 "etitioner has +een "roven +e/ond reasona+.e
dou+t# It 1ites "ie1es o0 eviden1e that "oint to D/As 1u."a+i.it/> 2ara1aAs
a1@no4.ed8*ent that the 1he1@s 4ere issued to ?#L# Foods as 1onsideration 0or the
sna1@sN Li*As testi*on/ "rovin8 that D/ re1eived a 1o"/ o0 the de*and .etterN the
+an@ *ana8erAs 1on5r*ation that "etitioner had insu31ient +a.an1e to 1over the
1he1@sN and D/As 0ai.ure to sett.e his o+.i8ation 4ithin 5ve 9&: da/s 0ro* dishonor o0
the 1he1@s#
On1e a8ain, 4e 5nd the "etition to +e *eritorious in "art#
The e.e*ents o0 the oFense "ena.i<ed under B.P. Blg. 22 are as 0o..o4s> 9%: the
*a@in8, dra4in8 and issuan1e o0 an/ 1he1@ to a""./ to a11ount or 0or va.ueN 9): the
@no4.ed8e o0 the *a@er, dra4er or issuer that at the ti*e o0 issue he does not have
su31ient 0unds in or 1redit 4ith the dra4ee +an@ 0or the "a/*ent o0 su1h 1he1@ in
0u.. u"on its "resent*entN and 9(: su+seIuent dishonor o0 the 1he1@ +/ the dra4ee
+an@ 0or insu31ien1/ o0 0unds or 1redit or dishonor 0or the sa*e reason had not the
dra4er, 4ithout an/ va.id 1ause, ordered the +an@ to sto" "a/*ent#
[28]
The 1ase at
+ar satis5es a.. these e.e*ents#
Durin8 the Goint "re-tria. 1on0eren1e o0 this 1ase, D/ ad*itted that he issued the
1he1@s, and that the si8natures a""earin8 on the* 4ere his#
[2]
The 0a1ts revea.
that the 1he1@s 4ere issued in +.an@ +e1ause o0 the un1ertaint/ o0 the vo.u*e o0
"rodu1ts to +e retrieved, the dis1ount that 1an +e avai.ed o0, and the dedu1tion 0or
+ad orders# Neverthe.ess, 4e *ust stress that 4hat the .a4 "unishes is si*"./ the
issuan1e o0 a +oun1in8 1he1@ and not the "ur"ose 0or 4hi1h it 4as issued nor the
ter*s and 1onditions re.atin8 thereto#
[33]
I0 inIuir/ into the reason 0or 4hi1h the
1he1@s are issued, or the ter*s and 1onditions o0 their issuan1e is reIuired, the
"u+.i1As 0aith in the sta+i.it/ and 1o**er1ia. va.ue o0 1he1@s as 1urren1/ su+stitutes
4i.. 1ertain./ erode#
[31]
2oreover, the 8rava*en o0 the oFense under B.P. Blg. 22 is the a1t o0 *a@in8 or
issuin8 a 4orth.ess 1he1@ or a 1he1@ that is dishonored u"on "resent*ent 0or
"a/*ent# The a1t eFe1tive./ de1.ares the oFense to +e one o0 malum
prohibitum# The on./ va.id Iuer/, then, is 4hether the .a4 has +een
+rea1hed, i.e., +/ the *ere a1t o0 issuin8 a +ad 1he1@, 4ithout so *u1h re8ard as to
the 1ri*ina. intent o0 the issuer#
[32]
Indeed, non-0u.5..*ent o0 the o+.i8ation is
i**ateria.# Thus, "etitionerAs de0ense o0 0ai.ure o0 1onsideration *ust .i@e4ise 0a..#
This is es"e1ia../ so sin1e as stated a+ove, D/ has a1@no4.ed8ed re1ei"t o0 the
8oods#
On the se1ond e.e*ent, "etitioner dis"utes noti1e o0 insu31ien1/ o0 0unds on the
+asis o0 the 1he1@ +ein8 issued in +.an@# He re.ies on Dingle . !ntermediate
"ppellate #ourt
[33]
and $ao . #ourt of "ppeals
[34]
as his authorities# In +oth a1tions,
ho4ever, the a11used 4ere 1o-si8natories, 4ho 4ere neither a""rised o0 the
"arti1u.ar transa1tions on 4hi1h the +.an@ 1he1@s 4ere issued, nor 8iven noti1e o0
their dishonor# In the .atter 1ase, Lao si8ned the 1he1@s 4ithout @no4.ed8e o0 the
insu31ien1/ o0 0unds, @no4.ed8e she 4as not eB"e1ted or o+.i8ed to "ossess under
the or8ani<ationa. stru1ture o0 the 1or"oration#
[35]
Lao 4as on./ a *inor e*".o/ee
4ho had nothin8 to do 4ith the issuan1e, 0undin8 and de.iver/ o0 1he1@s#
[36]
In
1ontrast, "etitioner 4as the "ro"rietor o0 D/na 2ar@etin8 and the so.e si8nator/ o0
the 1he1@s 4ho re1eived noti1e o0 their dishonor#
Si8ni51ant./, under Se1tion )
[37]
o0 B.P. Blg. 22, "etitioner 4as prima facie "resu*ed
to @no4 o0 the inadeIua1/ o0 his 0unds 4ith the +an@ 4hen he did not "a/ the va.ue
o0 the 8oods or *a@e arran8e*ents 0or their "a/*ent in 0u.. 4ithin 5ve 9&: +an@in8
da/s u"on noti1e# His .etter dated Nove*+er %-, %77) to Li* 0orti5ed su1h
"resu*"tion#
!ndou+ted./, D/ vio.ated B.P. Blg. 22 0or issuin8 FEBT he1@ No# &&(=%&# ?hen
said 1he1@ 4as dishonored 0or insu31ient 0unds and sto" "a/*ent order, "etitioner
did not "a/ or *a@e arran8e*ents 4ith the +an@ 0or its "a/*ent in 0u.. 4ithin 5ve
9&: +an@in8 da/s#
Petitioner shou.d +e eBonerated, ho4ever, 0or issuin8 FEBT he1@ No# &&(=-),
4hi1h 4as dishonored 0or the reason DA!D or dra4n a8ainst un1o..e1ted
de"osit# ?hen the 1he1@ 4as "resented 0or "a/*ent, it 4as dishonored +/ the
+an@ +e1ause the 1he1@ de"osit *ade +/ "etitioner, 4hi1h 4ou.d *a@e "etitionerAs
+an@ a11ount +a.an1e *ore than enou8h to 1over the 0a1e va.ue o0 the su+Ge1t
1he1@, had not +een 1o..e1ted +/ the +an@#
In %an . People,
[38]
this ourt a1Iuitted the "etitioner therein 4ho 4as indi1ted
under B.P. Blg. 22, u"on a 1he1@ 4hi1h 4as dishonored 0or the reason DA!D, a*on8
others# ?e o+served that>
In the se1ond ".a1e, even 4ithout re./in8 on the 1redit .ine, "etitionerAs +an@
a11ount 1overed the 1he1@ she issued +e1ause even thou8h there 4ere so*e
de"osits that 4ere sti.. un1o..e1ted the de"osits +e1a*e J8oodK and the +an@
1erti5ed that the 1he1@ 4as J0unded#K
[3]
To +e .ia+.e under Se1tion %
[43]
o0 B.P. Blg. 22, the 1he1@ *ust +e dishonored +/ the
dra4ee +an@ 0or insu31ien1/ o0 0unds or 1redit or dishonored 0or the sa*e reason
had not the dra4er, 4ithout an/ va.id 1ause, ordered the +an@ to sto" "a/*ent#
In the instant 1ase, even thou8h the 1he1@ 4hi1h "etitioner de"osited on Ju./ )-,
%77) +e1a*e 8ood on./ 5ve 9&: da/s .ater, he 4as 1onsidered +/ the +an@ to
retroa1tive./ have had P%=-,=&7#(7 in his a11ount on Ju./ )), %77)# This 4as *ore
than enou8h to 1over the 1he1@ he issued to res"ondent in the a*ount
o0 P%-=,&67#=-# !nder the 1ir1u*stan1e o+tainin8 in this 1ase, 4e 5nd the
"etitioner had issued the 1he1@, 4ith 0u.. a+i.it/ to a+ide +/ his 1o**it*ent
[41]
to
"a/ his "ur1hases#
Si8ni51ant./, .i@e Arti1.e (%& o0 the Revised Pena. ode, B.P. Blg. 22 a.so s"ea@s on./
o0 insu31ien1/ o0 0unds and does not treat o0 un1o..e1ted de"osits# To re"eat, 4e
1annot inter"ret the .a4 in su1h a 4a/ as to eB"and its "rovision to en1o*"ass the
situation o0 un1o..e1ted de"osits +e1ause it 4ou.d *a@e the .a4 *ore onerous on
the "art o0 the a11used# A8ain, 1ri*ina. statutes are stri1t./ 1onstrued a8ainst the
$overn*ent and .i+era../ in 0avor o0 the a11used#
[42]
As re8ards "etitionerAs 1ivi. .ia+i.it/, this ourt has "revious./ ru.ed that an a11used
*a/ +e he.d 1ivi../ .ia+.e 4here the 0a1ts esta+.ished +/ the eviden1e so 4arrant#
[43]
The rationa.e 0or this is si*".e# The 1ri*ina. and 1ivi. .ia+i.ities o0 an a11used are
se"arate and distin1t 0ro* ea1h other# One is *eant to "unish the oFender 4hi.e
the other is intended to re"air the da*a8e suFered +/ the a88rieved "art/# So, 0or
the "ur"ose o0 inde*ni0/in8 the .atter, the oFense need not +e "roved +e/ond
reasona+.e dou+t +ut on./ +/ "re"onderan1e o0 eviden1e#
[44]
?e there0ore sustain the a""e..ate 1ourtAs a4ard o0 da*a8es to ?#L# Foods in the
tota. a*ount o0 P(((,(6(#7=, re"resentin8 the su* o0 the 1he1@s "etitioner issued
0or 8oods ad*itted./ de.ivered to his 1o*"an/#
As to the a""ro"riate "ena.t/, "etitioner 4as 1har8ed 4ith estafa under Arti1.e (%&,
"ara8ra"h )9d: o0 the Revised Pena. ode, as a*ended +/ Presidentia. De1ree No#
'%'
[45]
9P#D# No# '%':#
!nder Se1tion %
[46]
o0 P#D# No# '%', i0 the a*ount o0 the 0raud
eB1eeds P)),---, the "ena.t/ o0 reclusi&n temporal is i*"osed in its *aBi*u*
"eriod, addin8 one /ear 0or ea1h additiona. P%-,--- +ut the tota. "ena.t/ sha.. not
eB1eed thirt/ 9(-: /ears, 4hi1h sha.. +e ter*ed reclusi&n perpetua#
[47]
'eclusi&n
perpetua is not the "res1ri+ed "ena.t/ 0or the oFense, +ut *ere./ des1ri+es the
"ena.t/ a1tua../ i*"osed on a11ount o0 the a*ount o0 the 0raud invo.ved#
<HERE!ORE, the "etition is PART=> GRANTED. John D/ is here+/ ACQUITTED in
ri*ina. ase No# ;-7(-,=6%% 0or estafa, and ri*ina. ase No# ;-7(-,=6%) 0or
vio.ation o0 B.P. Blg. 22, +ut he is ORDERED to "a/ ?#L# Foods the a*ount
o0 P%-=,&67#=- 0or 8oods de.ivered to his 1o*"an/#
In ri*ina. ase No# ;-7(-,=6%( 0or estafa, the De1ision o0 the ourt o0 A""ea.s
is A!!IRMED "#$% MODI!ICATION# Petitioner is senten1ed to suFer an
indeter*inate "ena.t/ o0 t4e.ve 9%): /ears o0 prisi&n mayor, as *ini*u*, to thirt/
9(-: /ears o0 reclusi&n perpetua, as *aBi*u*#
In ri*ina. ase No# ;-7(-,=6%, 0or vio.ation o0 B.P. Blg. 22, the De1ision o0 the
ourt o0 A""ea.s is A!!IRMED, and John D/ is here+/ senten1ed to one 9%: /ear
i*"rison*ent and ordered to inde*ni0/ ?#L# Foods in the a*ount o0 P))=,67,#(=#
SO ORDERED.
DIGEST
FATS>
Sin1e %77-, John D/ under the +usiness na*e D/na 2ar@etin$ has +een the
distri+utor o0 ?#L# Food Produ1ts 9?#L# Foods:
D/ 4ou.d "a/ ?#L# Foods in either 1ash or 1he1@ u"on "i1@ u" o0 sto1@s o0 sna1@
0oods
At ti*es, he 4ou.d entrust the "a/*ent to one o0 his drivers#
June ),, %77)> D/Ss driver 4ent to the +ran1h o31e o0 ?#L# Foods to "i1@ u" sto1@s
o0 sna1@ 0oods#
He introdu1ed hi*se.0 to the 1he1@er, 2ar/ Jane D# 2ara1a, 4ho u"on 1on5r*in8
D/Ss 1redit 4ith the *ain o31e, 8ave hi* *er1handise 4orth P%-=,&67#=-
In return, the driver handed her a +.an@ Far East Ban@ and Trust o*"an/ 9FEBT:
he1@ "ostdated Ju./ )), %77) si8ned +/ D/
Ju./ %, %77)> the driver o+tained sna1@ 0oods 4orth P))=,67,#(= in eB1han8e 0or a
+.an@ FEBT he1@ "ostdated Ju./ (%, %77)
In +oth instan1es, the driver 4as issued an unsi8ned de.iver/ re1ei"t#
?hen "resented 0or "a/*ent, FEBT dishonored the 1he1@s 0or insu31ien1/ o0
0unds#
Later, $on<a.es sent Att/# Ji*eno another .etter advisin8 her that FEBT he1@ 0or
P%-=,&67#=- 4as returned to the dra4ee +an@ 0or the reasons sto" "a/*ent order
and dra4n a8ainst un1o..e1ted de"osit 9DA!D:, and not +e1ause it 4as dra4n
a8ainst insu31ient 0unds as stated in the 5rst .etter#
D/Ss savin8s de"osit a11ount .ed8er reCe1ted a +a.an1e o0 P%=-,=&7#(7 as o0 Ju./
)), %77)# This, ho4ever, in1.uded a re8iona. 1.earin8 1he1@ 0or P&&,--- 4hi1h he
de"osited on Ju./ )-, %77), and 4hi1h too@ & +an@in8 da/s to 1.ear#
?hen ?i..ia* Li*, o4ner o0 ?#L# Foods, "honed D/ a+out the *atter, the .atter
eB".ained that he 1ou.d not "a/ sin1e he had no 0unds /et#
This "ro*"ted the 0or*er to send "etitioner a de*and .etter, 4hi1h the .atter
i8nored#
Ju./ %=, %77(> Li* 1har8ed D/ 4ith ) 1ounts o0 esta0a under Arti1.e (%&, "ara8ra"h
)9d: o0 RP and ) 1ounts o0 vio.ation o0 B#P# B.8# ))
RT 1onvi1ted D/ on t4o 1ounts ea1h o0 esta0a and vio.ation o0 B#P# B.8# ))#
A> a3r*ed
D/ 1ontends that the 1he1@s 4ere ineFe1tive./ issued
?#L# FoodsS a11ountant had no authorit/ to 5.. the a*ounts
ISS!E>
?HN D/ is .ia+.e 0or esta0a and in vio.ation o0 BP ))# A1Iuitted 0or the 1ri*ina. 1ases
in re.ation to the 5rst 1he1@#
HELD>
YES +ut on./ 0or the )nd 1he1@#
Esta0a under Arti1.e (%&, "ara8ra"h )9d: o0 the Revised Pena. ode, as a*ended +/
Re"u+.i1 A1t No# ,''& e.e*ents "ostdatin8 or issuan1e o0 a 1he1@ in "a/*ent o0 an
o+.i8ation 1ontra1ted at the ti*e the 1he1@ 4as issued insu31ien1/ o0 0unds to
1over the 1he1@ - in1.udin8 the un1o..e1ted de"osit he had *ore than enou8h 0unds
to 1over the 5rst 1he1@ da*a8e to the "a/ee
Se1tion %7% o0 the Ne8otia+.e Instru*ents La4
TissueT - 5rst de.iver/ o0 an instru*ent, 1o*".ete in 0or*, to a "erson 4ho ta@es it
as a ho.der
Si8ni51ant./, de.iver/ is the 5na. a1t essentia. to the ne8otia+i.it/ o0 an instru*ent#
De.iver/ denotes "h/si1a. trans0er o0 the instru*ent +/ the *a@er or dra4er
1ou".ed 4ith an intention to 1onve/ tit.e to the "a/ee and re1o8ni<e hi* as a
ho.der# It *eans *ore than handin8 over to anotherN it i*"orts su1h trans0er o0 the
instru*ent to another as to ena+.e the .atter to ho.d it 0or hi*se.0
Even i0 the 1he1@s 4ere 8iven to ?#L# Foods in +.an@, this a.one did not *a@e its
issuan1e inva.id#
?hen the 1he1@s 4ere de.ivered to Li*, throu8h his e*".o/ee, he +e1a*e a ho.der
4ith "ri*a 0a1ie authorit/ to 5.. the +.an@s
SE# %,# B.an@sN 4hen *a/ +e 5..ed#-?here the instru*ent is 4antin8 in an/
*ateria. "arti1u.ar,the "erson in "ossession thereo0 has a "ri*a 0a1ie authorit/ to
1o*".ete it +/ 5..in8 u" the +.an@s therein# And a si8nature on a +.an@ "a"er
de.ivered +/ the "erson *a@in8 the si8nature in order that the "a"er *a/ +e
1onverted into a ne8otia+.e instru*ent o"erates as a"ri*a 0a1ie authorit/ to 5.. it
u" as su1h 0or an/ a*ount#
The .a4 *ere./ reIuires that the instru*ent +e in the "ossession o0 a "erson other
than the dra4er or *a@er
Fro* su1h "ossession, to8ether 4ith the 0a1t that the instru*ent is 4antin8 in a
*ateria. "arti1u.ar, the .a4 "resu*es a8en1/ to 5.. u" the +.an@s +urden o0 "rovin8
4ant o0 authorit/ or that the authorit/ 8ranted 4as eB1eeded, is ".a1ed on the
"erson Iuestionin8 su1h authorit/ - D/ didnSt 0u.5.. this esta0a "unished under
Arti1.e (%&, "ara8ra"h )9d: o0 the Revised Pena. ode is 1o**itted 4hen a 1he1@ is
dishonored 0or +ein8 dra4n a8ainst insu31ient 0unds or 1.osed a11ount, and not
a8ainst un1o..e1ted de"osit# oro..ari./, the issuer o0 the 1he1@ is not .ia+.e 0or
esta0a i0 the re*ainin8 +a.an1e and the un1o..e1ted de"osit, 4hi1h 4as du./
1o..e1ted, 1ou.d satis0/ the a*ount o0 the 1he1@ 4hen "resented 0or "a/*ent#
B#P# B.8# )) e.e*ents U *a.u* "rohi+itu*
the *a@in8, dra4in8 and issuan1e o0 an/ 1he1@ to a""./ to a11ount or 0or va.ue the
@no4.ed8e o0 the *a@er, dra4er or issuer that at the ti*e o0 issue he does not have
su31ient 0unds in or 1redit 4ith the dra4ee +an@ 0or the "a/*ent o0 su1h 1he1@ in
0u.. u"on its "resent*ent su+seIuent dishonor o0 the 1he1@ +/ the dra4ee +an@ 0or
insu31ien1/ o0 0unds or 1redit or dishonor 0or the sa*e reason had not the dra4er,
4ithout an/ va.id 1ause, ordered the +an@ to sto" "a/*ent - 1onsidered +/ the +an@
to retroa1tive./ have had P%=-,=&7#(7 in his a11ount on Ju./ )), %77) 4hi1h 4as
*ore than enou8h to 1over the 5rst 1he1@# D/ ad*itted that he issued the 1he1@s,
and that the si8natures a""earin8 on the* 4ere his Se1tion ) o0 B#P# B.8# )),
"etitioner 4as "ri*a 0a1ie "resu*ed to @no4 o0 the inadeIua1/ o0 his 0unds 4ith
the +an@ 4hen he did not "a/ the va.ue o0 the 8oods or *a@e arran8e*ents 0or
their "a/*ent in 0u.. 4ithin & +an@in8 da/s u"on noti1e
G.R. N-. 11113 ?5(, 27, 15
=ORETO D. DE =A @ICTORIA, )+ C#$6 !#+7)* -0 M)(A)5, C#$6 )(A #( %#+
4,&+-()* 7)4)7#$6 )+ :)&(#+%,,, "etitioner,
vs#
HON. ?OSE P. BURGOS, P&,+#A#(: ?5A:,, RTC, B&. B@II, C,85 C#$6, )(A RAU=
H. SESBRECO, res"ondents#
BE==OSI==O, J.:
RA!L H# SESBREVO 5.ed a 1o*".aint 0or da*a8es a8ainst Assistant it/ Fis1a.s
Bienvenido N# 2a+anto, Jr#, and Dario D# Ra*a, Jr#, +e0ore the Re8iona. Tria. ourt o0
e+u it/# A0ter tria. Gud8*ent 4as rendered orderin8 the de0endants to "a/
P%%,---#-- to the ".aintiF, "rivate res"ondent herein# The de1ision havin8 +e1o*e
5na. and eBe1utor/, on *otion o0 the .atter, the tria. 1ourt ordered its eBe1ution#
This order 4as Iuestioned +/ the de0endants +e0ore the ourt o0 A""ea.s# Ho4ever,
on %& Januar/ %77) a 4rit o0 eBe1ution 4as issued#
On , Fe+ruar/ %77) a noti1e o0 8arnish*ent 4as served on "etitioner Loreto D# de
.a Li1toria as it/ Fis1a. o0 2andaue it/ 4here de0endant 2a+anto, Jr#, 4as then
detai.ed# The noti1e dire1ted "etitioner not to dis+urse, trans0er, re.ease or 1onve/
to an/ other "erson eB1e"t to the de"ut/ sheriF 1on1erned the sa.ar/ 1he1@s or
other 1he1@s, *onies, or 1ash due or +e.on8in8 to 2a+anto, Jr#, under "ena.t/ o0
.a4#
1
On %- 2ar1h %77) "rivate res"ondent 5.ed a *otion +e0ore the tria. 1ourt 0or
eBa*ination o0 the 8arnishees#
On )& 2a/ %77) the "etition "endin8 +e0ore the ourt o0 A""ea.s 4as dis*issed#
Thus the tria. 1ourt, 5ndin8 no *ore .e8a. o+sta1.e to a1t on the *otion 0or
eBa*ination o0 the 8arnishees, dire1ted "etitioner on , Nove*+er %77) to su+*it
his re"ort sho4in8 the a*ount o0 the 8arnished sa.aries o0 2a+anto, Jr#, 4ithin
50teen 9%&: da/s 0ro* re1ei"t
2
ta@in8 into 1onsideration the "rovisions o0 Se1# %),
"ars# 90: and 9i:, Ru.e (7 o0 the Ru.es o0 ourt#
On ), Nove*+er %77) "rivate res"ondent 5.ed a *otion to reIuire "etitioner to
eB".ain 4h/ he shou.d not +e 1ited in 1onte*"t o0 1ourt 0or 0ai.in8 to 1o*"./ 4ith
the order o0 , Nove*+er %77)#
On the other hand, on %7 Januar/ %77( "etitioner *oved to Iuash the noti1e o0
8arnish*ent 1.ai*in8 that he 4as not in "ossession o0 an/ *one/, 0unds, 1redit,
"ro"ert/ or an/thin8 o0 va.ue +e.on8in8 to 2a+anto, Jr#, eB1e"t his sa.ar/ and RATA
1he1@s, +ut that said 1he1@s 4ere not /et "ro"erties o0 2a+anto, Jr#, unti. de.ivered
to hi*# He 0urther 1.ai*ed that, as su1h, the/ 4ere sti.. "u+.i1 0unds 4hi1h 1ou.d not
+e su+Ge1t to 8arnish*ent#
On 7 2ar1h %77( the tria. 1ourt denied +oth *otions and ordered "etitioner to
i**ediate./ 1o*"./ 4ith its order o0 , Nove*+er %77)#
3
It o"ined that the 1he1@s
o0 2a+anto, Jr#, had a.read/ +een re.eased throu8h "etitioner +/ the De"art*ent o0
Justi1e du./ si8ned +/ the o31er 1on1erned# !"on servi1e o0 the 4rit o0
8arnish*ent, "etitioner as 1ustodian o0 the 1he1@s 4as under o+.i8ation to ho.d
the* 0or the Gud8*ent 1reditor# Petitioner +e1a*e a virtua. "art/ to, or a 0or1ed
intervenor in, the 1ase and the tria. 1ourt there+/ a1Iuired Gurisdi1tion to +ind hi*
to its orders and "ro1esses 4ith a vie4 to the 1o*".ete satis0a1tion o0 the Gud8*ent#
Additiona../, there 4as no su31ient reason 0or "etitioner to ho.d the 1he1@s +e1ause
the/ 4ere no .on8er 8overn*ent 0unds and "resu*a+./ de.ivered to the "a/ee,
1on0or*a+./ 4ith the .ast senten1e o0 Se1# %= o0 the Ne8otia+.e Instru*ents La4#
?ith re8ard to the 1onte*"t 1har8e, the tria. 1ourt 4as not *ora../ 1onvin1ed o0
"etitionerSs 8ui.t# For, 4hi.e his eB".anation suFered 0ro* "ro1edura. in5r*ities
neverthe.ess he too@ "ains in en.i8htenin8 the 1ourt +/ sendin8 a 4ritten
eB".anation dated )) Ju./ %77) reIuestin8 0or the .i0tin8 o0 the noti1e o0
8arnish*ent on the 8round that the noti1e shou.d have +een sent to the Finan1e
O31er o0 the De"art*ent o0 Justi1e# Petitioner insists that he had no authorit/ to
se8re8ate a "ortion o0 the sa.ar/ o0 2a+anto, Jr# The eB".anation ho4ever 4as not
su+*itted to the tria. 1ourt 0or a1tion sin1e the steno8ra"hi1 re"orter 0ai.ed to
atta1h it to the re1ord#
4
On )- A"ri. %77( the *otion 0or re1onsideration 4as denied# The tria. 1ourt
eB".ained that it 4as not the dut/ o0 the 8arnishee to inIuire or Gud8e 0or hi*se.0
4hether the issuan1e o0 the order o0 eBe1ution, 4rit o0 eBe1ution and noti1e o0
8arnish*ent 4as Gusti5ed# His on./ dut/ 4as to turn over the 8arnished 1he1@s to
the tria. 1ourt 4hi1h issued the order o0 eBe1ution#
5
Petitioner raises the 0o..o4in8 re.evant issues> 9%: 4hether a 1he1@ sti.. in the hands
o0 the *a@er or its du./ authori<ed re"resentative is o4ned +/ the "a/ee +e0ore
"h/si1a. de.iver/ to the .atter> and, 9): 4hether the sa.ar/ 1he1@ o0 a 8overn*ent
o31ia. or e*".o/ee 0unded 4ith "u+.i1 0unds 1an +e su+Ge1t to 8arnish*ent#
Petitioner reiterates his "osition that the sa.ar/ 1he1@s 4ere not o4ned +/ 2a+anto,
Jr#, +e1ause the/ 4ere not /et de.ivered to hi*, and that "etitioner as 8arnishee has
no .e8a. o+.i8ation to ho.d and de.iver the* to the tria. 1ourt to +e a"".ied to
2a+anto, Jr#Ss Gud8*ent de+t# The thesis o0 "etitioner is that the sa.ar/ 1he1@s sti..
0or*ed "art o0 "u+.i1 0unds and there0ore +e/ond the rea1h o0 8arnish*ent
"ro1eedin8s#
Petitioner has 4e.. ar8ued his 1ase#
$arnish*ent is 1onsidered as a s"e1ies o0 atta1h*ent 0or rea1hin8 1redits
+e.on8in8 to the Gud8*ent de+tor o4in8 to hi* 0ro* a stran8er to the
.iti8ation#
6
E*"hasis is .aid on the "hrase T+e.on8in8 to the Gud8*ent de+torT sin1e
it is the 0o1a. "oint in reso.vin8 the issues raised#
As Assistant it/ Fis1a., the sour1e o0 the sa.ar/ o0 2a+anto, Jr#, is "u+.i1 0unds# He
re1eives his 1o*"ensation in the 0or* o0 1he1@s 0ro* the De"art*ent o0 Justi1e
throu8h "etitioner as it/ Fis1a. o0 2andaue it/ and head o0 o31e# !nder Se1# %=
o0 the Ne8otia+.e Instru*ents La4, ever/ 1ontra1t on a ne8otia+.e instru*ent is
in1o*".ete and revo1a+.e unti. delieryo0 the instru*ent 0or the "ur"ose o0 8ivin8
eFe1t thereto# As ordinari./ understood, de.iver/ *eans the trans0er o0 the
"ossession o0 the instru*ent +/ the *a@er or dra4er with intent to transfer title to
the payee and recogni(e him as the holder thereof.
7
A11ordin8 to the tria. 1ourt, the 1he1@s o0 2a+anto, Jr#, 4ere a.read/ re.eased +/ the
De"art*ent o0 Justi1e du./ si8ned +/ the o31er 1on1erned throu8h "etitioner and
u"on servi1e o0 the 4rit o0 8arnish*ent +/ the sheriF "etitioner 4as under
o+.i8ation to ho.d the* 0or the Gud8*ent 1reditor# It re1o8ni<ed the ro.e o0 "etitioner
as custodian o0 the 1he1@s# At the sa*e ti*e ho4ever it 1onsidered the 1he1@s as
no .on8er 8overn*ent 0unds and "resu*ed de.ivered to the "a/ee +ased on the .ast
senten1e o0 Se1# %= o0 the Ne8otia+.e Instru*ents La4 4hi1h states> TAnd 4here the
instru*ent is no .on8er in the "ossession o0 a "art/ 4hose si8nature a""ears
thereon, a va.id and intentiona. de.iver/ +/ hi* is "resu*ed#T Yet, the "resu*"tion
is not 1on1.usive +e1ause the .ast "ortion o0 the "rovision sa/s Tunti. the 1ontrar/ is
"roved#T Ho4ever this "hrase 4as deleted +/ the tria. 1ourt 0or no a""arent reason#
Proo0 to the 1ontrar/ is its o4n 5ndin8 that the 1he1@s 4ere in the 1ustod/ o0
"etitioner# Inas*u1h as said 1he1@s had not /et +een de.ivered to 2a+anto, Jr#,
the/ did not belong to himand sti.. had the 1hara1ter o0 "u+.i1 0unds# In %iro
# )ontanosas
8
4e ru.ed that W
The sa.ar/ 1he1@ o0 a 8overn*ent o31er or e*".o/ee su1h as a tea1her does not
+e.on8 to hi* +e0ore it is "h/si1a../ de.ivered to hi*# !nti. that ti*e the 1he1@
+e.on8s to the 8overn*ent# A11ordin8./, +e0ore there is a1tua. de.iver/ o0 the
1he1@, the "a/ee has no "o4er over itN he 1annot assi8n it 4ithout the 1onsent o0
the $overn*ent#
As a ne1essar/ 1onseIuen1e o0 +ein8 "u+.i1 0und, the 1he1@s *a/ not +e 8arnished
to satis0/ the Gud8*ent#

The rationa.e +ehind this do1trine is o+vious 1onsideration

o0 "u+.i1 "o.i1/# The ourt su11in1t./ stated in #ommissioner of Public )ighways .
*an Diego
13
that W
The 0un1tions and "u+.i1 servi1es rendered +/ the State 1annot +e a..o4ed to +e
"ara./<ed or disru"ted +/ the diversion o0 "u+.i1 0unds 0ro* their .e8iti*ate and
s"e1i51 o+Ge1ts, as a""ro"riated +/ .a4#
In den/in8 "etitionerSs *otion 0or re1onsideration, the tria. 1ourt eB"ressed the
additiona. ratio1ination that it 4as not the dut/ o0 the 8arnishee to inIuire or Gud8e
0or hi*se.0 4hether the issuan1e o0 the order o0 eBe1ution, the 4rit o0 eBe1ution,
and the noti1e o0 8arnish*ent 4as Gusti5ed, 1itin8 our ru.in8 in Philippine
#ommercial !ndustrial Bank . #ourt of "ppeals#
11
Our "re1ise ru.in8 in that 1ase 4as
that TDIEt is not in1u*+ent u"on the 8arnishee to inIuire or to Gud8e 0or itse.0
4hether or not the order 0or the advan1e eBe1ution o0 a Gud8*ent is va.id#T But that
is invo@in8 on./ the 8enera. ru.e# ?e have a.so esta+.ished therein the 1o*"e..in8
reasons, as eB1e"tions thereto, 4hi1h 4ere not ta@en into a11ount +/ the tria. 1ourt,
e#8#, a de0e1t on the 0a1e o0 the 4rit or a1tua. @no4.ed8e +/ the 8arnishee o0 .a1@ o0
entit.e*ent on the "art o0 the 8arnisher# It is 4orth to note that the ru.in8 re0erred
to the va.idit/ o0 advan1e eBe1ution o0 Gud8*ents, +ut a 1are0u. s1rutin/ o0 that 1ase
and si*i.ar 1ases revea.s that it 4as a"".i1a+.e to a noti1e o0 8arnish*ent as 4e..#
In the 1ase at +en1h, it 4as in1u*+ent u"on "etitioner to inIuire into the va.idit/ o0
the noti1e o0 8arnish*ent as he had a1tua. @no4.ed8e o0 the non-entit.e*ent o0
"rivate res"ondent to the 1he1@s in Iuestion# onseIuent./, 4e 5nd no di31u.t/
1on1.udin8 that the tria. 1ourt eB1eeded its Gurisdi1tion in issuin8 the noti1e o0
8arnish*ent 1on1ernin8 the sa.ar/ 1he1@s o0 2a+anto, Jr#, in the "ossession o0
"etitioner#
?HEREFORE, the "etition is $RANTED# The orders o0 7 2ar1h %77( and )- A"ri.
%77( o0 the Re8iona. Tria. ourt o0 e+u it/, Br# %6, su+Ge1t o0 the "etition are SET
ASIDE# The noti1e o0 8arnish*ent served on "etitioner dated ( Fe+ruar/ %77) is
ordered DISHAR$ED#
SO ORDERED#
+uiason and ,apunan, --., concur.
S,4)&)$, O4#(#-(+
DA@IDE, ?R., J., 1on1urrin8 and dissentin8>
This ourt *a/ ta@e Gudi1ia. noti1e o0 the 0a1t that 1he1@s 0or sa.aries o0 e*".o/ees
o0 various De"art*ents a.. over the 1ountr/ are "re"ared in 2ani.a not at the end o0
the "a/ro.. "eriod, +ut da/s +e0ore it to ensure that the/ rea1h the e*".o/ees
1on1erned not .ater than the end o0 the "a/ro.. "eriod# As to the e*".o/ees in the
"rovin1es or 1ities, the 1he1@s are sent throu8h the heads o0 the 1orres"ondin8
o31es o0 the De"art*ents# Thus, in the 1ase o0 Prose1utors and Assistant
Prose1utors o0 the De"art*ent o0 Justi1e, the 1he1@s are sent throu8h the Provin1ia.
Prose1utors or it/ Prose1utors, as the 1ase *a/ +e, 4ho sha.. then de.iver the
1he1@s to the "a/ees#
Invo.ved in the instant 1ase are the sa.ar/ and RATA 1he1@s o0 then Assistant it/
Fis1a. Bienvenido 2a+anto, Jr#, 4ho 4as detai.ed in the O31e o0 the it/ Fis1a. 9no4
Prose1utor: o0 2andaue it/# on0or*a+./ 4ith the a0oresaid "ra1ti1e, these 1he1@s
4ere sent to 2a+anto thru the "etitioner 4ho 4as then the it/ Fis1a. o0 2andaue
it/#
The "onen1ia 0ai.ed to indi1ate the "a/ro.. "eriod 1overed +/ the sa.ar/ 1he1@ and
the *onth to 4hi1h the RATA 1he1@ 1orres"onds#
I res"e1t0u../ su+*it that i0 these sa.ar/ and RATA 1he1@s 1orres"onded,
res"e1tive./, to a "a/ro.. "eriod and to a *onth 4hi1h had a.read/ .a"sed at the
ti*e the noti1e o0 8arnish*ent 4as served, the 8arnish*ent 4ou.d +e va.id, as the
1he1@s 4ou.d then 1ease to +e "ro"ert/ o0 the $overn*ent and 4ou.d +e1o*e
"ro"ert/ o0 2a+anto# !"on the eB"iration o0 su1h "eriod and *onth, the su*s
indi1ated therein 4ere dee*ed auto*ati1a../ se8re8ated 0ro* the +ud8etar/
a..o1ations 0or the De"art*ent o0 Justi1e under the $enera. A""ro"riations A1t#
It *ust +e re1a..ed that the "u+.i1 "o.i1/ a8ainst eBe1ution, atta1h*ent, or
8arnish*ent is dire1ted to "u+.i1 0unds#
Thus, in the 1ase o0 Director of the Bureau of #ommerce and !ndustry
s# #oncepcion
1
4here the 1ore issue 4as 4hether or not the sa.ar/ due 0ro* the
$overn*ent to a "u+.i1 o31er or e*".o/ee 1an, +/ 8arnish*ent, +e sei<ed +e0ore
+ein8 "aid to hi* and a""ro"riated to the "a/*ent o0 his Gud8*ent de+ts, this
ourt he.d>
A ru.e, 4hi1h has never +een serious./ Iuestioned, is that *one/ in the hands o0
"u+.i1 o31ers, a.thou8h it *a/ +e due 8overn*ent e*".o/ees, is not .ia+.e to the
1reditors o0 these e*".o/ees in the "ro1ess o0 8arnish*ent# One reason is, that the
State, +/ virtue o0 its soverei8nt/, *a/ not +e sued in its o4n 1ourts eB1e"t +/
eB"ress authori<ation +/ the Le8is.ature, and to su+Ge1t its o31ers to 8arnish*ent
4ou.d +e to "er*it indire1t./ 4hat is "rohi+ited dire1t./# "nother reason is that
moneys sought to be garnished, as long as they remain in the hands of the
disbursing o.cer of the /oernment, belong to the latter, although the defendant
in garnishment may be entitled to a specifc portion thereof. "nd still another
reason which coers both of the foregoing is that eery consideration of public
policy forbids it.
The !nited States Su"re*e ourt, in the .eadin8 1ase o0 Bu1hanan vs# A.eBander
9D%',=E, , Ho4#, %7:, in s"ea@in8 o0 the ri8ht o0 1reditors o0 sea*en, +/ "ro1ess o0
atta1h*ent, to divert the "u+.i1 *one/ 0ro* its .e8iti*ate and a""ro"riate o+Ge1t,
said>
To state su1h a "rin1i".e is to re0ute it# No 8overn*ent 1an san1tion it# At a.. ti*es it
4ou.d +e 0ound e*+arrassin8, and under so*e 1ir1u*stan1es it *i8ht +e 0ata. to
the "u+.i1 servi1e# # # #*o long as money remains in the hands of a disbursing o.cer,
it is as much the money of the 0nited *tates, as if it had not been drawn from the
treasury# 0ntil paid oer by the agent of the goernment to the person entitled to it,
the fund cannot, in any legal sense, be considered a part of his e1ects#T 9*ee,
0urther, %) R##L#, "# ',%N Xeene vs# S*ith D%7-,E, ,, Ore#, &)&N ?i.d vs# Fer8uson
D%'6%E, )( La# Ann#, 6&)N Ban@ o0 Tennessee vs# Di+re.. D%'&&E, ( Sneed DTenn#E,
(67:# 9e*"hasis su"".ied:
The authorities 1ited in the ponencia are ina"".i1a+.e# $arnished or .evied on
therein 4ere "u+.i1 0unds, to 4it> 9a: the "u*" irri8ation trust 0und de"osited 4ith
the Phi.i""ine Nationa. Ban@ 9PNB: in the a11ount o0 the Irri8ation Servi1e !nit
in'epublic s. PalacioN
2
9+: the de"osits o0 the Nationa. 2edia Produ1tion enter
in %raders 'oyal Bank s. !ntermediate "ppellate #ourtN
3
and 91: the de"osits o0 the
Bureau o0 Pu+.i1 Hi8h4a/s 4ith the PNB under a 1urrent a11ount, 4hi1h *a/ +e
eB"ended on./ 0or their .e8iti*ate o+Ge1t as authori<ed +/ the 1orres"ondin8
.e8is.ative a""ro"riation in #ommissioner of Public )ighways s. Diego#
4
Neither is %iro s. )ontanosas
5
sIuare./ in "oint# The said 1ase invo.ved the va.idit/
o0 ir1u.ar No# )%, series o0 %7=7, issued +/ the Dire1tor o0 Pu+.i1 S1hoo.s 4hi1h
dire1ted that Then1e0orth no 1ashier or dis+ursin8 o31er sha.. "a/ to attorne/s-in-
0a1t or other "ersons 4ho *a/ +e authori<ed under a "o4er o0 attorne/ or other
0or*s o0 authorit/ to 1o..e1t the sa.ar/ o0 an e*".o/ee, eB1e"t 4hen the "ersons so
desi8nated and authori<ed is an i**ediate *e*+er o0 the 0a*i./ o0 the e*".o/ee
1on1erned, and in a.. other 1ases eB1e"t u"on "ro"er authori<ation o0 the Assistant
EBe1utive Se1retar/ 0or Le8a. and Ad*inistrative 2atters, 4ith the re1o**endation
o0 the Finan1ia. Assistant#T Private res"ondent Ya0ra Finan1in8 Enter"rise, 4hi1h had
eBtended .oans to "u+.i1 s1hoo. tea1hers in e+u it/ and o+tained 0ro* the
.atter promissory notes and special powers of attorney authori(ing it to take and
collect their salary checks from the Diision 2.ce in e+u it/ o0 the Bureau o0
Pu+.i1 S1hoo.s, sou8ht, inter alia, to nu..i0/ the ir1u.ar# It is 1.ear that the tea1hers
had in 0a1t assi8ned to or 4aived in 0avor o0 Ya0ra their 0uture sa.aries 4hi1h 4ere
sti.. "u+.i1 0unds# That assi8n*ent or 4aiver 4as 1ontrar/ to "u+.i1 "o.i1/#
I 4ou.d there0ore vote to 8rant the "etition on./ i0 the sa.ar/ and RATA 1he1@s
8arnished 1orres"onds to an uneB"ired "a/ro.. "eriod and RATA *onth, res"e1tive./#
Padilla, -., concurs.
S,4)&)$, O4#(#-(+
DA@IDE, ?R., J., 1on1urrin8 and dissentin8>
This ourt *a/ ta@e Gudi1ia. noti1e o0 the 0a1t that 1he1@s 0or sa.aries o0 e*".o/ees
o0 various De"art*ents a.. over the 1ountr/ are "re"ared in 2ani.a not at the end o0
the "a/ro.. "eriod, +ut da/s +e0ore it to ensure that the/ rea1h the e*".o/ees
1on1erned not .ater than the end o0 the "a/ro.. "eriod# As to the e*".o/ees in the
"rovin1es or 1ities, the 1he1@s are sent throu8h the heads o0 the 1orres"ondin8
o31es o0 the De"art*ents# Thus, in the 1ase o0 Prose1utors and Assistant
Prose1utors o0 the De"art*ent o0 Justi1e, the 1he1@s are sent throu8h the Provin1ia.
Prose1utors or it/ Prose1utors, as the 1ase *a/ +e, 4ho sha.. then de.iver the
1he1@s to the "a/ees#
Invo.ved in the instant 1ase are the sa.ar/ and RATA 1he1@s o0 then Assistant it/
Fis1a. Bienvenido 2a+anto, Jr#, 4ho 4as detai.ed in the O31e o0 the it/ Fis1a. 9no4
Prose1utor: o0 2andaue it/# on0or*a+./ 4ith the a0oresaid "ra1ti1e, these 1he1@s
4ere sent to 2a+anto thru the "etitioner 4ho 4as then the it/ Fis1a. o0 2andaue
it/#
The "onen1ia 0ai.ed to indi1ate the "a/ro.. "eriod 1overed +/ the sa.ar/ 1he1@ and
the *onth to 4hi1h the RATA 1he1@ 1orres"onds#
I res"e1t0u../ su+*it that i0 these sa.ar/ and RATA 1he1@s 1orres"onded,
res"e1tive./, to a "a/ro.. "eriod and to a *onth 4hi1h had a.read/ .a"sed at the
ti*e the noti1e o0 8arnish*ent 4as served, the 8arnish*ent 4ou.d +e va.id, as the
1he1@s 4ou.d then 1ease to +e "ro"ert/ o0 the $overn*ent and 4ou.d +e1o*e
"ro"ert/ o0 2a+anto# !"on the eB"iration o0 su1h "eriod and *onth, the su*s
indi1ated therein 4ere dee*ed auto*ati1a../ se8re8ated 0ro* the +ud8etar/
a..o1ations 0or the De"art*ent o0 Justi1e under the $enera. A""ro"riations A1t#
It *ust +e re1a..ed that the "u+.i1 "o.i1/ a8ainst eBe1ution, atta1h*ent, or
8arnish*ent is dire1ted to "u+.i1 0unds#
Thus, in the 1ase o0 Director of the Bureau of #ommerce and !ndustry
s# #oncepcion
1
4here the 1ore issue 4as 4hether or not the sa.ar/ due 0ro* the
$overn*ent to a "u+.i1 o31er or e*".o/ee 1an, +/ 8arnish*ent, +e sei<ed +e0ore
+ein8 "aid to hi* and a""ro"riated to the "a/*ent o0 his Gud8*ent de+ts, this
ourt he.d>
A ru.e, 4hi1h has never +een serious./ Iuestioned, is that *one/ in the hands o0
"u+.i1 o31ers, a.thou8h it *a/ +e due 8overn*ent e*".o/ees, is not .ia+.e to the
1reditors o0 these e*".o/ees in the "ro1ess o0 8arnish*ent# One reason is, that the
State, +/ virtue o0 its soverei8nt/, *a/ not +e sued in its o4n 1ourts eB1e"t +/
eB"ress authori<ation +/ the Le8is.ature, and to su+Ge1t its o31ers to 8arnish*ent
4ou.d +e to "er*it indire1t./ 4hat is "rohi+ited dire1t./# "nother reason is that
moneys sought to be garnished, as long as they remain in the hands of the
disbursing o.cer of the /oernment, belong to the latter, although the defendant
in garnishment may be entitled to a specifc portion thereof. "nd still another
reason which coers both of the foregoing is that eery consideration of public
policy forbids it.
The !nited States Su"re*e ourt, in the .eadin8 1ase o0 Bu1hanan vs# A.eBander
9D%',=E, , Ho4#, %7:, in s"ea@in8 o0 the ri8ht o0 1reditors o0 sea*en, +/ "ro1ess o0
atta1h*ent, to divert the "u+.i1 *one/ 0ro* its .e8iti*ate and a""ro"riate o+Ge1t,
said>
To state su1h a "rin1i".e is to re0ute it# No 8overn*ent 1an san1tion it# At a.. ti*es it
4ou.d +e 0ound e*+arrassin8, and under so*e 1ir1u*stan1es it *i8ht +e 0ata. to
the "u+.i1 servi1e# # # #*o long as money remains in the hands of a disbursing o.cer,
it is as much the money of the 0nited *tates, as if it had not been drawn from the
treasury# 0ntil paid oer by the agent of the goernment to the person entitled to it,
the fund cannot, in any legal sense, be considered a part of his e1ects#T 9*ee,
0urther, %) R##L#, "# ',%N Xeene vs# S*ith D%7-,E, ,, Ore#, &)&N ?i.d vs# Fer8uson
D%'6%E, )( La# Ann#, 6&)N Ban@ o0 Tennessee vs# Di+re.. D%'&&E, ( Sneed DTenn#E,
(67:# 9e*"hasis su"".ied:
The authorities 1ited in the ponencia are ina"".i1a+.e# $arnished or .evied on
therein 4ere "u+.i1 0unds, to 4it> 9a: the "u*" irri8ation trust 0und de"osited 4ith
the Phi.i""ine Nationa. Ban@ 9PNB: in the a11ount o0 the Irri8ation Servi1e !nit
in'epublic s. PalacioN
2
9+: the de"osits o0 the Nationa. 2edia Produ1tion enter
in %raders 'oyal Bank s. !ntermediate "ppellate #ourtN
3
and 91: the de"osits o0 the
Bureau o0 Pu+.i1 Hi8h4a/s 4ith the PNB under a 1urrent a11ount, 4hi1h *a/ +e
eB"ended on./ 0or their .e8iti*ate o+Ge1t as authori<ed +/ the 1orres"ondin8
.e8is.ative a""ro"riation in #ommissioner of Public )ighways s. Diego#
4
Neither is %iro s. )ontanosas
5
sIuare./ in "oint# The said 1ase invo.ved the va.idit/
o0 ir1u.ar No# )%, series o0 %7=7, issued +/ the Dire1tor o0 Pu+.i1 S1hoo.s 4hi1h
dire1ted that Then1e0orth no 1ashier or dis+ursin8 o31er sha.. "a/ to attorne/s-in-
0a1t or other "ersons 4ho *a/ +e authori<ed under a "o4er o0 attorne/ or other
0or*s o0 authorit/ to 1o..e1t the sa.ar/ o0 an e*".o/ee, eB1e"t 4hen the "ersons so
desi8nated and authori<ed is an i**ediate *e*+er o0 the 0a*i./ o0 the e*".o/ee
1on1erned, and in a.. other 1ases eB1e"t u"on "ro"er authori<ation o0 the Assistant
EBe1utive Se1retar/ 0or Le8a. and Ad*inistrative 2atters, 4ith the re1o**endation
o0 the Finan1ia. Assistant#T Private res"ondent Ya0ra Finan1in8 Enter"rise, 4hi1h had
eBtended .oans to "u+.i1 s1hoo. tea1hers in e+u it/ and o+tained 0ro* the
.atter promissory notes and special powers of attorney authori(ing it to take and
collect their salary checks from the Diision 2.ce in e+u it/ o0 the Bureau o0
Pu+.i1 S1hoo.s, sou8ht, inter alia, to nu..i0/ the ir1u.ar# It is 1.ear that the tea1hers
had in 0a1t assi8ned to or 4aived in 0avor o0 Ya0ra their 0uture sa.aries 4hi1h 4ere
sti.. "u+.i1 0unds# That assi8n*ent or 4aiver 4as 1ontrar/ to "u+.i1 "o.i1/#
I 4ou.d there0ore vote to 8rant the "etition on./ i0 the sa.ar/ and RATA 1he1@s
8arnished 1orres"onds to an uneB"ired "a/ro.. "eriod and RATA *onth, res"e1tive./#
DIGEST
!ACTS:
Assistant it/ Fis1a. Bienvenido N# 2a+anto 4as ordered to "a/ herein "rivate
res"ondent Rau. Ses+reZo P%%,---#-- as da*a8es# A noti1e o0 8arnish*ent 4as
served on herein "etitioner Loreto D# de .a Li1toria as it/ Fis1a. o0 2andaue it/
4here 2a+anto 4as detai.ed# L 4as dire1ted not to dis+urse, trans0er, re.ease or
1onve/ to an/ other "erson eB1e"t to the de"ut/ sheriF 1on1erned the sa.ar/
1he1@s or other 1he1@s, *onies, or 1ash due or +e.on8in8 to 2a+anto, Jr#, under
"ena.t/ o0 .a4# Later, L 4as dire1ted to su+*it his re"ort sho4in8 the a*ount o0 the
8arnished sa.aries# L *oved to Iuash the noti1e o0 8arnish*ent 1.ai*in8 that he
4as not in "ossession o0 an/ *one/, 0unds, 1redit, "ro"ert/ or an/thin8 o0 va.ue
+e.on8in8 to 2a+anto, Jr#, eB1e"t his sa.ar/ and RATA 1he1@s, +ut that said 1he1@s
4ere not /et "ro"erties o0 2a+anto, Jr#, unti. de.ivered to hi*# He 0urther 1.ai*ed
that, as su1h, the/ 4ere sti.. "u+.i1 0unds 4hi1h 1ou.d not +e su+Ge1t to
8arnish*ent#
ISSUE:
?HN a 1he1@ sti.. in the hands o0 the *a@er or its du./ authori<ed re"resentative is
o4ned +/ the "a/ee +e0ore "h/si1a. de.iver/ to the .atter#
RU=ING:
As Assistant it/ Fis1a., the sour1e o0 the sa.ar/ o0 2a+anto, Jr#, is "u+.i1 0unds# He
re1eives his 1o*"ensation in the 0or* o0 1he1@s 0ro* the DOJ throu8h L as it/
Fis1a. o0 2andaue it/ and head o0 o31e# !nder Se1# %= o0 the Ne8otia+.e
Instru*ents La4, ever/ 1ontra1t on a ne8otia+.e instru*ent is in1o*".ete and
revo1a+.e unti. deliery o0 the instru*ent 0or the "ur"ose o0 8ivin8 eFe1t thereto# As
ordinari./ understood, de.iver/ *eans the trans0er o0 the "ossession o0 the
instru*ent +/ the *a@er or dra4er with intent to transfer title to the payee and
recogni(e him as the holder thereof.
Inas*u1h as said 1he1@s had not /et +een de.ivered to 2a+anto, Jr#, the/ did not
belong to him and sti.. had the 1hara1ter o0 "u+.i1 0unds# The sa.ar/ 1he1@ o0 a
8overn*ent o31er or e*".o/ee does not +e.on8 to hi* +e0ore it is "h/si1a../
de.ivered to hi*# !nti. that ti*e the 1he1@ +e.on8s to the 8overn*ent# A11ordin8./,
+e0ore there is a1tua. de.iver/ o0 the 1he1@, the "a/ee has no "o4er over itN he
1annot assi8n it 4ithout the 1onsent o0 the $overn*ent# Bein8 "u+.i1 0und, the
1he1@s *a/ not +e 8arnished to satis0/ the Gud8*ent in 1onsideration o0 "u+.i1
"o.i1/#
BAND O! THE PHI=IPPINE IS=ANDS, P,$#$#-(,&,
.2,&+5+.
GREGORIO C. ROBAS, R,+4-(A,($.
G.R. N-. 157833O7$-8,& 15, 2337
DECISION
SANDO@A=.GUTIERREE, J.:
For our reso.ution is the instant Petition 0or Revie4 on #ertiorari assai.in8 the
De1ision
D%E
o0 the ourt o0 A""ea.s 9Fourth Division: dated Fe+ruar/ %(, )--( in A-
$#R# L No# =67'-#
The 0a1ts o0 the 1ase, as 0ound +/ the tria. 1ourt and a3r*ed +/ the ourt o0
A""ea.s, are>
$re8orio # RoBas, res"ondent, is a trader# So*eti*e in 2ar1h %77(, he de.ivered
sto1@s o0 ve8eta+.e oi. to s"ouses Rodri8o and 2arissa a4i.i# As "a/*ent there0or,
s"ouses a4i.i issued a "ersona. 1he1@ in the a*ount o0 P(,','-&#&-# Ho4ever,
4hen res"ondent tried to en1ash the 1he1@, it 4as dishonored +/ the dra4ee
+an@# S"ouses a4i.i then assured hi* that the/ 4ou.d re".a1e the +oun1ed 1he1@
4ith a 1ashierAs 1he1@ 0ro* the Ban@ o0 the Phi.i""ine Is.ands 9BPI:, "etitioner#
On 2ar1h (%, %77(, res"ondent and Rodri8o a4i.i 4ent to "etitionerAs +ran1h
at Sha4 Bou.evard, 2anda.u/on8 it/ 4here E.*a a"istrano, the +ran1h *ana8er,
"ersona../ attended to the*# !"on E.*aAs instru1tions, Lita Sa8un, the +an@ te..er,
"re"ared BPI ashierAs he1@ No# %,,)' in the a*ount o0 P(,','-&#&-, dra4n
a8ainst the a11ount o0 2arissa a4i.i, "a/a+.e to res"ondent# Rodri8o then handed
the 1he1@ to res"ondent in the "resen1e o0 E.*a#
The 0o..o4in8 da/, A"ri. %, %77(, res"ondent returned to "etitionerAs +ran1h at Sha4
Bou.evard to en1ash the 1ashierAs 1he1@ +ut it 4as dishonored# E.*a in0or*ed hi*
that 2arissaAs a11ount 4as 1.osed on that date#
Des"ite res"ondentAs insisten1e, the +an@ o31ers re0used to en1ash the 1he1@ and
tried to retrieve it 0ro* res"ondent# He then 1a..ed his .a4/er 4ho advised hi* to
de"osit the 1he1@ in his 9res"ondentAs: a11ount at it/trust, Orti8as
Avenue# Ho4ever, the 1he1@ 4as dishonored on the 8round JA11ount .osed#K
On Se"te*+er )(, %77(, res"ondent 5.ed 4ith the Re8iona. Tria. ourt, Bran1h
)=(, Pasi8 it/ a 1o*".aint 0or su* o0 *one/ a8ainst "etitioner, do1@eted as ivi.
ase No# =(==(# Res"ondent "ra/ed that "etitioner +e ordered to "a/ the a*ount
o0 the 1he1@, da*a8es and 1ost o0 the suit#
In its ans4er, "etitioner s"e1i51a../ denied the a..e8ations in the 1o*".aint,
1.ai*in8 that it issued the 1he1@ +/ *ista@e in 8ood 0aithN that its dishonor 4as due
to .a1@ o0 1onsiderationN and that res"ondentAs re*ed/ 4as to sue Rodri8o a4i.i
4ho "ur1hased the 1he1@# As a 1ounter1.ai*, "etitioner "ra/ed that res"ondent +e
ordered to "a/ attorne/As 0ees and eB"enses o0 .iti8ation#
Petitioner 5.ed a third-"art/ 1o*".aint a8ainst s"ouses a4i.i# The/ 4ere .ater
de1.ared in de0au.t 0or their 0ai.ure to 5.e their ans4er#
A0ter tria., the RT rendered a De1ision, the dis"ositive "ortion o0 4hi1h reads>
?HEREFORE, in vie4 o0 the 0ore8oin8 "re*ises, this ourt here+/ renders
Gud8*ent in 0avor o0 herein ".aintiF and orders the de0endant, Ban@ o0 the Phi.i""ine
Is.ands, to "a/ $erardo # RoBas>

%: The su* o0 P(,','-&#&-, the 0a1e va.ue o0 the 1ashierAs 1he1@, 4ith .e8a.
interest thereon 1o*"uted 0ro* A"ri. %, %77( unti. the a*ount is 0u../ "aidN
): The su* o0 P&-,---#-- 0or *ora. da*a8esN
(: The su* o0 P&-,---#-- as eBe*".ar/ da*a8es to serve as an eBa*".e 0or the
"u+.i1 8oodN
,: The su* o0 P)&,---#-- 0or and as attorne/As 0eesN and the
&: osts o0 suit#
As to the third-"art/ 1o*".aint, third-"art/ de0endants S"ouses Rodri8o and 2arissa
a4i.i are here+/ ordered to inde*ni0/ de0endant Ban@ o0 the Phi.i""ine Is.ands
su1h a*ount9s: adGud8ed and a1tua../ "aid +/ it to herein ".aintiF $re8orio #
RoBas, in1.udin8 the 1osts o0 suit#
SO ORDERED#
On a""ea., the ourt o0 A""ea.s, in its De1ision, a3r*ed the tria. 1ourtAs Gud8*ent#
Hen1e, this "etition#
Petitioner as1ri+es to the ourt o0 A""ea.s the 0o..o4in8 errors> 9%: in 5ndin8 that
res"ondent is a ho.der in due 1ourseN and 9): in ho.din8 that it 9"etitioner: is .ia+.e
to res"ondent 0or the a*ount o0 the 1ashierAs 1he1@#
Se1tion &) o0 the Ne8otia+.e Instru*ents La4 "rovides>
SE# &)# 3hat constitutes a holder in due course# Q A ho.der in due 1ourse is a
ho.der 4ho has ta@en the instru*ent under the 0o..o4in8 1onditions>
9a: That it is 1o*".ete and re8u.ar u"on its 0a1eN
9+: That he +e1a*e the ho.der o0 it +e0ore it 4as overdue and 4ithout noti1e that
it had +een "revious./ dishonored, i0 su1h 4as the 0a1tN
91: That he too@ it in 8ood 0aith and 0or va.ueN
9d: That at the ti*e it 4as ne8otiated to hi*, he had no noti1e o0 an/ in5r*it/ in
the instru*ent or de0e1t in the tit.e o0 "erson ne8otiatin8 it#

As a 8enera. ru.e, under the a+ove "rovision, ever/ ho.der is
"resu*ed prima facie to +e a ho.der in due 1ourse# One 4ho 1.ai*s other4ise has
the onus probandi to "rove that one or *ore o0 the 1onditions reIuired to 1onstitute
a ho.der in due 1ourse are .a1@in8# In this 1ase, "etitioner 1ontends that the
e.e*ent o0 Jva.ueK is not "resent, there0ore, res"ondent 1ou.d not +e a ho.der in
due 1ourse#
PetitionerAs 1ontention .a1@s *erit# Se1tion )& o0 the sa*e .a4 states>
SE# )&# 4alue, what constitutes# Q La.ue is an/ 1onsideration su31ient to
su""ort a si*".e 1ontra1t# An ante1edent or "re-eBistin8 de+t 1onstitutes va.ueN
and is dee*ed as su1h 4hether the instru*ent is "a/a+.e on de*and or at a 0uture
ti*e#
In 3alker 'ubber #orp. . 5ederlandsch !ndische 6 )andelsbank, 5.4. and
*outh *ea *urety 6 !nsurance #o., !nc.,
D)E
this ourt ru.ed that va.ue Jin 8enera.
ter*s *a/ +e so*e ri8ht, interest, "ro5t or +ene5t to the "art/ 4ho *a@es the
1ontra1t or so*e 0or+earan1e, detri*ent, .oan, res"onsi+i.it/, et1# on the other
side#K Here, there is no dis"ute that res"ondent re1eived Rodri8o a4i.iAs 1ashierAs
1he1@ as "a/*ent 0or the 0or*erAs ve8eta+.e oi.# The 0a1t that it 4as Rodri8o 4ho
"ur1hased the 1ashierAs 1he1@ 0ro*"etitioner 4i.. not aFe1t res"ondentAs status as a
ho.der 0or va.ue sin1e the 1he1@ 4as de.ivered to hi* as "a/*ent 0or the ve8eta+.e
oi. he so.d to s"ouses a4i.i# Leri./, the ourt o0 A""ea.s did not err in 1on1.udin8
that res"ondent is a ho.der in due 1ourse o0 the 1ashierAs 1he1@#
Further*ore, it +ears e*"hasis that the dis"uted 1he1@ is a 1ashierAs
1he1@# In !nternational #orporate Bank . *pouses /ueco,
D(E
this ourt he.d that a
1ashierAs 1he1@ is rea../ the +an@As o4n 1he1@ and *a/ +e treated as a "ro*issor/
note 4ith the +an@ as the *a@er# The 1he1@ +e1o*es the 4&#')&6 -8*#:)$#-( -0
$%, 8)(; "%#7% #++5,+ #$ )(A 7-(+$#$5$,+ ) "&#$$,( 4&-'#+, $- 4)6 54-(
A,')(A# In 5ew Pacifc %imber 6 *upply #o. !nc. . *e7eris,
D,E
this ourt too@
Gudi1ia. noti1e o0 the J4e..-@no4n and a11e"ted "ra1ti1e in the +usiness se1tor that
a 1ashierAs 1he1@ is dee*ed as 1ash#K This is +e1ause $%, ',&, #++5)(7, -0 )
7)+%#,&F+ 7%,7; #+ 7-(+#A,&,A )77,4$)(7, $%,&,-0#
In vie4 o0 the a+ove "ronoun1e*ents, "etitioner +an@ +e1a*e .ia+.e to res"ondent
0ro* the *o*ent it issued the 1ashierAs 1he1@# Havin8 +een a11e"ted +/
res"ondent, su+Ge1t to no 1ondition 4hatsoever, "etitioner shou.d have "aid the
sa*e u"on "resent*ent +/ the 0or*er#
<HERE!ORE, the "etition is DENIED# The assai.ed De1ision o0 the ourt o0
A""ea.s 9Fourth Division: in A-$#R# L No# =67'- is A!!IRMED# osts a8ainst
"etitioner#
SO ORDERED#
DIGEST
!ACTS:
$re8orio RoBas, as trader, de.ivered sto1@s o0 ve8eta+.e oi. to S"ouses Rodri8o and
2arissaa4i.i# As "a/*ent, the/ issued a "ersona. 1he1@ a*ountin8 to
PHP(,','-&#&- 4hi1h 4asdishonored +/ the dra4ee +an@ 4hen res"ondent tried to
en1ash#The S"ouses a4i.i re".a1ed the 1he1@ 4ith a 1ashierSs 1he1@ 0ro* Ban@ o0
the Phi.i""ine Is.and9Petitioner:# The 1ashierSs 1he1@ 4as dra4n a8ainst the a11ount
o0 2arissa a4i.i# The ashier he1@4as 4anded to res"ondent +/ Rodri8o
a4i.i#?hen res"ondent tried to en1ash the ashier he1@, it 4as dishonored on the
8round that thea11ount o0 2arissa 4as 1.osed on the sa*e date that res"ondent
tried to en1ash# Res"ondenttherea0ter 5.ed a 1o*".aint 4ith the Re8iona. Tria. ourt
0or a su* o0 *one/ "ra/in8 that "etitioner "a/hi* the a*ount o0 the 1ha1@,
da*a8es and 1ost o0 the suit#The RT in its de1ision he.d that Petitioner is .ia+.e to
"a/ the 0a1e va.ue o0 the 1ashierSs 1he1@a*ountin8 to PHP (',, '-&#&-# On a""ea.,
the A a3r*ed the de1ision o0 the RT# Hen1e, the 5.in8o0 the Petition 0or ertiorari
+/ the "etitioner#
LA? INLOLLED> Se1 &- and Se1# )& o0 NIL
ISSUE:
9%: ?hether or not the res"ondent is a ho.der in due 1ourseP
9): ?hether or not "etitioner is .ia+.e to res"ondent 0or the a*ount o0 the 1ashierAs
1he1@P
HE=D
>The "etition is DENIED# The assai.ed De1ision o0 the ourt o0 A""ea.s 9Fourth
Division: is AFFIR2ED# He.d D%E>
Petitioner 1ontends that the e.e*ent o0 Tva.ueT is not "resent, there0ore, res"ondent
1ou.d not+e a ho.der in due 1ourse#There is no dis"ute that res"ondent re1eived
Rodri8o a4i.iAs 1ashierAs 1he1@ as "a/*ent 0or the 0or*erAs ve8eta+.e oi.# The 0a1t
that it 4as Rodri8o 4ho "ur1hased the 1ashierAs 1he1@ 0ro*"etitioner 4i.. not aFe1t
res"ondentAs status as a ho.der 0or va.ue sin1e the 1he1@ 4as de.ivered to hi*as
"a/*ent 0or the ve8eta+.e oi. he so.d to s"ouses a4i.i# Leri./, the ourt o0 A""ea.s
did not err in
G.R. N-. 3373 D,7,'8,& 21, 12
REPUB=IC P=ANTERS BAND, "etitioner,
vs#
COURT O! APPEA=S )(A !ERMIN CAN=AS, res"ondents#

CAMPOS, ?R., J.:
This is an a""ea. +/ 4a/ o0 a Petition 0or Revie4 on #ertiorari 0ro* the de1ision G o0
the ourt o0 A""ea.s in A $#R# L No# -6(-), entit.ed TRe"u+.i1 P.anters
Ban@#P.aintiF-A""e..ee vs# Pin1h 2anu0a1turin8 or"oration, et a.#, De0endants, and
Fer*in an.as, De0endant-A""e..antT, 4hi1h a3r*ed the de1ision GG in ivi. ase
No# ')-&,,' eB1e"t that it 1o*".ete./ a+so.ved Fer*in an.as 0ro* .ia+i.it/ under
the "ro*issor/ notes and redu1ed the a4ard 0or da*a8es and attorne/Ss 0ees# The
RT de1ision, rendered on June )-, %7'&, is Iuoted hereunder>
?HEREFORE, "re*ises 1onsidered, Gud8*ent is here+/ rendered in 0avor o0 the
".aintiF Re"u+.i1 P.anters Ban@, orderin8 de0endant Pin1h 2anu0a1turin8
or"oration 90or*er./ ?or.d4ide $ar*ent 2anu0a1turin8, In1#: and de0endants
Sho<o Ya*a8u1hi and Fer*in an.as to "a/, Goint./ and severa../, the ".aintiF +an@
the 0o..o4in8 su*s 4ith interest thereon at %=M "er annu* 0ro* the dates
indi1ated, to 4it>
!nder the "ro*issor/ note 9EBhi+it TAT:, the su* o0 P(--,---#-- 4ith interest 0ro*
Januar/ )7, %7'% unti. 0u../ "aidN under "ro*issor/ note 9EBhi+it TBT:, the su* o0
P,-,---#-- 4ith interest 0ro* Nove*+er )6, %7'-N under the "ro*issor/ note
9EBhi+it TT:, the su* o0 P%==,,==#-- 4hi1h interest 0ro* Januar/ )7, %7'%N under
the "ro*issor/ note 9EBhi+it TET:, the su* o0 P'=,%(-#(% 4ith interest 0ro* Januar/
)7, %7'%N under the "ro*issor/ note 9EBhi+it T$T:, the su* o0 P%),6-(#6- 4ith
interest 0ro* Nove*+er )6, %7'-N under the "ro*issor/ note 9EBhi+it THT:, the su*
o0 P)'%,'6&#7% 4ith interest 0ro* Januar/ )7, %7'%N and under the "ro*issor/ note
9EBhi+it TIT:, the su* o0 P)--,---#-- 4ith interest 0ro* Januar/ )7, %7'%#
!nder the "ro*issor/ note 9EBhi+it TDT: de0endants Pin1h 2anu0a1turin8
or"oration 90or*er./ na*ed ?or.d4ide $ar*ent 2anu0a1turin8, In1#:, and Sho<o
Ya*a8u1hi are ordered to "a/ Goint./ and severa../, the ".aintiF +an@ the su* o0
P(=6,---#-- 4ith interest o0 %=M "er annu* 0ro* Januar/ )7, %7'- unti. 0u../ "aid
!nder the "ro*issor/ note 9EBhi+it TFT: de0endant 1or"oration Pin1h 90or*er./
?or.d4ide: is ordered to "a/ the ".aintiF +an@ the su* o0 P%,-,---#-- 4ith interest
at %=M "er annu* 0ro* Nove*+er )6, %7'- unti. 0u../ "aid#
De0endant Pin1h 90or*e./ ?or.d4ide: is here+/ ordered to "a/ the ".aintiF the su*
o0 P)(%,%)-#'% 4ith interest at %)M "er annu* 0ro* Ju./ %, %7'%, unti. 0u../ "aid
and the su* o0 P((%,'6-#76 4ith interest 0ro* 2ar1h )', %7'%, unti. 0u../ "aid#
A.. the de0endants are a.so ordered to "a/, Goint./ and severa../, the ".aintiF the
su* o0 P%--,---#-- as and 0or reasona+.e attorne/Ss 0ee and the 0urther su*
eIuiva.ent to (M "er annu* o0 the res"e1tive "rin1i"a. su*s 0ro* the dates a+ove
stated as "ena.t/ 1har8e unti. 0u../ "aid, ".us one "er1ent 9%M: o0 the "rin1i"a. su*s
as servi1e 1har8e#
?ith 1osts a8ainst the de0endants#
SO ORDERED#
1
Fro* the a+ove de1ision on./ de0endant Fer*in an.as a""ea.ed to the then
Inter*ediate ourt 9no4 the ourt A""ea.s:# His 1ontention 4as that inas*u1h as
he si8ned the "ro*issor/ notes in his 1a"a1it/ as o31er o0 the de0un1t ?or.d4ide
$ar*ent 2anu0a1turin8, In1, he shou.d not +e he.d "ersona../ .ia+.e 0or su1h
authori<ed 1or"orate a1ts that he "er0or*ed# It is no4 the 1ontention o0 the
"etitioner Re"u+.i1 P.anters Ban@ that havin8 un1onditiona../ si8ned the nine 97:
"ro*issor/ notes 4ith Sho<o Ya*a8u1hi, Goint./ and severa../, de0endant Fer*in
an.as is so.idarit/ .ia+.e 4ith Sho<o Ya*a8u1hi on ea1h o0 the nine notes#
?e 5nd *erit in this a""ea.#
Fro* the re1ords, these 0a1ts are esta+.ished> De0endant Sho<o Ya*a8u1hi and
"rivate res"ondent Fer*in an.as 4ere PresidentHhie0 O"eratin8 O31er and
Treasurer res"e1tive./, o0 ?or.d4ide $ar*ent 2anu0a1turin8, In1## B/ virtue o0
Board Reso.ution No#% dated Au8ust %, %767, de0endant Sho<o Ya*a8u1hi and
"rivate res"ondent Fer*in an.as 4ere authori<ed to a""./ 0or 1redit 0a1i.ities 4ith
the "etitioner Re"u+.i1 P.anters Ban@ in the 0or*s o0 eB"ort advan1es and .etters o0
1reditHtrust re1ei"ts a11o**odations# Petitioner +an@ issued nine "ro*issor/ notes,
*ar@ed as EBhi+its A to I in1.usive, ea1h o0 4hi1h 4ere uni0or*./ 4orded in the
0o..o4in8 *anner>
[[[[[[[[[[[, a0ter date, 0or va.ue re1eived, IH4e, Goint./ and severaI./ "ro*ise to "a/
to the ORDER o0 the REP!BLI PLANTERS BANX, at its o31e in 2ani.a, Phi.i""ines,
the su* o0 [[[[[[[[[[[ PESOS9####: Phi.i""ine urren1/###
On the ri8ht +otto* *ar8in o0 the "ro*issor/ notes a""eared the si8natures o0
Sho<o Ya*a8u1hi and Fer*in an.as a+ove their "rinted na*es 4ith the "hrase
Tand 9in: his "ersona. 1a"a1it/T t/"e4ritten +e.o4# At the +otto* o0 the "ro*issor/
notes a""eared> TP.ease 1redit "ro1eeds o0 this note to>
[[[[[[[[ Savin8s A11ount [[[[[[OO urrent A11ount
No# %(6)---)&6-=
o0 ?ORLD?IDE $AR2ENT 2F$# ORP#
These entries 4ere se"arated 0ro* the teBt o0 the notes 4ith a +o.d .ine 4hi1h ran
hori<onta../ a1ross the "a8es#
In the "ro*issor/ notes *ar@ed as EBhi+its , D and F, the na*e ?or.d4ide
$ar*ent 2anu0a1turin8, In1# 4as a""arent./ ru++er sta*"ed a+ove the si8natures
o0 de0endant and "rivate res"ondent#
On De1e*+er )-, %7'), ?or.d4ide $ar*ent 2anu0a1turin8, In1# noted to 1han8e its
1or"orate na*e to Pin1h 2anu0a1turin8 or"oration#
On Fe+ruar/ &, %7'), "etitioner +an@ 5.ed a 1o*".aint 0or the re1over/ o0 su*s o0
*one/ 1overed a*on8 others, +/ the nine "ro*issor/ notes 4ith interest thereon,
".us attorne/Ss 0ees and "ena.t/ 1har8es# The 1o*".ainant 4as ori8ina../ +rou8ht
a8ainst ?or.d4ide $ar*ent 2anu0a1turin8, In1# inter alia, +ut it 4as .ater a*ended
to dro" ?or.d4ide 2anu0a1turin8, In1# as de0endant and su+stitute Pin1h
2anu0a1turin8 or"oration it its ".a1e# De0endants Pin1h 2anu0a1turin8 or"oration
and Sho<o Ya*a8u1hi did not 5.e an A*ended Ans4er and 0ai.ed to a""ear at the
s1hedu.ed "re-tria. 1on0eren1e des"ite due noti1e# On./ "rivate res"ondent Fer*in
an.as 5.ed an A*ended Ans4er 4herein he, denied havin8 issued the "ro*issor/
notes in Iuestion sin1e a11ordin8 to hi*, he 4as not an o31er o0 Pin1h
2anu0a1turin8 or"oration, +ut instead o0 ?or.d4ide $ar*ent 2anu0a1turin8, In1#,
and that 4hen he issued said "ro*issor/ notes in +eha.0 o0 ?or.d4ide $ar*ent
2anu0a1turin8, In1#, the sa*e 4ere in +.an@, the t/"e4ritten entries not a""earin8
therein "rior to the ti*e he a3Bed his si8nature#
In the *ind o0 this ourt, the on./ issue *ateria. to the reso.ution o0 this a""ea. is
4hether "rivate res"ondent Fer*in an.as is so.idari./ .ia+.e 4ith the other
de0endants, na*e./ Pin1h 2anu0a1turin8 or"oration and Sho<o Ya*a8u1hi, on the
nine "ro*issor/ notes#
?e ho.d that "rivate res"ondent Fer*in an.as is so.idari./ .ia+.e on ea1h o0 the
"ro*issor/ notes +earin8 his si8nature 0or the 0o..o4in8 reasons>
The "ro*issor/ *otes are ne8otia+.e instru*ents and *ust +e 8overned +/ the
Ne8otia+.e Instru*ents La4#
2
!nder the Ne8otia+.e .nstru*ents La4, "ersons 4ho 4rite their na*es on the 0a1e
o0 "ro*issor/ notes are *a@ers and are .ia+.e as su1h#
3
B/ si8nin8 the notes, the
*a@er "ro*ises to "a/ to the order o0 the "a/ee or an/ ho.der
4
a11ordin8 to the
tenor thereo0#
5
Based on the a+ove "rovisions o0 .a4, there is no den/in8 that
"rivate res"ondent Fer*in an.as is one o0 the 1o-*a@ers o0 the "ro*issor/ notes#
As su1h, he 1annot es1a"e .ia+i.it/ arisin8 there0ro*#
?here an instru*ent 1ontainin8 the 4ords TI "ro*ise to "a/T is si8ned +/ t4o or
*ore "ersons, the/ are dee*ed to +e Goint./ and severa../ .ia+.e thereon#
6
An
instru*ent 4hi1h +e8insT 4ith TIT ,?eT , or TEither o0 usT "ro*ise to, "a/, 4hen
si8ned +/ t4o or *ore "ersons, *a@es the* so.idari./ .ia+.e#
7
The 0a1t that the
sin8u.ar "ronoun is used indi1ates that the "ro*ise is individua. as to ea1h otherN
*eanin8 that ea1h o0 the 1o-si8ners is dee*ed to have *ade an inde"endent
sin8u.ar "ro*ise to "a/ the notes in 0u..#
In the 1ase at +ar, the so.idar/ .ia+i.it/ o0 "rivate res"ondent Fer*in an.as is *ade
1.earer and 1ertain, 4ithout reason 0or a*+i8uit/, +/ the "resen1e o0 the "hrase
TGoint and severa.T as des1ri+in8 the un1onditiona. "ro*ise to "a/ to the order o0
Re"u+.i1 P.anters Ban@# A Goint and severa. note is one in 4hi1h the *a@ers +ind
the*se.ves +oth Goint./ and individua../ to the "a/ee so that a.. *a/ +e sued
to8ether 0or its en0or1e*ent, or the 1reditor *a/ se.e1t one or *ore as the o+Ge1t o0
the suit# 8 A Goint and severa. o+.i8ation in 1o**on .a4 1orres"onds to a 1ivi. .a4
so.idar/ o+.i8ationN that is, one o0 severa. de+tors +ound in su1h 4ise that ea1h is
.ia+.e 0or the entire a*ount, and not *ere./ 0or his "ro"ortionate share#

B/ *a@in8
a Goint and severa. "ro*ise to "a/ to the order o0 Re"u+.i1 P.anters Ban@, "rivate
res"ondent Fer*in an.as assu*ed the so.idar/ .ia+i.it/ o0 a de+tor and the "a/ee
*a/ 1hoose to en0or1e the notes a8ainst hi* a.one or Goint./ 4ith Ya*a8u1hi and
Pin1h 2anu0a1turin8 or"oration as so.idar/ de+tors#
As to 4hether the inter"o.ation o0 the "hrase Tand 9in: his "ersona. 1a"a1it/T +e.o4
the si8natures o0 the *a@ers in the notes 4i.. aFe1t the .ia+i.it/ o0 the *a@ers, ?e
do not 5nd it ne1essar/ to reso.ve and de1ide, +e1ause it is i**ateria. and 4i.. not
aFe1t to the .ia+i.it/ o0 "rivate res"ondent Fer*in an.as as a Goint and severa.
de+tor o0 the notes# ?ith or 4ithout the "resen1e o0 said "hrase, "rivate res"ondent
Fer*in an.as is "ri*ari./ .ia+.e as a 1o-*a@er o0 ea1h o0 the notes and his .ia+i.it/
is that o0 a so.idar/ de+tor#
Fina../, the res"ondent ourt *ade a 8rave error in ho.din8 that an a*end*ent in a
1or"orationSs Arti1.es o0 In1or"oration eFe1tin8 a 1han8e o0 1or"orate na*e, in this
1ase 0ro* ?or.d4ide $ar*ent *anu0a1turin8 In1 to Pin1h 2anu0a1turin8
or"oration eBtin8uished the "ersona.it/ o0 the ori8ina. 1or"oration#
The 1or"oration, u"on su1h 1han8e in its na*e, is in no sense a ne4 1or"oration,
nor the su11essor o0 the ori8ina. 1or"oration# It is the sa*e 1or"oration 4ith a
diFerent na*e, and its 1hara1ter is in no res"e1t 1han8ed#
13
A 1han8e in the 1or"orate na*e does not *a@e a ne4 1or"oration, and 4hether
eFe1ted +/ s"e1ia. a1t or under a 8enera. .a4, has no aFe1t on the identit/ o0 the
1or"oration, or on its "ro"ert/, ri8hts, or liabilities#
11
The 1or"oration 1ontinues, as +e0ore, res"onsi+.e in its ne4 na*e 0or a.. de+ts or
other .ia+i.ities 4hi1h it had "revious./ 1ontra1ted or in1urred#
12
As a 8enera. ru.e, o31ers or dire1tors under the o.d 1or"orate na*e +ear no
"ersona. .ia+i.it/ 0or a1ts done or 1ontra1ts entered into +/ o31ers o0 the
1or"oration, i0 du./ authori<ed# Inas*u1h as su1h o31ers a1ted in their 1a"a1it/ as
a8ent o0 the o.d 1or"oration and the 1han8e o0 na*e *eant on./ the 1ontinuation o0
the o.d Guridi1a. entit/, the 1or"oration +earin8 the sa*e na*e is sti.. +ound +/ the
a1ts o0 its a8ents i0 authori<ed +/ the Board# !nder the Ne8otia+.e Instru*ents La4,
the .ia+i.it/ o0 a "erson si8nin8 as an a8ent is s"e1i51a../ "rovided 0or as 0o..o4s>
Se1# )-# $iability of a person signing as agent and so forth# ?here the instru*ent
1ontains or a "erson adds to his si8nature 4ords indi1atin8 that he si8ns 0or or on
+eha.0 o0 a "rin1i"a. , or in a re"resentative 1a"a1it/, he is not .ia+.e on the
instru*ent i0 he 4as du./ authori<edN +ut the *ere addition o0 4ords des1ri+in8 hi*
as an a8ent, or as 5..in8 a re"resentative 1hara1ter, 4ithout dis1.osin8 his "rin1i"a.,
does not eBe*"t hi* 0ro* "ersona. .ia+i.it/#
?here the a8ent si8ns his na*e +ut no4here in the instru*ent has he dis1.osed the
0a1t that he is a1tin8 in a re"resentative 1a"a1it/ or the na*e o0 the third "art/ 0or
4ho* he *i8ht have a1ted as a8ent, the a8ent is "ersona../ .ia+.e to ta@e ho.der o0
the instru*ent and 1annot +e "er*itted to "rove that he 4as *ere./ a1tin8 as
a8ent o0 another and "aro. or eBtrinsi1 eviden1e is not ad*issi+.e to avoid the
a8entSs "ersona. .ia+i.it/#
13
On the "rivate res"ondentSs 1ontention that the "ro*issor/ notes 4ere de.ivered to
hi* in +.an@ 0or his si8nature, 4e ru.e other4ise# A 1are0u. eBa*ination o0 the notes
in Iuestion sho4s that the/ are the stereot/"e "rinted 0or* o0 "ro*issor/ notes
8enera../ used +/ 1o**er1ia. +an@in8 institutions to +e si8ned +/ their 1.ients in
o+tainin8 .oans# Su1h "rinted notes are in1o*".ete +e1ause there are +.an@ s"a1es
to +e 5..ed u" on *ateria. "arti1u.ars su1h as "a/eeSs na*e, a*ount o0 the .oan,
rate o0 interest, date o0 issue and the *aturit/ date# The ter*s and 1onditions o0 the
.oan are "rinted on the note 0or the +orro4er-de+tor Ss "erusa.# An in1o*".ete
instru*ent 4hi1h has +een de.ivered to the +orro4er 0or his si8nature is 8overned
+/ Se1tion %, o0 the Ne8otia+.e Instru*ents La4 4hi1h "rovides, in so 0ar as
re.evant to this 1ase, thus>
Se1# %,# Blanks8 when may be flled# W ?here the instru*ent is 4antin8 in an/
*ateria. "arti1u.ar, the "erson in "ossesion thereo0 has a prima facie authorit/ to
1o*".ete it +/ 5..in8 u" the +.an@s therein# ### In order, ho4ever, that an/ su1h
instru*ent 4hen 1o*".eted *a/ +e en0or1ed a8ainst an/ "erson 4ho +e1a*e a
"art/ thereto "rior to its 1o*".etion, it *ust +e 5..ed u" stri1t./ in a11ordan1e 4ith
the authorit/ 8iven and 4ithin a reasona+.e ti*e###
Proo0 that the notes 4ere si8ned in +.an@ 4as on./ the se.0-servin8 testi*on/ o0
"rivate res"ondent Fer*in an.as, as deter*ined +/ the tria. 1ourt, so that the tria.
1ourt SSdou+ts the de0endant 9an.as: si8ned in +.an@ the "ro*issor/ notesT# ?e
1hose to +e.ieve the +an@Ss testi*on/ that the notes 4ere 5..ed u" +e0ore the/ 4ere
8iven to "rivate res"ondent Fer*in an.as and de0endant Sho<o Ya*a8u1hi 0or their
si8natures as Goint and severa. "ro*issors# For si8nin8 the notes a+ove their
t/"e4ritten na*es, the/ +ound the*se.ves as un1onditiona. *a@ers# ?e ta@e
Gudi1ia. noti1e o0 the 1usto*ar/ "ro1edure o0 1o**er1ia. +an@s o0 reIuirin8 their
1.iente.e to si8n "ro*issor/ notes "re"ared +/ the +an@s in "rinted 0or* 4ith +.an@
s"a1es a.read/ 5..ed u" as "er a8reed ter*s o0 the .oan, .eavin8 the +orro4ers-
de+tors to do nothin8 +ut read the ter*s and 1onditions therein "rinted and to si8n
as *a@ers or 1o-*a@ers# ?hen the notes 4ere 8iven to "rivate res"ondent Fer*in
an.as 0or his si8nature, the notes 4ere 1o*".ete in the sense that the s"a1es 0or
the *ateria. "arti1u.ar had +een 5..ed u" +/ the +an@ as "er a8ree*ent# The notes
4ere not in1o*".ete instru*entsN neither 4ere the/ 8iven to "rivate res"ondent
Fer*in an.as in +.an@ as he 1.ai*s# Thus, Se1tion %, o0 the Ne8otia+Ie Instru*ents
La4 is not a"".i1a+.e#
The ru.in8 in 1ase o0 'eformina s. %omol re.ied u"on +/ the a""e..ate 1ourt in
redu1in8 the interest rate on the "ro*issor/ notes 0ro* %=M to %)M "er annu*
does not sIuare./ a""./ to the instant "etition# In the a+ove1ited 1ase, the rate o0
%)M 4as a"".ied to 0ore+earan1es o0 *one/, 8oods or 1redit and 1ourt Gud8e*ets
thereon, on./ in the a+sen1e o0 an/ sti"u.ation +et4een the "arties#
In the 1ase at +ar ho4ever , it 4as 0ound +/ the tria. 1ourt that the rate o0 interest is
7M "er annu*, 4hi1h interest rate the ".aintiF *a/ at an/ ti*e 4ithout noti1e,
raise 4ithin the .i*its a..o4ed .a4# And so, as o0 Fe+ruar/ %=, %7', , the ".aintiF had
5Bed the interest at %=M "er annu*#
This ourt has he.d that the rates under the !sur/ La4, as a*ended +/ Presidentia.
De1ree No# %%=, are a"".i1a+.e on./ to interests +/ 4a/ o0 1o*"ensation 0or the use
or 0ore+earan1e o0 *one/# Arti1.e ))-7 o0 the ivi. ode, on the other hand, 8overns
interests +/ 4a/ o0 da*a8es#
15
This 5ne distin1tion 4as not ta@en into
1onsideration +/ the a""e..ate 1ourt, 4hi1h instead *ade a 8enera. state*ent that
the interest rate +e at %)M "er annu*#
Inas*u1h as this ourt had de1.ared that in1reases in interest rates are not su+Ge1t
to an/ 1ei.in8 "res1ri+ed +/ the !sur/ La4, the a""e..ate 1ourt erred in .i*itin8 the
interest rates at %)M "er annu*# entra. Ban@ ir1u.ar No# 7-&, Series o0 %7')
re*oved the !sur/ La4 1ei.in8 on interest rates#
16
In the %i8ht o0 the 0ore8oin8 ana./sis and under the ".ain .an8ua8e o0 the statute
and Guris"ruden1e on the *atter, the de1ision o0 the res"ondent> ourt o0 A""ea.s
a+so.vin8 "rivate res"ondent Fer*in an.as is RELERSED and SET ASIDE#
Jud8e*ent is here+/ rendered de1.arin8 "rivate res"ondent Fer*in an.as Goint./
and severa../ .ia+.e on all the nine "ro*issor/ notes 4ith the 0o..o4in8 su*s and at
%=M interest "er annu* 0ro* the dates indi1ated, to 4it>
!nder the "ro*issor/ note *ar@ed as eBhi+it A, the su* o0 P(--,---#-- 4ith
interest 0ro* Januar/ )7, %7'% unti. 0u../ "aidN under "ro*issor/ note *ar@ed as
EBhi+it B, the su* o0 P,-,---#-- 4ith interest 0ro* Nove*+er )6, %7'-> under the
"ro*issor/ note deno*inated as EBhi+it , the a*ount o0 P%==,,==#-- 4ith interest
0ro* Januar/ )7, %7'%N under the "ro*issor/ note deno*inated as EBhi+it D, the
a*ount o0 P(=6,---#-- 4ith interest 0ro* Januar/ )7, %7'% unti. 0u../ "aidN under
the "ro*issor/ note *ar@ed as EBhi+it E, the a*ount o0 P'=,%(-#(% 4ith interest
0ro* Januar/ )7, %7'%N under the "ro*issor/ note *ar@ed as EBhi+it F, the su* o0
P%,-,---#-- 4ith interest 0ro* Nove*+er )6, %7'- unti. 0u../ "aidN under the
"ro*issor/ note *ar@ed as EBhi+it $, the a*ount o0 P%),6-(#6- 4ith interest 0ro*
Nove*+er )6, %7'-N the "ro*issor/ note *ar@ed as EBhi+it H, the su* o0
P)'%,'6&#7% 4ith interest 0ro* Januar/ )7, %7'%N and the "ro*issor/ note *ar@ed
as EBhi+it I, the su* o0 P)--,---#-- 4ith interest on Januar/ )7, %7'%#
The .ia+i.ities o0 de0endants Pin1h 2anu0a1turin8 or"oration 90or*er./ ?or.d4ide
$ar*ent 2anu0a1turin8, In1#: and Sho<o Ya*a8u1hi, 0or not havin8 a""ea.ed 0ro*
the de1ision o0 the tria. 1ourt, sha.. +e adGud8ed in a11ordan1e 4ith the Gud8*ent
rendered +/ the ourt a 9uo#
?ith res"e1t to attorne/Ss 0ees, and "ena.t/ and servi1e 1har8es, the "rivate
res"ondent Fer*in an.as is here+/ he.d Goint./ and so.idarit/ .ia+.e 4ith de0endants
0or the a*ounts 0ound, +/ the ourt a 9uo# ?ith 1osts a8ainst "rivate res"ondent#
SO ORDERED#
DIGEST
!ACTS:
In %767, ?or.d $ar*ent 2anu0a1turin8, throu8h its +oard authori<ed Sho<o
Ya*a8u1hi 9"resident: and Fer*in an.as 9treasurer: to o+tain 1redit 0a1i.ities 0ro*
Re"u+.i1 P.anters Ban@ 9RPB:# For this, 7 "ro*issor/ notes 4ere eBe1uted# Ea1h
"ro*issor/ note 4as uni0or*./ 4ritten in the 0o..o4in8 *anner>
The note +e1a*e due and no "a/*ent 4as *ade# RPB eventua../ sued Ya*a8u1hi
and an.as# an.as, in his de0ense, averred that he shou.d not +e he.d "ersona../
.ia+.e 0or su1h authori<ed 1or"orate a1ts that he "er0or*ed inas*u1h as he si8ned
the "ro*issor/ notes in his 1a"a1it/ as o31er o0 the de0un1t ?or.d4ide $ar*ent
2anu0a1turin8#
ISSUE:
?hether or not an.as shou.d +e he.d .ia+.e 0or the "ro*issor/ notes#
HE=D:
Yes# The so.idar/ .ia+i.it/ o0 "rivate res"ondent Fer*in an.as is *ade 1.earer and
1ertain, 4ithout reason 0or a*+i8uit/, +/ the "resen1e o0 the "hrase JGoint and
severa.K as des1ri+in8 the un1onditiona. "ro*ise to "a/ to the order o0 Re"u+.i1
P.anters Ban@# ?here an instru*ent 1ontainin8 the 4ords JI "ro*ise to "a/K is
si8ned +/ t4o or *ore "ersons, the/ are dee*ed to +e Goint./ and severa../ .ia+.e
thereon#
an.as is so.idari./ .ia+.e on ea1h o0 the "ro*issor/ notes +earin8 his si8nature 0or
the 0o..o4in8 reasons>
%he promissory notes are negotiable instruments and must be goerned by the
5egotiable !nstruments $aw.
!nder the Ne8otia+.e .nstru*ents La4, "ersons 4ho 4rite their na*es on the 0a1e
o0 "ro*issor/ notes are *a@ers and are .ia+.e as su1h# B/ si8nin8 the notes, the
*a@er "ro*ises to "a/ to the order o0 the "a/ee or an/ ho.der a11ordin8 to the
tenor thereo0#
CHAPTER 4
G.R. N-. 3348 M)&7% 3, 14
BATAAN CIGAR AND CIGARETTE !ACTOR>, INC., "etitioner,
vs#
THE COURT O! APPEA=S )(A STATE IN@ESTMENT HOUSE, INC., res"ondents#
%eresita /andiongco 2ledan for petitioner.
"caban 6 *abado for priate respondent.
NOCON, J.:
For our revie4 is the de1ision o0 the ourt o0 A""ea.s in the 1ase entit.ed TState
Invest*ent House, In1# v# Bataan i8ar \ i8arette Fa1tor/ In1#,T
1
a3r*in8 the
de1ision o0 the Re8iona. Tria. ourt
2
in a 1o*".aint 5.ed +/ the State Invest*ent
House, In1# 9hereina0ter re0erred to as SIHI: 0or 1o..e1tion on three un"aid 1he1@s
issued +/ Bataan i8ar \ i8arette Fa1tor/, In1# 9hereina0ter re0erred to as BFI:#
The 0ore8oin8 de1isions unani*ous./ ru.ed in 0avor o0 SIHI, the "rivate res"ondent
in this 1ase#
E*anatin8 0ro* the re1ords are the 0o..o4in8 0a1ts# Petitioner, Bataan i8ar \
i8arette Fa1tor/, In1# 9BFI:, a 1or"oration invo.ved in the *anu0a1turin8 o0
1i8arettes, en8a8ed one o0 its su"".iers, Xin8 Ti* Pua $eor8e 9herein a0ter re0erred
to as $eor8e Xin8:, to de.iver ),--- +a.es o0 to+a11o .ea0 startin8 O1to+er %76'# In
1onsideration thereo0, BFI, on Ju./ %(, %76' issued 1rossed 1he1@s "ost dated
so*eti*e in 2ar1h %767 in the tota. a*ount o0 P')-,---#--#
3
Re./in8 on the su"".ierSs re"resentation that he 4ou.d 1o*".ete de.iver/ 4ithin
three *onths 0ro* De1e*+er &, %76', "etitioner a8reed to "ur1hase additiona.
),&-- +a.es o0 to+a11o .eaves, des"ite the su"".ierSs 0ai.ure to de.iver in a11ordan1e
4ith their ear.ier a8ree*ent# A8ain "etitioner issued "ost dated 1rossed 1he1@s in
the tota. a*ount o0 P%,%--,---#--, "a/a+.e so*eti*e in Se"te*+er %767#
4
Durin8 these ti*es, $eor8e Xin8 4as si*u.taneous./ dea.in8 4ith "rivate
res"ondent SIHI# On Ju./ %7, %76', he so.d at a dis1ount 1he1@ TBT
&&%')=
5
+earin8 an a*ount o0 P%=,,---#--, "ost dated 2ar1h (%, %767, dra4n +/
"etitioner, na*in8 $eor8e Xin8 as "a/ee to SIHI# On De1e*+er %7 and )=, %76', he
a8ain so.d to res"ondent 1he1@s TBT Nos# =-'7=6 \ =-'7=',
6
+oth in the a*ount
o0 P%--,---#--, "ost dated Se"te*+er %& \ (-, %767 res"e1tive./, dra4n +/
"etitioner in 0avor o0 $eor8e Xin8#
In as *u1h as $eor8e Xin8 0ai.ed to de.iver the +a.es o0 to+a11o .ea0 as a8reed
des"ite "etitionerSs de*and, BFI issued on 2ar1h (-, %767, a sto" "a/*ent order
on a.. 1he1@s "a/a+.e to $eor8e Xin8, in1.udin8 1he1@ TBT &&%')=# Su+seIuent./,
sto" "a/*ent 4as a.so ordered on 1he1@s TBT Nos# =-'7=6 \ =-'7=' on
Se"te*+er %, \ )', %767, res"e1tive./, due to $eor8e Xin8Ss 0ai.ure to de.iver the
to+a11o .eaves#
EForts o0 SIHI to 1o..e1t 0ro* BFI havin8 0ai.ed, it instituted the "resent 1ase,
na*in8 on./ BFI as "art/ de0endant# The tria. 1ourt "ronoun1ed SIHI as havin8 a
va.id 1.ai* +ein8 a ho.der in due 1ourse# It 0urther said that the non-in1.usion o0
Xin8 Ti* Pua $eor8e as "art/ de0endant is i**ateria. in this 1ase, sin1e he, as
"a/ee, is not an indis"ensa+.e "art/#
The *ain issue then is 4hether SIHI, a se1ond indorser, a ho.der o0 1rossed 1he1@s,
is a ho.der in due 1ourse, to +e a+.e to 1o..e1t 0ro* the dra4er, BFI#
The Ne8otia+.e Instru*ents La4 states 4hat 1onstitutes a ho.der in due 1ourse,
thus>
Se1# &) W A ho.der in due 1ourse is a ho.der 4ho has ta@en the instru*ent under
the 0o..o4in8 1onditions>
9a: That it is 1o*".ete and re8u.ar u"on its 0a1eN
9+: That he +e1a*e the ho.der o0 it +e0ore it 4as overdue, and 4ithout noti1e that it
had +een "revious./ dishonored, i0 su1h 4as the 0a1tN
91: That he too@ it in 8ood 0aith and 0or va.ueN
9d: That at the ti*e it 4as ne8otiated to hi* he had no noti1e o0 an/ in5r*it/ in the
instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it#
Se1tion &7 o0 the NIL 0urther states that ever/ ho.der is dee*ed prima facie a ho.der
in due 1ourse# Ho4ever, 4hen it is sho4n that the tit.e o0 an/ "erson 4ho has
ne8otiated the instru*ent 4as de0e1tive, the +urden is on the ho.der to "rove that
he or so*e "erson under 4ho* he 1.ai*s, a1Iuired the tit.e as ho.der in due
1ourse#
The 0a1ts in this "resent 1ase are on a.. 0ours to the 1ase o0 *tate !nestment
)ouse, !nc# 9the ver/ res"ondent in this 1ase: . !ntermediate "ppellate
#ourt
7
4herein 4e *ade a dis1ourse on the eFe1ts o0 1rossin8 o0 1he1@s#
As "re.i*inar/, a 1he1@ is de5ned +/ .a4 as a +i.. o0 eB1han8e dra4n on a +an@
"a/a+.e on de*and#
8
There are a variet/ o0 1he1@s, the *ore "o"u.ar o0 4hi1h are
the *e*orandu* 1he1@, 1ashierSs 1he1@, trave.erSs 1he1@ and 1rossed 1he1@#
rossed 1he1@ is one 4here t4o "ara..e. .ines are dra4n a1ross its 0a1e or a1ross a
1orner thereo0# It *a/ +e 1rossed 8enera../ or s"e1ia../#
A 1he1@ is 1rossed s"e1ia../ 4hen the na*e o0 a "arti1u.ar +an@er or a 1o*"an/ is
4ritten +et4een the "ara..e. .ines dra4n# It is 1rossed 8enera../ 4hen on./ the
4ords Tand 1o*"an/T are 4ritten or nothin8 is 4ritten at a.. +et4een the "ara..e.
.ines# It *a/ +e issued so that the "resent*ent 1an +e *ade on./ +/ a +an@#
Lerita+./ the Ne8otia+.e Instru*ents La4 9NIL: does not *ention T1rossed 1he1@s,T
a.thou8h Arti1.e &,%

o0 the ode o0 o**er1e re0ers to su1h instru*ents#

A11ordin8 to 1o**entators, the ne8otia+i.it/ o0 a 1he1@ is not aFe1ted +/ its +ein8
1rossed, 4hether s"e1ia../ or 8enera../# It *a/ .e8a../ +e ne8otiated 0ro* one
"erson to another as .on8 as the one 4ho en1ashes the 1he1@ 4ith the dra4ee +an@
is another +an@, or i0 it is s"e1ia../ 1rossed, +/ the +an@ *entioned +et4een the
"ara..e. .ines#
13
This is s"e1ia../ true in En8.and 4here the Ne8otia+.e Instru*ent
La4 ori8inated#
In the Phi.i""ine +usiness settin8, ho4ever, 4e used to +e +eset 4ith +oun1in8
1he1@s, 0or8in8 o0 1he1@s, and so 0orth that +an@s have +e1o*e Iuite 8uarded in
en1ashin8 1he1@s, "arti1u.ar./ those 4hi1h na*e a s"e1i51 "a/ee# !n.ess one is a
va.ued 1.ient, a +an@ 4i.. not even a11e"t se1ond indorse*ents on 1he1@s#
In order to "reserve the 1redit 4orthiness o0 1he1@s, Guris"ruden1e has "ronoun1ed
that 1rossin8 o0 a 1he1@ shou.d have the 0o..o4in8 eFe1ts> 9a: the 1he1@ *a/ not +e
en1ashed +ut on./ de"osited in the +an@N 9+: the 1he1@ *a/ +e ne8otiatedonly
once W to one 4ho has an a11ount 4ith a +an@N 91: and the a1t o0 1rossin8 the
1he1@ serves as warning to the ho.der that the 1he1@ has +een issued for a defnite
purpose so that he *ust inIuire i0 he has re1eived the 1he1@ "ursuant to that
"ur"ose, other4ise, he is not a holder in due course#
11
The 0ore8oin8 4as ado"ted in the 1ase o0 *!)! . !"#, supra# In that 1ase, Ne4
Si@atuna ?ood Industries, In1# a.so so.d at a dis1ount to SIHI three "ost dated
1rossed 1he1@s, issued +/ Anita PeZa hua na*in8 as "a/ee Ne4 Si@atuna ?ood
Industries, In1# Ru.in8 that SIHI 4as not a ho.der in due 1ourse, 4e then said>
The three 1he1@s in the 1ase at +ar had +een 1rossed 8enera../ and issued "a/a+.e
to Ne4 Si@atuna ?ood Industries, In1# 4hi1h 1ou.d on./ *ean that the dra4er had
intended the sa*e 0or de"osit on./ +/ the ri8ht0u. "erson, i#e# the "a/ee na*ed
therein# A""arent./, it 4as not the "a/ee 4ho "resented the sa*e 0or "a/*ent and
there0ore, there 4as no "ro"er "resent*ent, and the .ia+i.it/ did not atta1h to the
dra4er# Thus, in the a+sen1e o0 due "resent*ent, the dra4er did not +e1o*e .ia+.e#
onseIuent./, no ri8ht o0 re1ourse is avai.a+.e to "etitioner 9SIHI: a8ainst the
dra4er o0 the su+Ge1t 1he1@s, "rivate res"ondent 4i0e 9Anita:, 1onsiderin8 that
"etitioner is not the "ro"er "art/ authori<ed to *a@e "resent*ent o0 the 1he1@s in
Iuestion#
BBB BBB BBB
That the su+Ge1t 1he1@s had +een issued su+Ge1t to the 1ondition that "rivate
res"ondents 9Anita and her hus+and: on due date 4ou.d *a@e the +a1@ u" de"osit
0or said 1he1@s +ut 4hi1h 1ondition a""arent./ 4as not *ade, thus resu.tin8 in the
non-1onsu**ation o0 the .oan intended to +e 8ranted +/ "rivate res"ondents to
Ne4 Si@atuna ?ood Industries, In1#, 1onstitutes a 8ood de0ense a8ainst "etitioner
4ho is not a ho.der in due 1ourse#
12
It is then sett.ed that 1rossin8 o0 1he1@s shou.d "ut the ho.der on inIuir/ and u"on
hi* devo.ves the dut/ to as1ertain the indorserSs tit.e to the 1he1@ or the nature o0
his "ossession# Fai.in8 in this res"e1t, the ho.der is de1.ared 8ui.t/ o0 8ross
ne8.i8en1e a*ountin8 to .e8a. a+sen1e o0 8ood 0aith, 1ontrar/ to Se1# &)91: o0 the
Ne8otia+.e Instru*ents La4,
13
and as su1h the 1onsensus o0 authorit/ is to the
eFe1t that the ho.der o0 the 1he1@ is not a ho.der in due 1ourse#
In the "resent 1ase, BFISs de0ense in sto""in8 "a/*ent is as 8ood to SIHI as it is
to $eor8e Xin8# Be1ause, rea../, the 1he1@s 4ere issued 4ith the intention that
$eor8e Xin8 4ou.d su""./ BFI 4ith the +a.es o0 to+a11o .ea0# There +ein8 0ai.ure
o0 1onsideration, SIHI is not a ho.der in due 1ourse# onseIuent./, BFI 1annot +e
o+.i8ed to "a/ the 1he1@s#
The 0ore8oin8 does not *ean, ho4ever, that res"ondent 1ou.d not re1over 0ro* the
1he1@s# The on./ disadvanta8e o0 a ho.der 4ho is not a ho.der in due 1ourse is that
the instru*ent is su+Ge1t to de0enses as i0 it 4ere
non-ne8otia+.e#
14
Hen1e, res"ondent 1an 1o..e1t 0ro* the i**ediate indorser, in
this 1ase, $eor8e Xin8#
?HEREFORE, 5ndin8 that the 1ourt a 9uo erred in the a"".i1ation o0 .a4, the instant
"etition is here+/ $RANTED# The de1ision o0 the Re8iona. Tria. ourt as a3r*ed +/
the ourt o0 A""ea.s is here+/ RELERSED# ost a8ainst "rivate res"ondent#
SO ORDERED#
DIGEST
!ACTS:
Bataan i8ar \ i8arette Fa1tor/, In1# 9BFI:, a 1or"oration invo.ved in the
*anu0a1turin8 o0 1i8arettes "ur1hased 0ro* Xin8 Ti* Pua $eor8e 9$eor8e
Xin8: ),--- +a.es o0 to+a11o .ea0 to +e de.ivered startin8 O1to+er %76'#
Ju./ %(, %76'> it issued 1rossed 1he1@s "ost dated so*eti*e in 2ar1h
%767 in the tota. a*ount o0 P')-X
$eor8e re"resented that he 4ou.d 1o*".ete de.iver/ 4Hin ( *onths 0ro* De1
& %76' so BFI a8reed to "ur1hase additiona. ),&-- +a.es o0 to+a11o .eaves,
des"ite the "revious 0ai.ure in de.iver/
It issued "ost dated 1rossed 1he1@s in the tota. a*ount o0 P%#%2
"a/a+.e so*eti*e in Se"te*+er %767#

Ju./ %7, %76'> $eor8e so.d to SIHI at a dis1ount 1he1@ a*ountin8 to P%=,X,
"ost dated 2ar1h (%, %767, dra4n +/ BFI 4H $eor8e as "a/ee#
De1e*+er %7 and )=, %76'> $eor8e so.d ) 1he1@s +oth in the a*ount o0
P%--X, "ost dated Se"te*+er %& \ (-, %767 res"e1tive./, dra4n +/ BFI 4H
$eor8e as "a/ee
!"on 0ai.ure to de.iver, BFI issued on 2ar1h (-, %767 and Se"te*+er %, \
)', %767 a sto" "a/*ent order 0or a.. 1he1@s
SIHI 0ai.in8 to 1.ai*, 5.ed a 1.ai* a8ainst BFI
RT> SIHI U ho.der in due 1ourse# Non-in1.usion o0 $earo8e as "art/ is
i**ateria. to the 1ase
ISSUE:
?HN SIHI is a ho.der in due 1ourse +ei8n a se1ond indorser and a ho.der o0 1rossed
1he1@s
HE=D:
YES# $RANTED# RT reversed#
Se1# &)
%# That it is 1o*".ete and re8u.ar u"on its 0a1e
)# That he +e1a*e the ho.der o0 it +e0ore it 4as overdue, and 4ithout noti1e
that it had +een "revious./ dishonored, i0 su1h 4as the 0a1t
(# That he too@ it in 8ood 0aith and 0or va.ue
,# That at the ti*e it 4as ne8otiated to hi* he had no noti1e o0 an/ in5r*it/ in
the instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it
Se1# &7
ever/ ho.der is dee*ed "ri*a 0a1ie a ho.der in due 1ourse
Ho4ever, 4hen it is sho4n that the tit.e o0 an/ "erson 4ho has
ne8otiated the instru*ent 4as de0e1tive, the +urden is on the ho.der
to "rove that he or so*e "erson under 4ho* he 1.ai*s, a1Iuired the
tit.e as ho.der in due 1ourse#
eFe1t o0 1rossin8 o0 a 1he1@
%# 1he1@ *a/ not +e en1ashed +ut on./ de"osited in the +an@
)# 1he1@ *a/ +e ne8otiated on./ on1e W to one 4ho has an a11ount 4ith a +an@
(# a1t o0 1rossin8 the 1he1@ serves as 4arnin8 to the ho.der that the 1he1@ has
+een issued 0or a de5nite "ur"ose - he *ust inIuire i0 he has re1eived the
1he1@ "ursuant to that "ur"ose, other4ise, he is not a ho.der in due 1ourse
1rossin8 o0 1he1@s shou.d "ut the ho.der on inIuir/ and u"on hi* devo.ves
the dut/ to as1ertain the indorserSs tit.e to the 1he1@ or the nature o0 his
"ossession - 0ai.ure U 8ui.t/ o0 8ross ne8.i8en1e a*ountin8 to .e8a. a+sen1e
o0 8ood 0aith, 1ontrar/ to Se1# &)91: o0 the Ne8otia+.e Instru*ents La4
SIHI is not a ho.der in due 1ourse# onseIuent./, BFI 1annot +e o+.i8ed to
"a/ the 1he1@s# Ho4ever, that SIHI 1ou.d not re1over 0ro* the 1he1@s# The
on./ disadvanta8e o0 a ho.der 4ho is not a ho.der in due 1ourse is that the
instru*ent is su+Ge1t to de0enses as i0 it 4ere non-ne8otia+.e# Hen1e, SIHI 1an
1o..e1t 0ro* the i**ediate indorser, $eor8e
G.R. N-. 72764 ?5*6 13, 18
STATE IN@ESTMENT HOUSE, "etitioner,
vs#
INTERMEDIATE APPE==ATE COURT, ANITA PECA CHUA )(A HARRIS
CHUA, res"ondents#
:acalino, *alonga 6 "ssociates for petitioner.
;dgardo <. *undiam for respondents.

!ERNAN, C.J.:
Petitioner State Invest*ent House see@s a revie4 o0 the de1ision o0 res"ondent
Inter*ediate A""e..ate ourt 9no4 ourt o0 A""ea.s: in A-$#R# L No# -,&)(
reversin8 the de1ision o0 the Re8iona. Tria. ourt o0 2ani.a, Bran1h OOOLII dated
A"ri. (-, %7', and dis*issin8 the 1o*".aint 0or 1o..e1tion 5.ed +/ "etitioner a8ainst
"rivate res"ondents S"ouses Anita Pena hua and Harris hua#
It a""ears that short./ +e0ore Se"te*+er &, %7'-, Ne4 Si@atuna ?ood Industries,
In1# reIuested 0or a .oan 0ro* "rivate res"ondent Harris hua# The .atter a8reed to
8rant the sa*e su+Ge1t to the 1ondition that the 0or*er shou.d 4ait unti. De1e*+er
%7'- 4hen he 4ou.d have the *one/# In vie4 o0 this a8ree*ent, "rivate
res"ondent-4i0e, Anita Pena hua issued three 9(: 1rossed 1he1@s "a/a+.e to Ne4
Si@atuna ?ood Industries, In1# a.. "ostdated De1e*+er )), %7'- as 0o..o4s>
DRA?EE BANX HEX NO# DATE A2O!NT
%# hina Ban@in8 or"oration &'7-&( De1# )), %7'- P7',6&-#--
)# Internationa. or"orate
Ban@
-,-,&&,7 De1# )), %7'- %-),(%(#--
(# 2etro"o.itan Ban@ \ Trust
o#
-(=&%) De1# )), %7'- 7',('6#--
The tota. va.ue o0 the three 9(: "ostdated 1he1@s a*ounted to P )77,,&-#--#
Su+seIuent./, Ne4 Si@atuna ?ood Industries, In1# entered into an a8ree*ent 4ith
herein "etitioner State Invest*ent House, In1# 4here+/ 0or and in 1onsideration o0
the su* o0 P.,-,6,,-)#7% under a deed o0 sa.e, the 0or*er assi8ned and dis1ounted
4ith "etitioner e.even 9%%: "ostdated 1he1@s in1.udin8 the a0ore*entioned three 9(:
"ostdated 1he1@s issued +/ herein "rivate res"ondent-4i0e Anita PeZa hua to Ne4
Si@atuna ?ood Industries, In1#
?hen the three 1he1@s issued +/ "rivate res"ondent Anita Pena hua 4ere
a..e8ed./ de"osited +/ "etitioner, these 1he1@s 4ere dishonored +/ reason o0
Tinsu31ient 0undsT, Tsto" "a/*entT and Ta11ount 1.osedT, res"e1tive./# Petitioner
1.ai*s that des"ite de*ands on "rivate res"ondent Anita PeZa to *a@e 8ood said
1he1@s, the .atter 0ai.ed to "a/ the sa*e ne1essitatin8 the 0or*er to 5.e an a1tion
0or 1o..e1tion a8ainst the .atter and her hus+and Harris hua +e0ore the Re8iona.
Tria. ourt o0 2ani.a, Bran1h OOOLII do1@eted as ivi. ase No# ')-%-&,6#
Private res"ondents-de0endants 5.ed a third "art/ 1o*".aint a8ainst Ne4 Si@atuna
?ood Industries, In1# 0or rei*+urse*ent and inde*ni51ation in the event that the/
+e he.d .ia+.e to "etitioner-".aintiF# For 0ai.ure o0 third "art/ de0endant to ans4er
the third "art/ 1o*".aint des"ite due servi1e o0 su**ons, the .atter 4as de1.ared
in de0au.t#
On A"ri. (-, %7',, the .o4er 1ourt
1
rendered Gud8*ent a8ainst herein "rivate
res"ondents s"ouses, the dis"ositive "ortion o0 4hi1h reads>
?HEREFORE, Gud8*ent is here+/ rendered in 0avor o0 the ".aintiF or a8ainst the
de0endants orderin8 the de0endants to "a/ Goint./ and severa../ to the ".aintiF the
0o..o4in8 a*ounts>
%# P ))7,,&-#-- 4ith interest at the rate o0 %)M "er annu* 0ro* Fe+ruar/ ),,%7'%
unti. 0u../ "aidN
)# P )7,7,&#-- as and 0or attorne/Ss 0eesN and
(# the 1osts o0 suit#
On the third "art/ 1o*".aint, third "art/ de0endant Ne4 Si@atuna ?ood Industries,
In1# is ordered to "a/ third "art/ ".aintiFs Anita Pena hua and Harris hua a..
a*ounts said de0endantsS third- "art/ ".aintiFs *a/ "a/ to the ".aintiF on a11ount
o0 this 1ase#
2
On a""ea. 5.ed +/ "rivate res"ondents in A-$#R# L No# -,&)(, the Inter*ediate
A""e..ate ourt
3
9no4 ourt o0 A""ea.s: reversed the .o4er 1ourtSs Gud8*ent in the
no4 assai.ed de1ision, the dis"ositive "ortion o0 4hi1h reads>
?HEREFORE, 5ndin8 this a""ea. *eritorious, ?e Reverse and Set Aside the
a""ea.ed Gud8*ent, dated A"ri. (-, %7', and a ne4 Gud8*ent is here+/ rendered
dis*issin8 the 1o*".aint, 4ith 1osts a8ainst ".aintiF-a""e..ee#
4
Hen1e, this "etition#
The "ivota. issue in this 1ase is 4hether or not "etitioner is a ho.der in due 1ourse
as to entit.e it to "ro1eed a8ainst "rivate res"ondents 0or the a*ount stated in the
dishonored 1he1@s#
Se1tion &)91: o0 the Ne8otia+.e Instru*ents La4 de5nes a ho.der in due 1ourse as
one 4ho ta@es the instru*ent Tin 8ood 0aith and 0or va.ueT# On the other hand,
Se1tion &)9d: "rovides that in order that one *a/ +e a ho.der in due 1ourse, it is
ne1essar/ that Tat the ti*e the instru*ent 4as ne8otiated to hi* he had no noti1e
o0 an/ B B B de0e1t in the tit.e o0 the "erson ne8otiatin8 it#T Ho4ever, under Se1tion
&7 ever/ ho.der is dee*ed prima facie to +e a ho.der in due 1ourse#
Ad*itted./, the Ne8otia+.e Instru*ents La4 re8u.atin8 the issuan1e o0 ne8otia+.e
1he1@s as 4e.. as the .i8hts and .ia+i.ities arisin8 there0ro*, does not *ention
T1rossed 1he1@sT# But this ourt has ta@en 1o8ni<an1e o0 the "ra1ti1e that a 1he1@
4ith t4o "ara..e. .ines in the u""er .e0t hand 1orner *eans that it 1ou.d on./ +e
de"osited and *a/ not +e 1onverted into 1ash# onseIuent./, su1h 1ir1u*stan1e
shou.d "ut the "a/ee on inIuir/ and u"on hi* devo.ves the dut/ to as1ertain the
ho.derSs tit.e to the 1he1@ or the nature o0 his "ossession# Fai.in8 in this res"e1t, the
"a/ee is de1.ared 8ui.t/ o0 8ross ne8.i8en1e a*ountin8 to .e8a. a+sen1e o0 8ood
0aith and as su1h the 1onsensus o0 authorit/ is to the eFe1t that the ho.der o0 the
1he1@ is not a ho.der in 8ood 0aith#
5
Petitioner su+*its that at the ti*e o0 the ne8otiation and endorse*ent o0 the
1he1@s in Iuestion +/ Ne4 Si@atuna ?ood Industries, it had no @no4.ed8e o0 the
transa1tion andHor arran8e*ent *ade +et4een the .atter and "rivate res"ondents#
?e a8ree 4ith res"ondent a""e..ate 1ourt#
Re./in8 on the ru.in8 in 2campo . /atchalian 9supra:, the Inter*ediate A""e..ate
ourt 9no4 ourt o0 A""ea.s:, 1orre1t./ e.u1idated that the eFe1ts o0 1rossin8 a
1he1@ are> the 1he1@ *a/ not +e en1ashed +ut on./ de"osited in the +an@N the
1he1@ *a/ +e ne8otiated on./ on1e to one 4ho has an a11ount 4ith a +an@N and the
a1t o0 1rossin8 the 1he1@ serves as a 4arnin8 to the ho.der that the 1he1@ has +een
issued 0or a de5nite "ur"ose so that he *ust inIuire i0 he has re1eived the 1he1@
"ursuant to that "ur"ose, other4ise he is not a ho.der in due 1ourse# Further, the
a""e..ate 1ourt said>
It resu.ts there0ore that 4hen a""e..ee redis1ounted the 1he1@ @no4in8 that it 4as a
1rossed 1he1@ he 4as @no4in8./ vio.atin8 the avo4ed intention o0 1rossin8 the
1he1@# Further*ore, his 0ai.ure to inIuire 0ro* the ho.der, "art/ de0endant Ne4
Si@atuna ?ood Industries, In1#, the "ur"ose 0or 4hi1h the three 1he1@s 4ere 1ross
des"ite the 4arnin8 o0 the 1rossin8, "revents hi* 0ro* +ein8 1onsidered in 8ood
0aith and thus he is not a ho.der in due 1ourse# Bein8 not a ho.der in due 1ourse,
".aintiF is su+Ge1t to "ersona. de0enses, su1h as .a1@ o0 1onsideration +et4een
a""e..ants and Ne4 Si@atuna ?ood Industries# Note that under the 0a1ts the 1he1@s
4ere "ostdated and issued on./ as a .oan to Ne4 Si@atuna ?ood Industries, In1# i0
and 4hen de"osits 4ere *ade to +a1@ u" the 1he1@s# Su1h de"osits 4ere not *ade,
hen1e no .oan 4as *ade, hen1e the three 1he1@s are 4ithout 1onsideration 9Se1#
)', Ne8otia+.e Instru*ents La4:#
Li@e4ise Ne4 Si@atuna ?ood Industries ne8otiated the three 1he1@s in +rea1h o0
0aith in vio.ation o0 Arti1.e 9si1: &&, Ne8otia+.e Instru*ents La4, 4hi1h is a "ersona.
de0ense avai.a+.e to the dra4er o0 the 1he1@#
6
In addition, su1h instru*ents are *entioned in Se1tion &,% o0 the Ne8otia+.e
Instru*ents La4 as 0o..o4s>
Se1# &,%# The *a@er or an/ .e8a. ho.der o0 a 1he1@ sha.. +e entit.ed to indi1ate
therein that it +e "aid to a 1ertain +an@er or institution, 4hi1h he sha.. do +/ 4ritin8
a1ross the 0a1e the na*e o0 said +an@er or institution, or on./ the 4ords Tand
1o*"an/#T
The "a/*ent *ade to a "erson other than the +an@er or institution sha.. not eBe*"t
the "erson on 4ho* it is dra4n, i0 the "a/*ent 4as not 1orre1t./ *ade#
!nder usua. "ra1ti1e, 1rossin8 a 1he1@ is done +/ ".a1in8 t4o "ara..e. .ines
dia8ona../ on the .e0t to" "ortion o0 the 1he1@# The 1rossin8 *a/ +e s"e1ia. 4herein
+et4een the t4o "ara..e. .ines is 4ritten the na*e o0 a +an@ or a +usiness
institution, in 4hi1h 1ase the dra4ee shou.d "a/ on./ 4ith the intervention o0 that
+an@ or 1o*"an/, or 1rossin8 *a/ +e 8enera. 4herein +et4een t4o "ara..e.
dia8ona. .ines are 4ritten the 4ords Tand o#T or none at a.. as in the 1ase at +ar, in
4hi1h 1ase the dra4ee shou.d not en1ash the sa*e +ut *ere./ a11e"t the sa*e 0or
de"osit#
The eFe1t there0ore o0 1rossin8 a 1he1@ re.ates to the *ode o0 its "resent*ent 0or
"a/*ent# !nder Se1tion 6) o0 the Ne8otia+.e Instru*ents La4, "resent*ent 0or
"a/*ent to +e su31ient *ust +e *ade 9a: +/ the ho.der, or +/ so*e "erson
authori<ed to re1eive "a/*ent on his +eha.0 ### As to 4ho the ho.der or authori<ed
"erson 4i.. +e de"ends on the instru1tions stated on the 0a1e o0 the 1he1@#
The three su+Ge1t 1he1@s in the 1ase at +ar had +een 1rossed 8enera../ and issued
"a/a+.e to Ne4 Si@atuna ?ood Industries, In1# 4hi1h 1ou.d on./ *ean that the
dra4er had intended the sa*e 0or de"osit on./ +/ the ri8ht0u. "erson, i#e#, the
"a/ee na*ed therein# A""arent./, it 4as not the "a/ee 4ho "resented the sa*e 0or
"a/*ent and there0ore, there 4as no "ro"er "resent*ent, and the .ia+i.it/ did not
atta1h to the dra4er#
Thus, in the a+sen1e o0 due "resent*ent, the dra4er did not +e1o*e
.ia+.e#
7
onseIuent./, no ri8ht o0 re1ourse is avai.a+.e to "etitioner a8ainst the
dra4er o0 the su+Ge1t 1he1@s, "rivate res"ondent 4i0e, 1onsiderin8 that "etitioner is
not the "ro"er "art/ authori<ed to *a@e "resent*ent o0 the 1he1@s in Iuestion#
Yet it does not 0o..o4 as a .e8a. "ro"osition that si*"./ +e1ause "etitioner 4as not a
ho.der in due 1ourse as 0ound +/ the a""e..ate 1ourt 0or havin8 ta@en the
instru*ents in Iuestion 4ith noti1e that the sa*e is 0or de"osit on./ to the a11ount
o0 "a/ee na*ed in the su+Ge1t 1he1@s, "etitioner 1ou.d not re1over on the 1he1@s#
The Ne8otia+.e Instru*ents La4 does not "rovide that a ho.der 4ho is not a ho.der
in due 1ourse *a/ not in an/ 1ase re1over on the instru*ent 0or in the 1ase at +ar,
"etitioner *a/ re1over 0ro* the Ne4 Si@atuna ?ood Industries, In1# i0 the .atter has
no va.id eB1use 0or re0usin8 "a/*ent# The on./ disadvanta8e o0 a ho.der 4ho is not
in due 1ourse is that the ne8otia+.e instru*ent is su+Ge1t to de0enses as i0 it 4ere
non-ne8otia+.e#
8
That the su+Ge1t 1he1@s had +een issued su+Ge1t to the 1ondition that "rivate
res"ondents on due date 4ou.d *a@e the +a1@ u" de"osit 0or said 1he1@s +ut 4hi1h
1ondition a""arent./ 4as not *ade, thus resu.tin8 in the non-1onsu**ation o0 the
.oan intended to +e 8ranted +/ "rivate res"ondents to Ne4 Si@atuna ?ood
Industries, In1#, 1onstitutes a 8ood de0ense a8ainst "etitioner 4ho is not a ho.der in
due 1ourse#
?HEREFORE, the de1ision a""ea.ed 0ro* is here+/ AFFIR2ED 4ith 1osts a8ainst
"etitioner#
SO ORDERED#
DIGEST
!)7$+:
Nora 2ou.i1 issued to ora<on Li1toriano, as se1urit/ 0or "ie1es o0 Ge4e..er/ to +e
so.d on 1o**ission, t4o "ostdated 1he1@s in the a*ount o0 50t/ thousand ea1h#
Therea0ter, Li1toriano ne8otiated the 1he1@s to State Invest*ent House, In1# ?hen
2ou.i1 0ai.ed to se.. the Ge4e..r/, she returned it to Li1toriano +e0ore the *aturit/ o0
the 1he1@s# Ho4ever, the 1he1@s 1annot +e retrieved as the/ have +een ne8otiated#
Be0ore the *aturit/ date 2ou.i1 4ithdre4 her 0unds 0ro* the +an@ 1ontestin8 that
she in1urred no o+.i8ation on the 1he1@s +e1ause the Ge4e..er/ 4as never so.d and
the 1he1@s are ne8otiated 4ithout her @no4.ed8e and 1onsent# !"on "resent*ent
o0 0or "a/*ent, the 1he1@s 4ere dishonoured 0or insu31ien1/ o0 0unds#
I++5,+:
%# ?hether or not State Invest*ent House in1# 4as a ho.der o0 the 1he1@ in due
1ourse
)# ?hether or not 2ou.i1 1an set u" a8ainst the "etitioner the de0ense that there
4as 0ai.ure or a+sen1e o0 1onsideration
H,*A:
Yes, Se1tion &) o0 the NIL "rovides 4hat 1onstitutes a ho.der in due 1ourse# The
eviden1e sho4s that> on the 0a1es o0 the "ost dated 1he1@s 4ere 1o*".ete and
re8u.arN that State Invest*ent House In1# +ou8ht the 1he1@s 0ro* Li1toriano +e0ore
the due datesN that it 4as ta@en in 8ood 0aith and 0or va.ueN and there 4as no
@no4.ed8e 4ith re8ard that the 1he1@s 4ere issued as se1urit/ and not 0or va.ue# A
"ri*a 0a1ie "resu*"tion eBists that a ho.der o0 a ne8otia+.e instru*ent is a ho.der
in due 1ourse# 2ou.i1 0ai.ed to "rove the 1ontrar/#
No, 2ou.i1 1an on./ invo@e this de0ense a8ainst the "etitioner i0 it 4as a "riv/ to the
"ur"ose 0or 4hi1h the/ 4ere issued and there0ore is not a ho.der in due 1ourse#
No, Se1tion %%7 o0 NIL "rovides ho4 an instru*ents +e dis1har8ed# 2ou.i1 1an on./
invo@e "ara8ra"hs 1 and d as "ossi+.e 8rounds 0or the dis1har8e o0 the instru*ents#
Sin1e 2ou.i1 0ai.ed to 8et +a1@ the "ossession o0 the 1he1@s as "rovided +/
"ara8ra"h 1, intentiona. 1an1e..ation o0 instru*ent is i*"ossi+.e# As "rovided +/
"ara8ra"h d, the a1ts 4hi1h 4i.. dis1har8e a si*".e 1ontra1t o0 "a/*ent o0 *one/
4i.. dis1har8e the instru*ent# orre.atin8 Arti1.e %)(% o0 the ivi. ode 4hi1h
enu*erates the *odes o0 eBtin8uishin8 o+.i8ation, none o0 those *odes out.ined
therein is a"".i1a+.e in the instant 1ase# Thus, 2ou.i1 *a/ not uni.atera../ dis1har8e
herse.0 0ro* her .ia+i.it/ +/ *ere eB"edien1/ o0 4ithdra4in8 her 0unds 0ro* the
dra4ee +an@# She is thus .ia+.e as she has no .e8a. +asis to eB1use herse.0 0ro*
.ia+i.it/ on her 1he1@ to a ho.der in due 1ourse# 2oreover, the 0a1t that the
"etitioner 0ai.ed to 8ive noti1e o0 dishonor is o0 no *o*ent# The need 0or su1h
noti1e is not a+so.uteN there are eB1e"tions "rovided +/ Se1 %%, o0 NIL#
G.R. N-. =.15126 N-2,'8,& 33, 161
@ICENTE R. DE OCAMPO H CO., ".aintiF-a""e..ee,
vs#
ANITA GATCHA=IAN, ET A=., de0endants-a""e..ants#
4icente <ormoso, -r. for plainti1=appellee.
'eyes and Pangala7gan for defendants=appellants.
=ABRADOR, J.:
A""ea. 0ro* a Gud8*ent o0 the ourt o0 First Instan1e o0 2ani.a, Hon# onrado 2#
Le.asIue<, "residin8, senten1in8 the de0endants to "a/ the ".aintiF the su* o0
P=--, 4ith .e8a. interest 0ro* Se"te*+er %-, %7&( unti. "aid, and to "a/ the 1osts#
The a1tion is 0or the re1over/ o0 the va.ue o0 a 1he1@ 0or P=-- "a/a+.e to the
".aintiF and dra4n +/ de0endant Anita # $at1ha.ian# The 1o*".aint sets 0orth the
1he1@ and a..e8es that ".aintiF re1eived it in "a/*ent o0 the inde+tedness o0 one
2ati.de $on<a.esN that u"on re1ei"t o0 said 1he1@, ".aintiF 8ave 2ati.de $on<a.es
P%&'#)&, the diFeren1e +et4een the 0a1e va.ue o0 the 1he1@ and 2ati.de $on<a.esS
inde+tedness# The de0endants ad*it the eBe1ution o0 the 1he1@ +ut the/ a..e8e in
their ans4er, as a3r*ative de0ense, that it 4as issued su+Ge1t to a 1ondition, 4hi1h
4as not 0u.5..ed, and that ".aintiF 4as 8ui.t/ o0 8ross ne8.i8en1e in not ta@in8 ste"s
to "rote1t itse.0#
At the ti*e o0 the tria., the "arties su+*itted a sti"u.ation o0 0a1ts, 4hi1h reads as
0o..o4s>
P.aintiF and de0endants throu8h their res"e1tive undersi8ned attorne/Ss res"e1t0u../
su+*it the 0o..o4in8 A8reed Sti"u.ation o0 Fa1tsN
<irst# W That on or a+out ' Se"te*+er %7&(, in the evenin8, de0endant Anita #
$at1ha.ian 4ho 4as then interested in .oo@in8 0or a 1ar 0or the use o0 her hus+and
and the 0a*i./, 4as sho4n and oFered a 1ar +/ 2anue. $on<a.es 4ho 4as
a11o*"anied +/ E*i. FaGardo, the .atter +ein8 "ersona../ @no4n to de0endant Anita
# $at1ha.ianN
*econd# W That 2anue. $on<a.es re"resented to de0end Anita # $at1ha.ian that he
4as du./ authori<ed +/ the o4ner o0 the 1ar, O1a*"o .ini1, to .oo@ 0or a +u/er o0
said 1ar and to ne8otiate 0or and a11o*".ish said sa.e, +ut 4hi1h 0a1ts 4ere not
@no4n to ".aintiFN
%hird# W That de0endant Anita # $at1ha.ian, 5ndin8 the "ri1e o0 the 1ar Iuoted +/
2anue. $on<a.es to her satis0a1tion, reIuested 2anue. $on<a.es to +rin8 the 1ar the
da/ 0o..o4in8 to8ether 4ith the 1erti51ate o0 re8istration o0 the 1ar, so that her
hus+and 4ou.d +e a+.e to see sa*eN that on this reIuest o0 de0endant Anita #
$at1ha.ian, 2anue. $on<a.es advised her that the o4ner o0 the 1ar 4i.. not +e
4i..in8 to 8ive the 1erti51ate o0 re8istration un.ess there is a sho4in8 that the "art/
interested in the "ur1hase o0 said 1ar is read/ and 4i..in8 to *a@e su1h "ur1hase
and that 0or this "ur"ose 2anue. $on<a.es reIuested de0endant Anita # $at1ha.ian
to 8ive hi* 92anue. $on<a.es: a 1he1@ 4hi1h 4i.. +e sho4n to the o4ner as
eviden1e o0 +u/erSs 8ood 0aith in the intention to "ur1hase the said 1ar, the said
1he1@ to +e 0or sa0e@ee"in8 on./ o0 2anue. $on<a.es and to +e returned to
de0endant Anita # $at1ha.ian the 0o..o4in8 da/ 4hen 2anue. $on<a.es +rin8s the
1ar and the 1erti51ate o0 re8istration, +ut 4hi1h 0a1ts 4ere not @no4n to ".aintiFN
<ourth# W That re./in8 on these re"resentations o0 2anue. $on<a.es and 4ith his
assuran1e that said 1he1@ 4i.. +e on./ 0or sa0e@ee"in8 and 4hi1h 4i.. +e returned to
said de0endant the 0o..o4in8 da/ 4hen the 1ar and its 1erti51ate o0 re8istration 4i..
+e +rou8ht +/ 2anue. $on<a.es to de0endants, +ut 4hi1h 0a1ts 4ere not @no4n to
".aintiF, de0endant Anita # $at1ha.ian dre4 and issued a 1he1@, EBh# TBTN that
2anue. $on<a.es eBe1uted and issued a re1ei"t 0or said 1he1@, EBh# T%TN
<ifth# W That on the 0ai.ure o0 2anue. $on<a.es to a""ear the da/ 0o..o4in8 and on
his 0ai.ure to +rin8 the 1ar and its 1erti51ate o0 re8istration and to return the 1he1@,
EBh# TBT, on the 0o..o4in8 da/ as "revious./ a8reed u"on, de0endant Anita #
$at1ha.ian issued a TSto" Pa/*ent OrderT on the 1he1@, EBh# T(T, 4ith the dra4ee
+an@# Said TSto" Pa/*ent OrderT 4as issued 4ithout "revious noti1e on ".aintiF not
+ein8 @no4 to de0endant, Anita # $at1ha.ian and 4ho 0urther*ore had no reason to
@no4 1he1@ 4as 8iven to ".aintiFN
*i>th# W That de0endants, +oth or either o0 the*, did not @no4 "ersona../ 2anue.
$on<a.es or an/ *e*+er o0 his 0a*i./ at an/ ti*e "rior to Se"te*+er %7&(, +ut that
de0endant Hi"o.ito $at1ha.ian is "ersona../ a1Iuainted 4ith L# R# de O1a*"oN
*eenth# W That de0endants, +oth or either o0 the*, had no arran8e*ents or
a8ree*ent 4ith the O1a*"o .ini1 at an/ ti*e "rior to, on or a0ter 7 Se"te*+er
%7&( 0or the hos"ita.i<ation o0 the 4i0e o0 2anue. $on<a.es and neither or +oth o0
said de0endants had assu*ed, eB"ress./ or i*".ied./, 4ith the O1a*"o .ini1, the
o+.i8ation o0 2anue. $on<a.es or his 4i0e 0or the hos"ita.i<ation o0 the .atterN
;ight# W That de0endants, +oth or either o0 the*, had no o+.i8ation or .ia+i.it/,
dire1t./ or indire1t./ 4ith the O1a*"o .ini1 +e0ore, or on 7 Se"te*+er %7&(N
5inth# W That 2anue. $on<a.es havin8 re1eived the 1he1@ EBh# TBT 0ro* de0endant
Anita # $at1ha.ian under the re"resentations and 1onditions herein a+ove
s"e1i5ed, de.ivered the sa*e to the O1a*"o .ini1, in "a/*ent o0 the 0ees and
eB"enses arisin8 0ro* the hos"ita.i<ation o0 his 4i0eN
%enth# W That ".aintiF 0or and in 1onsideration o0 0ees and eB"enses o0
hos"ita.i<ation and the re.ease o0 the 4i0e o0 2anue. $on<a.es 0ro* its hos"ita.,
a11e"ted said 1he1@, a""./in8 P,,%#6& 9EBhi+it TAT: thereo0 to "a/*ent o0 said 0ees
and eB"enses and de.iverin8 to 2anue. $on<a.es the a*ount o0 P%&'#)& 9as "er
re1ei"t, EBhi+it TDT: re"resentin8 the +a.an1e on the a*ount o0 the said 1he1@, EBh#
TBTN
;leenth# W That the a1ts o0 a11e"tan1e o0 the 1he1@ and a"".i1ation o0 its "ro1eeds
in the *anner s"e1i5ed a+ove 4ere *ade 4ithout "revious inIuir/ +/ ".aintiF 0ro*
de0endants>
%welfth# W That ".aintiF 5.ed or 1aused to +e 5.ed 4ith the O31e o0 the it/ Fis1a. o0
2ani.a, a 1o*".aint 0or esta0a a8ainst 2anue. $on<a.es +ased on and arisin8 0ro*
the a1ts o0 said 2anue. $on<a.es in "a/in8 his o+.i8ations 4ith ".aintiF and
re1eivin8 the 1ash +a.an1e o0 the 1he1@, EBh# TBT and that said 1o*".aint 4as
su+seIuent./ dro""edN
%hirteenth# W That the eBhi+its *entioned in this sti"u.ation and the other eBhi+its
su+*itted "revious./, +e 1onsidered as "arts o0 this sti"u.ation, 4ithout ne1essit/ o0
0or*a../ oFerin8 the* in eviden1eN
?HEREFORE, it is *ost res"e1t0u../ "ra/ed that this a8reed sti"u.ation o0 0a1ts +e
ad*itted and that the "arties hereto +e 8iven 50teen da/s 0ro* toda/ 4ithin 4hi1h
to su+*it si*u.taneous./ their *e*orandu* to dis1uss the issues o0 .a4 arisin8
0ro* the 0a1ts, reservin8 to either "art/ the ri8ht to su+*it re"./ *e*orandu*, i0
ne1essar/, 4ithin ten da/s 0ro* re1ei"t o0 their *ain *e*oranda# 9""# )%-)&,
De0endantSs Re1ord on A""ea.:#
No other eviden1e 4as su+*itted and u"on said sti"u.ation the 1ourt rendered the
Gud8*ent a.read/ a..uded a+ove#
In their a""ea. de0endants-a""e..ants 1ontend that the 1he1@ is not a ne8otia+.e
instru*ent, under the 0a1ts and 1ir1u*stan1es stated in the sti"u.ation o0 0a1ts, and
that ".aintiF is not a ho.der in due 1ourse# In su""ort o0 the 5rst 1ontention, it is
ar8ued that de0endant $at1ha.ian had no intention to trans0er her "ro"ert/ in the
instru*ent as it 4as 0or sa0e@ee"in8 *ere./ and, there0ore, there 4as no de.iver/
reIuired +/ .a4 9Se1tion %=, Ne8otia+.e Instru*ents La4:N that assu*in8 0or the
sa@e o0 ar8u*ent that de.iver/ 4as not 0or sa0e@ee"in8 *ere./, de.iver/ 4as
1onditiona. and the 1ondition 4as not 0u.5..ed#
In su""ort o0 the 1ontention that ".aintiF-a""e..ee is not a ho.der in due 1ourse, the
a""e..ant ar8ues that ".aintiF-a""e..ee 1annot +e a ho.der in due 1ourse +e1ause
there 4as no ne8otiation "rior to ".aintiF-a""e..eeSs a1Iuirin8 the "ossession o0 the
1he1@N that a ho.der in due 1ourse "resu""oses a "rior "art/ 0ro* 4hose hands
ne8otiation "ro1eeded, and in the 1ase at +ar, ".aintiF-a""e..ee is the "a/ee, the
*a@er and the "a/ee +ein8 ori8ina. "arties# It is a.so 1.ai*ed that the ".aintiF-
a""e..ee is not a ho.der in due 1ourse +e1ause it a1Iuired the 1he1@ 4ith noti1e o0
de0e1t in the tit.e o0 the ho.der, 2anue. $on<a.es, and +e1ause under the
1ir1u*stan1es stated in the sti"u.ation o0 0a1ts there 4ere 1ir1u*stan1es that
+rou8ht sus"i1ion a+out $on<a.esS "ossession and ne8otiation, 4hi1h 1ir1u*stan1es
shou.d have ".a1ed the ".aintiF-a""e..ee under the dut/, to inIuire into the tit.e o0
the ho.der# The 1ir1u*stan1es are as 0o..o4s>
The 1he1@ is not a "ersona. 1he1@ o0 2anue. $on<a.es# 9Para8ra"h Ninth, Sti"u.ation
o0 Fa1ts:# P.aintiF 1ou.d have inIuired 4h/ a "erson 4ou.d use the 1he1@ o0 another
to "a/ his o4n de+t# Further*ore, ".aintiF had the T*eans o0 @no4.ed8eT inas*u1h
as de0endant Hi"o.ito $at1ha.ian is "ersona../ a1Iuainted 4ith L# R# de O1a*"o
9Para8ra"h SiBth, Sti"u.ation o0 Fa1ts#:#
The *a@er Anita # $at1ha.ian is a 1o*".ete stran8er to 2anue. $on<a.es and Dr# L#
R# de O1a*"o 9Para8ra"h SiBth, Sti"u.ation o0 Fa1ts:#
The *a@er is not in an/ *anner o+.i8ated to O1a*"o .ini1 nor to 2anue. $on<a.es#
9Par# 6, Sti"u.ation o0 Fa1ts#:
The 1he1@ 1ou.d not have +een intended to "a/ the hos"ita. 0ees 4hi1h a*ounted
on./ to P,,%#6&# The 1he1@ is in the a*ount o0 P=--#--, 4hi1h is in eB1ess o0 the
a*ount due ".aintiF# 9Par# %-, Sti"u.ation o0 Fa1ts:#
It 4as ne1essar/ 0or ".aintiF to 8ive 2anue. $on<a.es 1han8e in the su* P%&'#)&
9Par# %-, Sti"u.ation o0 Fa1ts:# Sin1e 2anue. $on<a.es is the "art/ o+.i8ed to "a/,
".aintiF shou.d have +een *ore 1autious and 4ar/ in a11e"tin8 a "ie1e o0 "a"er and
dis+ursin8 1o.d 1ash#
The 1he1@ is "a/a+.e to +earer# Hen1e, an/ "erson 4ho ho.ds it shou.d have +een
su+Ge1ted to inIuiries# ELEN IN A BANX, HEXS ARE NOT ASHED ?ITHO!T
IN;!IRY FRO2 THE BEARER# The sa*e inIuiries shou.d have +een *ade +/ ".aintiF#
9De0endants-a""e..antsS +rie0, ""# &)-&(:
Ans4erin8 the 5rst 1ontention o0 a""e..ant, 1ounse. 0or ".aintiF-a""e..ee ar8ues that
in a11ordan1e 4ith the +est authorit/ on the Ne8otia+.e Instru*ents La4, ".aintiF-
a""e..ee *a/ +e 1onsidered as a ho.der in due 1ourse, 1itin8 BrannanSs Ne8otia+.e
Instru*ents La4, =th edition, "a8e )&)# On this issue Brannan ho.ds that a "a/ee
*a/ +e a ho.der in due 1ourse and sa/s that to this eFe1t is the 8reater 4ei8ht o0
authorit/, thus>
?hether the "a/ee *a/ +e a ho.der in due 1ourse under the N# I# L#, as he 4as at
1o**on .a4, is a Iuestion u"on 4hi1h the 1ourts are in serious 1onCi1t# There 1an
+e no dou+t that a "ro"er inter"retation o0 the a1t read as a 4ho.e .eads to the
1on1.usion that a "a/ee *a/ +e a ho.der in due 1ourse under an/ 1ir1u*stan1e in
4hi1h he *eets the reIuire*ents o0 Se1# &)#
The ar8u*ent o0 Pro0essor Brannan in an ear.ier edition o0 this 4or@ has never +een
su11ess0u../ ans4ered and is here re"eated#
Se1tion %7% de5nes Tho.derT as the "a/ee or indorsee o0 a +i.. or note, 4ho is in
"ossession o0 it, or the +earer thereo0# Se1# &) de0endants de5nes a ho.der in due
1ourse as Ta ho.der 4ho has ta@en the instru*ent under the 0o..o4in8 1onditions> %#
That it is 1o*".ete and re8u.ar on its 0a1e# )# That he +e1a*e the ho.der o0 it +e0ore
it 4as overdue, and 4ithout noti1e that it had +een "revious./ dishonored, i0 su1h
4as the 0a1t# (# That he too@ it in 8ood 0aith and 0or va.ue# ,# That at the ti*e it 4as
ne8otiated to hi* he had no noti1e o0 an/ in5r*it/ in the instru*ent or de0e1t in
the tit.e o0 the "erson ne8otiatin8 it#T
Sin1e Tho.derT, as de5ned in se1# %7%, in1.udes a "a/ee 4ho is in "ossession the
4ord ho.der in the 5rst 1.ause o0 se1# &) and in the se1ond su+se1tion *a/ +e
re".a1ed +/ the de5nition in se1# %7% so as to read Ta ho.der in due 1ourse is a
"a/ee or indorsee 4ho is in "ossession,T et1# 9BrannanSs on Ne8otia+.e Instru*ents
La4, =th ed#, "# &,(:#
The 5rst ar8u*ent o0 the de0endants-a""e..ants, there0ore, de"ends u"on 4hether
or not the ".aintiF-a""e..ee is a ho.der in due 1ourse# I0 it is su1h a ho.der in due
1ourse, it is i**ateria. that it 4as the "a/ee and an i**ediate "art/ to the
instru*ent#
The other 1ontention o0 the ".aintiF is that there has +een no ne8otiation o0 the
instru*ent, +e1ause the dra4er did not de.iver the instru*ent to 2anue. $on<a.es
4ith the intention o0 ne8otiatin8 the sa*e, or 0or the "ur"ose o0 8ivin8 eFe1t
thereto, 0or as the sti"u.ation o0 0a1ts de1.ares the 1he1@ 4as to re*ain in the
"ossession 2anue. $on<a.es, and 4as not to +e ne8otiated, +ut 4as to serve *ere./
as eviden1e o0 8ood 0aith o0 de0endants in their desire to "ur1hase the 1ar +ein8
so.d to the*# Ad*ittin8 that su1h 4as the intention o0 the dra4er o0 the 1he1@ 4hen
she de.ivered it to 2anue. $on<a.es, it 4as no 0au.t o0 the ".aintiF-a""e..ee dra4ee
i0 2anue. $on<a.es de.ivered the 1he1@ or ne8otiated it# As the 1he1@ 4as "a/a+.e
to the ".aintiF-a""e..ee, and 4as entrusted to 2anue. $on<a.es +/ $at1ha.ian, the
de.iver/ to 2anue. $on<a.es 4as a de.iver/ +/ the dra4er to his o4n a8entN in other
4ords, 2anue. $on<a.es 4as the a8ent o0 the dra4er Anita $at1ha.ian inso0ar as the
"ossession o0 the 1he1@ is 1on1erned# So, 4hen the a8ent o0 dra4er 2anue.
$on<a.es ne8otiated the 1he1@ 4ith the intention o0 8ettin8 its va.ue 0ro* ".aintiF-
a""e..ee, ne8otiation too@ ".a1e throu8h no 0au.t o0 the ".aintiF-a""e..ee, un.ess it
1an +e sho4n that the ".aintiF-a""e..ee shou.d +e 1onsidered as havin8 noti1e o0
the de0e1t in the "ossession o0 the ho.der 2anue. $on<a.es# Our reso.ution o0 this
issue .eads us to a 1onsideration o0 the .ast Iuestion "resented +/ the a""e..ants,
i#e#, 4hether the ".aintiF-a""e..ee *a/ +e 1onsidered as a ho.der in due 1ourse#
Se1tion &), Ne8otia+.e Instru*ents La4, de5nes ho.der in due 1ourse, thus>
A ho.der in due 1ourse is a ho.der 4ho has ta@en the instru*ent under the 0o..o4in8
1onditions>
9a: That it is 1o*".ete and re8u.ar u"on its 0a1eN
9+: That he +e1a*e the ho.der o0 it +e0ore it 4as overdue, and 4ithout noti1e that it
had +een "revious./ dishonored, i0 su1h 4as the 0a1tN
91: That he too@ it in 8ood 0aith and 0or va.ueN
9d: That at the ti*e it 4as ne8otiated to hi* he had no noti1e o0 an/ in5r*it/ in the
instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it#
The sti"u.ation o0 0a1ts eB"ress./ states that ".aintiF-a""e..ee 4as not a4are o0 the
1ir1u*stan1es under 4hi1h the 1he1@ 4as de.ivered to 2anue. $on<a.es, +ut 4e
a8ree 4ith the de0endants-a""e..ants that the 1ir1u*stan1es indi1ated +/ the* in
their +rie0s, su1h as the 0a1t that a""e..ants had no o+.i8ation or .ia+i.it/ to the
O1a*"o .ini1N that the a*ount o0 the 1he1@ did not 1orres"ond eBa1t./ 4ith the
o+.i8ation o0 2ati.de $on<a.es to Dr# L# R# de O1a*"oN and that the 1he1@ had t4o
"ara..e. .ines in the u""er .e0t hand 1orner, 4hi1h "ra1ti1e *eans that the 1he1@
1ou.d on./ +e de"osited +ut *a/ not +e 1onverted into 1ash W a.. these
1ir1u*stan1es shou.d have "ut the ".aintiF-a""e..ee to inIuir/ as to the 4h/ and
4here0ore o0 the "ossession o0 the 1he1@ +/ 2anue. $on<a.es, and 4h/ he used it to
"a/ 2ati.deSs a11ount# It 4as "a/eeSs dut/ to as1ertain 0ro* the ho.der 2anue.
$on<a.es 4hat the nature o0 the .atterSs tit.e to the 1he1@ 4as or the nature o0 his
"ossession# Havin8 0ai.ed in this res"e1t, 4e *ust de1.are that ".aintiF-a""e..ee 4as
8ui.t/ o0 8ross ne8.e1t in not 5ndin8 out the nature o0 the tit.e and "ossession o0
2anue. $on<a.es, a*ountin8 to .e8a. a+sen1e o0 8ood 0aith, and it *a/ not +e
1onsidered as a ho.der o0 the 1he1@ in 8ood 0aith# To su1h eFe1t is the 1onsensus o0
authorit/#
In order to sho4 that the de0endant had T@no4.ed8e o0 su1h 0a1ts that his a1tion in
ta@in8 the instru*ent a*ounted to +ad 0aith,T it is not ne1essar/ to "rove that the
de0endant @ne4 the eBa1t 0raud that 4as "ra1ti1ed u"on the ".aintiF +/ the
de0endantSs assi8nor, it +ein8 su31ient to sho4 that the de0endant had noti1e that
there 4as so*ethin8 4ron8 a+out his assi8norSs a1Iuisition o0 tit.e, a.thou8h he did
not have noti1e o0 the "arti1u.ar 4ron8 that 4as 1o**itted# Pai@a v# Perr/, ))&
2ass# &=(, %%, N#E# '(-#
It is su31ient that the +u/er o0 a note had noti1e or @no4.ed8e that the note 4as in
so*e 4a/ tainted 4ith 0raud# It is not ne1essar/ that he shou.d @no4 the "arti1u.ars
or even the nature o0 the 0raud, sin1e a.. that is reIuired is @no4.ed8e o0 su1h 0a1ts
that his a1tion in ta@in8 the note a*ounted +ad 0aith# O<ar@ 2otor o# v# Horton
92o# A""#:, %7= S#?# (7&# A11ord# Davis v# First Nat# Ban@, )= Ari<# =)%, ))7 Pa1#
(7%#
Li+ert/ +onds sto.en 0ro* the ".aintiF 4ere +rou8ht +/ the thie0, a +o/ 50teen /ears
o.d, .ess than 5ve 0eet ta.., i**ature in a""earan1e and +earin8 on his 0a1e the
sta*" a de8enerate, to the de0endantsS 1.er@ 0or sa.e# The +o/ stated that the/
+e.on8ed to his *other# The de0endants "aid the +o/ 0or the +onds 4ithout an/
0urther inIuir/# He.d, the ".aintiF 1ou.d re1over the va.ue o0 the +onds# The ter*
S+ad 0aithS does not ne1essari./ invo.ve 0urtive *otives, +ut *eans +ad 0aith in a
1o**er1ia. sense# The *anner in 4hi1h the de0endants 1ondu1ted their Li+ert/
Loan de"art*ent "rovided an eas/ 4a/ 0or thieves to dis"ose o0 their ".under# It
4as a 1ase o0 Tno Iuestions as@ed#T A.thou8h 8ross ne8.i8en1e does not o0 itse.0
1onstitute +ad 0aith, it is eviden1e 0ro* 4hi1h +ad 0aith *a/ +e in0erred# The
1ir1u*stan1es thrust the dut/ u"on the de0endants to *a@e 0urther inIuiries and
the/ had no ri8ht to shut their e/es de.i+erate./ to o+vious 0a1ts# 2orris v# 2uir, %%%
2is1# Re"# 6(7, %'% N#Y# Su""# 7%(, aFd# in *e*o#, %7% A""# Div# 7,6, %'% N#Y#
Su""# 7,&#T 9""# =,--=,), BrannanSs Ne8otia+.e Instru*ents La4, =th ed#:#
The a+ove 1onsiderations 4ou.d see* su31ient to Gusti0/ our ru.in8 that ".aintiF-
a""e..ee shou.d not +e a..o4ed to re1over the va.ue o0 the 1he1@# Let us no4
eBa*ine the eB"ress "rovisions o0 the Ne8otia+.e Instru*ents La4 "ertinent to the
*atter to 5nd i0 our ru.in8 1on0or*s thereto# Se1tion &) 91: "rovides that a ho.der in
due 1ourse is one 4ho ta@es the instru*ent Tin 8ood 0aith and 0or va.ueNT Se1tion
&7, Tthat ever/ ho.der is dee*ed "ri*a 0a1ie to +e a ho.der in due 1ourseNT and
Se1tion &) 9d:, that in order that one *a/ +e a ho.der in due 1ourse it is ne1essar/
that Tat the ti*e the instru*ent 4as ne8otiated to hi* The had no noti1e o0 an/ # # #
de0e1t in the tit.e o0 the "erson ne8otiatin8 itNT and .ast./ Se1tion &7, that ever/
ho.der is dee*ed prima facieto +e a ho.der in due 1ourse#
In the 1ase at +ar the ru.e that a "ossessor o0 the instru*ent is prima faciea ho.der
in due 1ourse does not a""./ +e1ause there 4as a de0e1t in the tit.e o0 the ho.der
92anue. $on<a.es:, +e1ause the instru*ent is not "a/a+.e to hi* or to +earer# On
the other hand, the sti"u.ation o0 0a1ts indi1ated +/ the a""e..ants in their +rie0, .i@e
the 0a1t that the dra4er had no a11ount 4ith the "a/eeN that the ho.der did not
sho4 or te.. the "a/ee 4h/ he had the 1he1@ in his "ossession and 4h/ he 4as
usin8 it 0or the "a/*ent o0 his o4n "ersona. a11ount W sho4 that ho.derSs tit.e 4as
de0e1tive or sus"i1ious, to sa/ the .east# As ho.derSs tit.e 4as de0e1tive or
sus"i1ious, it 1annot +e stated that the "a/ee a1Iuired the 1he1@ 4ithout
@no4.ed8e o0 said de0e1t in ho.derSs tit.e, and 0or this reason the "resu*"tion that it
is a ho.der in due 1ourse or that it a1Iuired the instru*ent in 8ood 0aith does not
eBist# And havin8 "resented no eviden1e that it a1Iuired the 1he1@ in 8ood 0aith, it
9"a/ee: 1annot +e 1onsidered as a ho.der in due 1ourse# In other 4ords, under the
1ir1u*stan1es o0 the 1ase, instead o0 the "resu*"tion that "a/ee 4as a ho.der in
8ood 0aith, the 0a1t is that it a1Iuired "ossession o0 the instru*ent under
1ir1u*stan1es that shou.d have "ut it to inIuir/ as to the tit.e o0 the ho.der 4ho
ne8otiated the 1he1@ to it# The +urden 4as, there0ore, ".a1ed u"on it to sho4 that
not4ithstandin8 the sus"i1ious 1ir1u*stan1es, it a1Iuired the 1he1@ in a1tua. 8ood
0aith#
The ru.e a"".i1a+.e to the 1ase at +ar is that des1ri+ed in the 1ase o0 Ho4ard
Nationa. Ban@ v# ?i.son, et a.#, 7= Lt# ,(', %)- At# ''7, '7,, 4here the Su"re*e
ourt o0 Ler*ont *ade the 0o..o4in8 disIuisition>
Prior to the Ne8otia+.e Instru*ents A1t, t4o distin1t .ines o0 1ases had deve.o"ed in
this 1ountr/# The 5rst had its ori8in in $i.. v# u+itt, ( B# \ # ,==, %- E# L# )%&,
4here the ru.e 4as distin1t./ .aid do4n +/ the 1ourt o0 Xin8Ss Ben1h that the
"ur1haser o0 ne8otia+.e "a"er *ust eBer1ise reasona+.e "ruden1e and 1aution, and
that, i0 the 1ir1u*stan1es 4ere su1h as ou8ht to have eB1ited the sus"i1ion o0 a
"rudent and 1are0u. *an, and he *ade no inIuir/, he did not stand in the .e8a.
"osition o0 a +ona 5de ho.der# The ru.e 4as ado"ted +/ the 1ourts o0 this 1ountr/
8enera../ and see* to have +e1o*e a 5Bed ru.e in the .a4 o0 ne8otia+.e "a"er#
Later in $ood*an v# Harve/, , A# \ E# '6-, (% E# # L# ('%, the En8.ish 1ourt
a+andoned its 0or*er "osition and ado"ted the ru.e that nothin8 short o0 a1tua. +ad
0aith or 0raud in the "ur1haser 4ou.d de"rive hi* o0 the 1hara1ter o0 a +ona 5de
"ur1haser and .et in de0enses eBistin8 +et4een "rior "arties, that no 1ir1u*stan1es
o0 sus"i1ion *ere./, or 4ant o0 "ro"er 1aution in the "ur1haser, 4ou.d have this
eFe1t, and that even 8ross ne8.i8en1e 4ou.d have no eFe1t, eB1e"t as eviden1e
tendin8 to esta+.ish +ad 0aith or 0raud# So*e o0 the A*eri1an 1ourts adhered to the
ear.ier ru.e, 4hi.e others 0o..o4ed the 1han8e inau8urated in $ood*an v# Harve/#
The Iuestion 4as +e0ore this 1ourt in Roth v# o.vin, () Lt# %)&, and, on 0u..
1onsideration o0 the Iuestion, a ru.e 4as ado"ted in har*on/ 4ith that announ1ed
in $i.. v# u+itt, 4hi1h has +een adhered to in su+seIuent 1ases, in1.udin8 those
1ited a+ove# Stated +rieC/, one .ine o0 1ases in1.udin8 our o4n had ado"ted the test
o0 the reasona+./ "rudent *an and the other that o0 a1tua. 8ood 0aith# It 4ou.d
see* that it 4as the intent o0 the Ne8otia+.e Instru*ents A1t to har*oni<e this
disa8ree*ent +/ ado"tin8 the .atter test# That su1h is the vie4 8enera../ a11e"ted
+/ the 1ourts a""ears 0ro* a re1ent revie4 o0 the 1ases 1on1ernin8 4hat
1onstitutes noti1e o0 de0e1t# Brannan on Ne8# Ins# La4, %'6-)-%# To eFe1tuate the
8enera. "ur"ose o0 the a1t to *a@e uni0or* the Ne8otia+.e Instru*ents La4 o0
those states 4hi1h shou.d ena1t it, 4e are 1onstrained to ho.d 91ontrar/ to the ru.e
ado"ted in our 0or*er de1isions: that ne8.i8en1e on the "art o0 the ".aintiF, or
sus"i1ious 1ir1u*stan1es su31ient to "ut a "rudent *an on inIuir/, 4i.. not o0
the*se.ves "revent a re1over/, +ut are to +e 1onsidered *ere./ as eviden1e
+earin8 on the Iuestion o0 +ad 0aith# See $# L# (%%(, (%6), 4here su1h a 1ourse is
reIuired in 1onstruin8 other uni0or* a1ts#
It 1o*es to this then> ?hen the 1ase has ta@en su1h sha"e that the ".aintiF is 1a..ed
u"on to "rove hi*se.0 a ho.der in due 1ourse to +e entit.ed to re1over, he is reIuired
to esta+.ish the 1onditions entit.in8 hi* to standin8 as su1h, in1.udin8 8ood 0aith in
ta@in8 the instru*ent# It devo.ves u"on hi* to dis1.ose the 0a1ts and 1ir1u*stan1es
attendin8 the trans0er, 0ro* 4hi1h 8ood or +ad 0aith in the transa1tion *a/ +e
in0erred#
In the 1ase at +ar as the "a/ee a1Iuired the 1he1@ under 1ir1u*stan1es 4hi1h
shou.d have "ut it to inIuir/, 4h/ the ho.der had the 1he1@ and used it to "a/ his
o4n "ersona. a11ount, the dut/ devo.ved u"on it, ".aintiF-a""e..ee, to "rove that it
a1tua../ a1Iuired said 1he1@ in 8ood 0aith# The sti"u.ation o0 0a1ts 1ontains no
state*ent o0 su1h 8ood 0aith, hen1e 4e are 0or1ed to the 1on1.usion that ".aintiF
"a/ee has not "roved that it a1Iuired the 1he1@ in 8ood 0aith and *a/ not +e
dee*ed a ho.der in due 1ourse thereo0#
For the 0ore8oin8 1onsiderations, the de1ision a""ea.ed 0ro* shou.d +e, as it is
here+/, reversed, and the de0endants are a+so.ved 0ro* the 1o*".aint# ?ith 1osts
a8ainst ".aintiF-a""e..ee#
DIGEST
!)7$+:
Anita $at1ha.ian 4as interested in +u/in8 a 1ar 4hen she 4as oFered +/ 2anue.
$on<a.es to a 1ar o4ned +/ the O1a*"o .ini1# $on<a.es 1.ai* that he 4as du./
authori<ed to .oo@ 0or a +u/er, ne8otiate and a11o*".ish the sa.e +/ the O1a*"o
.ini1# Anita a11e"ted the oFer and insisted to de.iver the 1ar 4ith the 1erti51ate o0
re8istration the neBt da/ +ut $on<a.es advised that the o4ners 4ou.d on./ 1o*"./
on./ u"on sho4in8 o0 interest on the "art o0 the +u/er# $on<a.es re1o**ended
issuin8 a 1he1@ 9P=-- H "a/a+.e-to-+earer H1ross-1he1@ed: as eviden1e o0 the
+u/erAs 8ood 0aith# $on<a.es added that it 4i.. on./ +e 0or sa0e@ee"in8 and 4i.. +e
returned to her the 0o..o4in8 da/#
The neBt da/, $on<a.es never a""eared# The 0ai.ure o0 $on<a.es to a""ea. resu.ted
in $at1ha.ian to issue a STOP PAY2ENT ORDER on the 1he1@# It 4as .ater 0ound out
that $on<a.es used the 1he1@ as "a/*ent to the Li1ente de O1a*"o 9O1a*"o
.ini1: 0or the hos"ita.i<ation 0ees o0 his 4i0e 9the 0ees 4ere on./ P,,%#6&, so he 8ot
a re0und o0 P%&'#)&:# De O1a*"o no4 de*ands "a/*ent 0or the 1he1@, 4hi1h
$at1ha.ian re0used, ar8uin8 that de O1a*"o is not a ho.der in due 1ourse and that
there is no ne8otiation o0 the 1he1@#
The ourt o0 First Instan1e ordered $at1ha.ian to "a/ the a*ount o0 the 1he1@ to De
O1a*"o# Hen1e this 1ase#
I++5,:
?hether or not De O1a*"o is a ho.der in due 1ourse#
H,*A:
NO# De O1a*"o is not a ho.der in due 1ourse# De O1a*"o 4as ne8.i8ent in his
a1Iuisition o0 the 1he1@# There 4ere *an/ instan1es that arouse sus"i1ion> the
dra4er in the 1he1@ 9$at1ha.ian: has no .ia+i.it/ 4ith de O1a*"o N it 4as 1ross-
1he1@ed9on./ 0or de"osit: +ut 4as used a "a/*ent +/ $on<a.esN it 4as not the eBa1t
a*ount o0 the *edi1a. 0ees# The 1ir1u*stan1es shou.d have .ed hi* to inIuire on
the va.idit/ o0 the 1he1@# Ho4ever, he 0ai.ed to eBer1ise reasona+.e "ruden1e and
1aution#
In sho4in8 a "erson had @no4.ed8e o0 0a1ts that his
a1tion in ta@in8 the instru*ent a*ounted to +ad 0aith need not "rove that he @no4s
the eBa1t 0raud# It is su31ient to sho4 that the "erson had NOTIE that there 4as
so*ethin8 4ron8# The +ad 0aith here *eans +ad 0aith in the 1o**er1ia. sense Q
o+tainin8 an instru*ent 4ith no Iuestions as@ed or no 0urther inIuir/ u"on
sus"i1ion#
The "resu*"tion o0 8ood 0aith did not a""./ to de O1a*"o +e1ause the de0e1t 4as
a""arent on the instru*ents 0a1e Q it 4as not "a/a+.e to $on<a.es or +earer# Hen1e,
the ho.derAs tit.e is de0e1tive or sus"i1ious# Bein8 the 1ase, de O1a*"o had the
+urden o0 "rovin8 he 4as a ho.der in due 1ourse, +ut 0ai.ed#
ROBERT DINO, P,$#$#-(,&,
. 2,&+5+ .
MARIA =UISA ?UDA=.=OOT,I-#(,A 86 %,& %5+8)(A @ICENTE =OOT,
R,+4-(A,($+.
G.R. N-. 17312 A4&#* 1, 2313
D E C I S I O N
CARPIO, J.:
T%, C)+,
This is a "etition 0or revie4
D%E
o0 the %= Au8ust )--& De1ision
D)E
and (-
Nove*+er )--& Reso.ution
D(E
o0 the ourt o0 A""ea.s in A-$#R# L No# &677,# The
ourt o0 A""ea.s a3r*ed the de1ision o0 the Re8iona. Tria. ourt, 6
th
Judi1ia.
Re8ion, Bran1h &=, 2andaue it/ 9tria. 1ourt:, 4ith the de.etion o0 the a4ard o0
interest, *ora. da*a8es, attorne/As 0ees and .iti8ation eB"enses# The tria. 1ourt
ru.ed that res"ondents 2aria Luisa Juda.-Loot and Li1ente Loot are ho.ders in due
1ourse o0 2etro+an@ he1@ No# -2A %,)%%7,-= A and ordered "etitioner Ro+ert
Dino as dra4er, to8ether 4ith 1o-de0endant Fe Lo+itana as indorser, to so.idari./ "a/
res"ondents the 0a1e va.ue o0 the 1he1@, a*on8 others#
T%, !)7$+
So*eti*e in De1e*+er %77), a s/ndi1ate, one o0 4hose *e*+ers "osed as
an o4ner o0 severa. "ar1e.s o0 .and situated in anGu.ao, La"u-.a"u it/, a""roa1hed
"etitioner and indu1ed hi* to .end the 8rou" P(,---,---#-- to +e se1ured +/ a rea.
estate *ort8a8e on the "ro"erties# A *e*+er o0 the 8rou", "arti1u.ar./ a 4o*an
"retendin8 to +e a 1ertain Liven1ia O*"o@ onsin8, even oFered to eBe1ute a Deed
o0 A+so.ute Sa.e 1overin8 the "ro"erties, instead o0 the usua. *ort8a8e 1ontra1t#
D,E
Enti1ed and 1onvin1ed +/ the s/ndi1ateAs oFer, "etitioner issued three 2etro+an@
1he1@s tota.in8 P(,---,---#--, one o0 4hi1h is he1@ No# -2A-%,)%%7,-=-A
"ostdated %( Fe+ruar/ %77( in the a*ount o0 P%,---,---#-- "a/a+.e to Liven1ia
O*"o@ onsin8 andHor Fe Lo+itana#
D&E
!"on s1rutini<in8 the do1u*ents invo.vin8 the "ro"erties, "etitioner
dis1overed that the do1u*ents 1overed ri8hts over 8overn*ent
"ro"erties# Rea.i<in8 he had +een de1eived, "etitioner advised 2etro+an@ to sto"
"a/*ent o0 his 1he1@s# Ho4ever, on./ the "a/*ent o0 he1@ No# -2A- %,)%%7,-=-
A 4as ordered sto""ed# The other t4o 1he1@s 4ere a.read/ en1ashed +/ the
"a/ees#
2ean4hi.e, Lo+itana ne8otiated and indorsed he1@ No# -2A- %,)%%7,-=-A
to res"ondents in eB1han8e 0or 1ash in the su* o0 P7,',---#--, 4hi1h res"ondents
+orro4ed 0ro* 2etro+an@ and 1har8ed a8ainst their 1redit .ine# Be0ore res"ondents
a11e"ted the 1he1@, the/ 5rst inIuired 0ro* the dra4ee +an@, 2etro+an@, e+u-
2a+o.o Bran1h 4hi1h is a.so their de"ositar/ +an@, i0 the su+Ge1t 1he1@ 4as
su31ient./ 0unded, to 4hi1h 2etro+an@ ans4ered in the "ositive# Ho4ever, 4hen
res"ondents de"osited the 1he1@ 4ith 2etro+an@, e+u-2a+o.o Bran1h, the sa*e
4as dishonored +/ the dra4ee +an@ 0or reason JPAY2ENT STOPPED#K
Res"ondents 5.ed a 1o..e1tion suit
D=E
a8ainst "etitioner and Lo+itana +e0ore the
tria. 1ourt# In their o*".aint, res"ondents a..e8ed, a*on8 other thin8s, that the/
are ho.ders in due 1ourse and 0or va.ue o0 2etro+an@ he1@ No# -2A-%,)%%7,-=-
A and that the/ had no "rior in0or*ation 1on1ernin8 the transa1tion +et4een
de0endants#
In his Ans4er, "etitioner denied res"ondentsA a..e8ations that Jon the 0a1e o0
the su+Ge1t 1he1@, no 1ondition or .i*itation 4as i*"osedK and that res"ondents are
ho.ders in due 1ourse and 0or va.ue o0 the 1he1@# For her "art, Lo+itana denied the
a..e8ations in the 1o*".aint and +asi1a../ 1.ai*ed that the transa1tion .eadin8 to
the issuan1e o0 the su+Ge1t 1he1@ is a sa.e o0 a "ar1e. o0 .and +/ Liven1ia O*"o@
onsin8 to "etitioner and that she 4as *ade a "a/ee o0 the 1he1@ on./ to 0a1i.itate
its dis1ountin8#
The tria. 1ourt ru.ed in 0avor o0 res"ondents and de1.ared the* due 1ourse
ho.ders o0 the su+Ge1t 1he1@, sin1e there 4as no "rivit/ +et4een res"ondents and
de0endants# The dis"ositive "ortion o0 the %, 2ar1h %77= De1ision o0 the tria. 1ourt
reads>
In su**ation, this ourt ru.es 0or the P.aintiF and a8ainst the De0endants and
here+/ orders>
%#: de0endants to "a/ to P.aintiF, and severa../, the a*ount
o0 P%,---,---#-- re"resentin8 the 0a1e va.ue o0 su+Ge1t 2etro+an@ 1he1@N
)#: to "a/ to P.aintiF herein, Goint./ and severa../, the su* o0 P%-%,6,'#--
0or a11rued and "aid interestN
(#: to "a/ to P.aintiF, Goint./ and severa../, *ora. da*a8es in the a*ount
o0 P%--,---#--N
,#: to "a/ to P.aintiF, Goint./ and severa../, the su* o0 P)--,---#-- 0or
attorne/As 0eesN and
&#: to "a/ to P.aintiF, Goint./ and severa../, .iti8ation eB"enses in the su*
o0 P%-,---#-- and 1osts o0 the suit#
SO ORDERED#
On./ "etitioner 5.ed an a""ea.# Lo+itana did not a""ea. the tria. 1ourtAs
Gud8*ent#
T%, R5*#(: -0 $%, C-5&$ -0 A44,)*+
The ourt o0 A""ea.s a3r*ed the tria. 1ourtAs 5ndin8 that res"ondents are
ho.ders in due 1ourse o0 2etro+an@ he1@ No# -2A- %,)%%7,-=-A# The ourt o0
A""ea.s "ointed out that "etitionerAs o4n ad*ission that res"ondents 4ere never
"arties to the transa1tion a*on8 "etitioner, Lo+itana, on1ordio Torin8, e1i.ia
Li..a1ar.os, and onsin8, "roved res"ondentsA .a1@ o0 @no4.ed8e o0 an/ in5r*it/ in
the instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it# 2oreover,
res"ondents veri5ed 0ro* 2etro+an@ 4hether the 1he1@ 4as su31ient./ 0unded
+e0ore the/ a11e"ted it# There0ore, res"ondents *ust +e eB1.uded 0ro* the a*+it o0
"etitionerAs sto" "a/*ent order#
The ourt o0 A""ea.s *odi5ed the tria. 1ourtAs de1ision +/ de.etin8 the a4ard
o0 interest, *ora. da*a8es, attorne/As 0ees and .iti8ation eB"enses# The ourt o0
A""ea.s o"ined that "etitioner J4as on./ eBer1isin8 9a.thou8h in1orre1t./:, 4hat he
"er1eived to +e his ri8ht to sto" the "a/*ent o0 the 1he1@ 4hi1h he
redis1ounted#K The ourt o0 A""ea.s ru.ed that "etitioner a1ted in 8ood 0aith in
orderin8 the sto""a8e o0 "a/*ent o0 the su+Ge1t 1he1@ and thus, he *ust not +e
*ade .ia+.e 0or those a*ounts#
In its %= Au8ust )--& De1ision, the ourt o0 A""ea.s a3r*ed the tria. 1ourtAs
de1ision 4ith *odi51ations, thus>
?HEREFORE, "re*ises 1onsidered, 5ndin8 no reversi+.e error in the de1ision
o0 the .o4er 1ourt, ?E here+/ DIS2ISS the a""ea. and AFFIR2 the de1ision o0 the
1ourt a Iuo 4ith *odi51ations that the a4ard o0 interest, *ora. da*a8es, attorne/As
0ees and .iti8ation eB"enses +e de.eted#
No "ronoun1e*ent as to 1osts#
SO ORDERED#
D'E
In its (- Nove*+er )--& Reso.ution, the ourt o0 A""ea.s denied "etitionerAs
*otion 0or re1onsideration#
In den/in8 the "etitionerAs *otion 0or re1onsideration, the ourt o0 A""ea.s
noted that "etitioner raised the de0ense that the 1he1@ is a 1rossed 1he1@ 0or the
5rst ti*e on a""ea. 9"arti1u.ar./ in the *otion 0or re1onsideration:# The ourt o0
A""ea.s reGe1ted su1h de0ense 1onsiderin8 that to entertain the sa*e 4ou.d +e
oFensive to the +asi1 ru.es o0 0air ".a/, Gusti1e, and due "ro1ess#
Hen1e, this "etition#
T%, I++5,+
Petitioner raises the 0o..o4in8 issues>
I# THE O!RT OF APPEALS ERRED IN HOLDIN$ THAT THE RESPONDENTS
?ERE HOLDERS IN D!E O!RSE# THE FAT THAT 2ETROBANX HEX NO#
%,)%%7,-= IS A ROSSED HEX ONSTIT!TES S!FFIIENT ?ARNIN$ TO THE
RESPONDENTS TO EOERISE EOTRAORDINARY DILI$ENE TO DETER2INE THE TITLE
OF THE INDORSER#
II# THE O!RT OF APPEALS ERRED IN DENYIN$ PETITIONERAS 2OTION FOR
REONSIDERATION !PON THE $RO!ND THAT THE AR$!2ENTS RELIED !PON HALE
ONLY BEEN RAISED FOR THE FIRST TI2E# E;!ITY DE2ANDS THAT THE O!RT OF
APPEALS SHO!LD HALE 2ADE AN EOEPTION TO PRELENT THE O22ISSION OF
2ANIFEST ?RON$ AND INJ!STIE !PON THE PETITIONER#
D7E
T%, R5*#(: -0 $%#+ C-5&$
The "etition is *eritorious#
Res"ondents "oint out that "etitioner raised the de0ense that 2etro+an@
he1@ No# -2A-%,)%%7,-=-A is a 1rossed 1he1@ 0or the 5rst ti*e in his *otion 0or
re1onsideration +e0ore the ourt o0 A""ea.s# Res"ondents insist that issues not
raised durin8 the tria. 1annot +e raised 0or the 5rst ti*e on a""ea. as it 4ou.d +e
oFensive to the e.e*entar/ ru.es o0 0air ".a/, Gusti1e and due "ro1ess# Res"ondents
0urther assert that a 1han8e o0 theor/ on a""ea. is i*"ro"er#
In his Ans4er, "etitioner s"e1i51a../ denied, a*on8 others, 9%:
Para8ra"h , o0 the o*".aint, 1on1ernin8 the a..e8ation that on the 0a1e o0 the
su+Ge1t 1he1@, no 1ondition or .i*itation 4as i*"osed, and 9): Para8ra"h '
o0 the o*".aint, re8ardin8 the a..e8ation that res"ondents 4ere ho.ders in due
1ourse and 0or va.ue o0 the su+Ge1t 1he1@# In his JS"e1ia. A3r*ative De0enses,K
"etitioner 1.ai*ed that J0or 4ant or .a1@ o0 the "restation,K he 1ou.d va.id./ sto" the
"a/*ent o0 his 1he1@, and that +/ redis1ountin8 "etitionerAs 1he1@, res"ondents
Jtoo@ the ris@ o0 4hat *i8ht ha""en on the 1he1@#K Essentia../, "etitioner
*aintained that res"ondents are not ho.ders in due 1ourse o0 the su+Ge1t 1he1@, and
as su1h, res"ondents 1ou.d not re1over an/ .ia+i.it/ on the 1he1@ 0ro* "etitioner#
Indeed, "etitioner did not eB"ress./ state in his Ans4er or raise durin8 the tria.
that 2etro+an@ he1@ No# -2A-%,)%%7,-=-A is a 1rossed 1he1@# It *ust +e
stressed, ho4ever, that "etitioner 1onsistent./ ar8ues that res"ondents are not
ho.ders in due 1ourse o0 the su+Ge1t 1he1@, 4hi1h is one o0 the "ossi+.e eFe1ts o0
1rossin8 a 1he1@# The a1t o0 1rossin8 a 1he1@ serves as a 4arnin8 to the ho.der that
the 1he1@ has +een issued 0or a de5nite "ur"ose so that the ho.der thereo0 *ust
inIuire i0 he has re1eived the 1he1@ "ursuant to that "ur"oseN other4ise, he is not a
ho.der in due 1ourse#
D%-E
ontrar/ to res"ondentsA vie4, "etitioner never 1han8ed his
theor/, that res"ondents are not ho.ders in due 1ourse o0 the su+Ge1t 1he1@, as
4ou.d vio.ate 0unda*enta. ru.es o0 Gusti1e, 0air ".a/, and due "ro1ess# Besides, the
su+Ge1t 1he1@ 4as "resented and ad*itted as eviden1e durin8 the tria. and
res"ondents did not and in 0a1t 1annot den/ that it is a 1rossed 1he1@#
In an/ event, the ourt is 1.othed 4ith a*".e authorit/ to entertain issues or
*atters not raised in the .o4er 1ourts in the interest o0 su+stantia. Gusti1e#
D%%E
In #asa <ilipina 'ealty . 2.ce of the President,
D%)E
the ourt he.d>
DTEhe trend in *odern-da/ "ro1edure is to a11ord the 1ourts +road dis1retionar/
"o4er su1h that the a""e..ate 1ourt *a/ 1onsider *atters +earin8 on the issues
su+*itted 0or reso.ution 4hi1h the "arties 0ai.ed to raise or 4hi1h the .o4er 1ourt
i8nored# Sin1e ru.es o0 "ro1edure are *ere too.s desi8ned to 0a1i.itate the
attain*ent o0 Gusti1e, their stri1t and ri8id a"".i1ation 4hi1h 4ou.d resu.t in
te1hni1a.ities that tend to 0rustrate rather than "ro*ote su+stantia. Gusti1e, *ust
a.4a/s +e avoided# Te1hni1a.it/ shou.d not +e a..o4ed to stand in the 4a/ o0
eIuita+./ and 1o*".ete./ reso.vin8 the ri8hts and o+.i8ations o0 the "arties#
D%(E
Havin8 dis"osed o0 the "ro1edura. issue, the ourt sha.. no4 "ro1eed to the
*erits o0 the 1ase# The *ain issue is 4hether res"ondents are ho.ders in due 1ourse
o0 2etro+an@ he1@ No# -2A %,)%%7,-= A as to entit.e the* to 1o..e1t the 0a1e
va.ue o0 the 1he1@ 0ro* its dra4er or "etitioner herein#
Se1tion &) o0 the Ne8otia+.e Instru*ents La4 de5nes a ho.der in due 1ourse,
thus>
A ho.der in due 1ourse is a ho.der 4ho has ta@en the instru*ent under the
0o..o4in8 1onditions>
9a: That it is 1o*".ete and re8u.ar u"on its 0a1eN
9+: That he +e1a*e the ho.der o0 it +e0ore it 4as overdue, and 4ithout
noti1e that it has +een "revious./ dishonored, i0 su1h 4as the 0a1tN
91: That he too@ it in 8ood 0aith and 0or va.ueN
9d: That at the ti*e it 4as ne8otiated to hi*, he had no noti1e o0 an/
in5r*it/ in the instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it#
In the 1ase o0 a 1rossed 1he1@, as in this 1ase, the 0o..o4in8 "rin1i".es *ust
additiona../ +e 1onsidered> A 1rossed 1he1@ 9a: *a/ not +e en1ashed +ut on./
de"osited in the +an@N 9+: *a/ +e ne8otiated on./ on1e W to one 4ho has an
a11ount 4ith a +an@N and 91: 4arns the ho.der that it has +een issued 0or a de5nite
"ur"ose so that the ho.der thereo0 *ust inIuire i0 he has re1eived the 1he1@
"ursuant to that "ur"oseN other4ise, he is not a ho.der in due 1ourse#
D%,E

Based on the 0ore8oin8, res"ondents had the dut/ to as1ertain the indorserAs,
in this 1ase Lo+itanaAs, tit.e to the 1he1@ or the nature o0 her "ossession# This
res"ondents 0ai.ed to do# Res"ondentsA veri51ation 0ro* 2etro+an@ on the 0undin8
o0 the 1he1@ does not a*ount to deter*ination o0 Lo+itanaAs tit.e to the 1he1@#
Fai.in8 in this res"e1t, res"ondents are 8ui.t/ o0 8ross ne8.i8en1e a*ountin8 to .e8a.
a+sen1e o0 8ood 0aith,
D%&E
1ontrar/ to Se1tion &)91: o0 the Ne8otia+.e Instru*ents
La4# Hen1e, res"ondents are not dee*ed ho.ders in due 1ourse o0 the su+Ge1t
1he1@#
D%=E
*tate !nestment )ouse . !ntermediate "ppellate #ourt
D%6E
sIuare./ a"".ies to
this 1ase# There, Ne4 Si@atuna ?ood Industries, In1# so.d at a dis1ount to State
Invest*ent House three "ost-dated 1rossed 1he1@s, issued +/ Anita PeZa hua
na*in8 as "a/ee Ne4 Si@atuna ?ood Industries, In1# The ourt 0ound State
Invest*ent House not a ho.der in due 1ourse o0 the 1he1@s# The ourt a.so
eB"ounded on the eFe1t o0 1rossin8 a 1he1@, thus>
!nder usua. "ra1ti1e, 1rossin8 a 1he1@ is done +/ ".a1in8 t4o "ara..e. .ines
dia8ona../ on the .e0t to" "ortion o0 the 1he1@# The 1rossin8 *a/ +e s"e1ia. 4herein
+et4een the t4o "ara..e. .ines is 4ritten the na*e o0 a +an@ or a +usiness
institution, in 4hi1h 1ase the dra4ee shou.d "a/ on./ 4ith the intervention o0 that
+an@ or 1o*"an/, or 1rossin8 *a/ +e 8enera. 4herein +et4een t4o "ara..e.
dia8ona. .ines are 4ritten the 4ords Jand o#K or none at a.. as in the 1ase at +ar, in
4hi1h 1ase the dra4ee shou.d not en1ash the sa*e +ut *ere./ a11e"t the sa*e 0or
de"osit#
The eFe1t there0ore o0 1rossin8 a 1he1@ re.ates to the *ode o0 its
"resent*ent 0or "a/*ent# !nder Se1tion 6) o0 the Ne8otia+.e Instru*ents La4,
"resent*ent 0or "a/*ent to +e su31ient *ust +e *ade 9a: +/ the ho.der, or +/
so*e "erson authori<ed to re1eive "a/*ent on his +eha.0 B B B As to 4ho the
ho.der or authori<ed "erson 4i.. +e de"ends on the instru1tions stated on the 0a1e o0
the 1he1@#
The three su+Ge1t 1he1@s in the 1ase at +ar had +een 1rossed 8enera../ and
issued "a/a+.e to Ne4 Si@atuna ?ood Industries, In1# 4hi1h 1ou.d on./ *ean that
the dra4er had intended the sa*e 0or de"osit on./ +/ the ri8ht0u. "erson, i#e#, the
"a/ee na*ed therein# A""arent./, it 4as not the "a/ee 4ho "resented the sa*e 0or
"a/*ent and there0ore, there 4as no "ro"er "resent*ent, and the .ia+i.it/ did not
atta1h to the dra4er#
Thus, in the a+sen1e o0 due "resent*ent, the dra4er did not +e1o*e .ia+.e#
onseIuent./, no ri8ht o0 re1ourse is avai.a+.e to "etitioner a8ainst the dra4er o0
the su+Ge1t 1he1@s, "rivate res"ondent 4i0e, 1onsiderin8 that "etitioner is not the
"ro"er "art/ authori<ed to *a@e "resent*ent o0 the 1he1@s in Iuestion#
In this 1ase, there is no Iuestion that the "a/ees o0 the 1he1@, Lo+itana or
onsin8, 4ere not the ones 4ho "resented the 1he1@ 0or "a/*ent# Lo+itana
ne8otiated and indorsed the 1he1@ to res"ondents in eB1han8e 0or P7,',---#--# It
4as res"ondents 4ho "resented the su+Ge1t 1he1@ 0or "a/*entN ho4ever, the 1he1@
4as dishonored 0or reason JPAY2ENT STOPPED#K In other 4ords, it 4as not the
"a/ee 4ho "resented the 1he1@ 0or "a/*entN and thus, there 4as no "ro"er
"resent*ent# As a resu.t, .ia+i.it/ did not atta1h to the dra4er# A11ordin8./, no ri8ht
o0 re1ourse is avai.a+.e to res"ondents a8ainst the dra4er o0 the 1he1@, "etitioner
herein, sin1e res"ondents are not the "ro"er "art/ authori<ed to *a@e "resent*ent
o0 the su+Ge1t 1he1@#
Ho4ever, the 0a1t that res"ondents are not ho.ders in due 1ourse does not
auto*ati1a../ *ean that the/ 1annot re1over on the 1he1@#
D%'E
The Ne8otia+.e
Instru*ents La4 does not "rovide that a ho.der 4ho is not a ho.der in due 1ourse
*a/ not in an/ 1ase re1over on the instru*ent# The on./ disadvanta8e o0 a ho.der
4ho is not in due 1ourse is that the ne8otia+.e instru*ent is su+Ge1t to de0enses as
i0 it 4ere non-ne8otia+.e#
D%7E
A*on8 su1h de0enses is the a+sen1e or 0ai.ure o0
1onsideration,
D)-E
4hi1h "etitioner su31ient./ esta+.ished in this 1ase# Petitioner
issued the su+Ge1t 1he1@ su""osed./ 0or a .oan in 0avor o0 onsin8As 8rou", 4ho
turned out to +e a s/ndi1ate de0raudin8 8u..i+.e individua.s# Sin1e there is in 0a1t no
va.id .oan to s"ea@ o0, there is no 1onsideration 0or the issuan1e o0 the 1he1@#
onseIuent./, "etitioner 1annot +e o+.i8ed to "a/ the 0a1e va.ue o0 the 1he1@#
Res"ondents 1an 1o..e1t 0ro* the i**ediate indorser,
D)%E
in this 1ase
Lo+itana# Si8ni51ant./, Lo+itana did not a""ea. the tria. 1ourtAs de1ision, 5ndin8 her
so.idari./ .ia+.e to "a/, a*on8 others, the 0a1e va.ue o0 the su+Ge1t
1he1@# There0ore, the tria. 1ourtAs Gud8*ent has .on8 +e1o*e 5na. and eBe1utor/ as
to Lo+itana#
<HERE!ORE, 4e GRANT the "etition# ?e SET ASIDE the %= Au8ust )--&
De1ision and (- Nove*+er )--& Reso.ution o0 the ourt o0 A""ea.s in A-$#R# L
No# &677,#
SO ORDERED#
DIGEST
Ro+erto Dino vs# 2aria Luisa Juda.-Loot
!)7$+:
Petitioner 4as indu1ed to .end a s/ndi1ate P(,---,---#-- to +e se1ured +/ a rea.
estate *ort8a8e on severa. "ar1e.s o0 .and situated in anGu.ao, La"u-.a"u it/#
!"on s1rutini<in8 the do1u*ents invo.vin8 the "ro"erties, "etitioner dis1overed that
the do1u*ents 1overed ri8hts over 8overn*ent "ro"erties# Rea.i<in8 he had +een
de1eived, "etitioner advised 2etro+an@ tosto" "a/*ent o0 his 1he1@s# Ho4ever,
on./ the "a/*ent o0 he1@ No# -2A- %,)%%7,-=-A4as ordered sto""ed# The other
t4o 1he1@s 4ere a.read/ en1ashed +/ the "a/ees# 2ean4hi.e, he1@ No# -2A-
%,)%%7,-=-A 9a 1ross-1he1@: 4as ne8otiated and indorsed to res"ondents +/
"etitioner in eB1han8e 0or 1ash in the su* o0 P7,',---#--, 4hi1h res"ondents
+orro4ed 0ro* 2etro+an@ and 1har8ed a8ainst their 1redit .ine# Dra4ee +an@,
2etro+an@, e+u-2a+o.o Bran1h, 4hi1h is a.so their de"ositar/ +an@, ans4ered that
the 1he1@s 4ere su31ient./ 0unded# Ho4ever, the sa*e 4as dishonored +/ the
dra4ee +an@ 4hen the/ tried to de"osit it 0or reason JPAY2ENT STOPPED#K
Res"ondents 5.ed a 1o..e1tion suit a8ainst "etitioner and Lo+itana +e0ore the tria.
1ourt# The tria. 1ourt ru.ed in 0avor o0 res"ondents and de1.ared the* due 1ourse
ho.ders o0 the su+Ge1t 1he1@, sin1e there 4as no "rivit/ +et4een res"ondents and
de0endants# A a3r*ed +ut*odi5ed the tria. 1ourtAs de1ision +/ de.etin8 the a4ard
o0 interest, *ora. da*a8es, attorne/As 0ees and .iti8ation eB"enses# The ourt o0
A""ea.s o"ined that "etitioner J4as on./ eBer1isin8 9a.thou8h in1orre1t./:, 4hat he
"er1eived to +e his ri8ht to sto" the "a/*ent o0 the 1he1@ 4hi1h he redis1ounted#K
The ourt o0 A""ea.s ru.ed that "etitioner a1ted in 8ood 0aith in orderin8 the
sto""a8e o0 "a/*ent o0 the su+Ge1t 1he1@ and thus, he *ust not +e *ade .ia+.e 0or
those a*ounts#
I++5,:
?ON The res"ondents 4ere ho.ders in due 1ourseP
H,*A:
PETITION $RANTED# Se1tion &) o0 the Ne8otia+.e Instru*ents La4 de5nes a ho.der
in due 1ourse, thus> A ho.der in due 1ourse is a ho.der 4ho has ta@en the instru*ent
under the 0o..o4in8 1onditions> 9a: That it is 1o*".ete and re8u.ar u"on its 0a1eN 9+:
That he +e1a*e the ho.der o0 it +e0ore it 4as overdue, and 4ithout noti1e that it has
+een "revious./ dishonored, i0 su1h 4as the 0a1tN91: That he too@ it in 8ood 0aith and
0or va.ueN9d: That at the ti*e it 4as ne8otiated to hi*, he had no noti1e o0 an/
in5r*it/ in the instru*ent or de0e1t in the tit.e o0 the "erson ne8otiatin8 it# In the
1ase o0 a 1rossed 1he1@, as in this 1ase, the 0o..o4in8 "rin1i".es *ust additiona../ +e
1onsidered> A 1rossed 1he1@ 9a: *a/ not +e en1ashed +ut on./ de"osited in the
+an@N 9+: *a/+e ne8otiated on./ on1e W to one 4ho has an a11ount 4ith a +an@N
and 91: 4arns the ho.der that it has +een issued 0or a de5nite "ur"ose so that the
ho.der thereo0 *ust inIuire i0 he has re1eived the 1he1@ "ursuant to that "ur"oseN
other4ise, he is not a ho.der in due 1ourse# Based on the 0ore8oin8, res"ondents
had the dut/ to as1ertain the indorserAs, in this 1ase Lo+itanaAs, tit.e to the 1he1@ or
the nature o0 her "ossession# This, res"ondents 0ai.ed to do# Res"ondentsA
veri51ation 0ro* 2etro+an@ on the 0undin8 o0 the 1he1@ does not a*ount to
deter*ination o0 Lo+itanaAs tit.e to the 1he1@# Fai.in8 in this res"e1t, res"ondents
are 8ui.t/ o0 8ross ne8.i8en1e a*ountin8 to .e8a. a+sen1e o0 8ood 0aith,D%&E
1ontrar/ to Se1tion &)91: o0 the Ne8otia+.e Instru*ents La4# Hen1e, res"ondents
are not dee*ed ho.ders in due 1ourse o0 the su+Ge1t 1he1@# Ho4ever, the 0a1t that
res"ondents are not ho.ders in due 1ourse does not auto*ati1a../ *ean that the/
1annot re1over on the 1he1@# The Ne8otia+.e Instru*ents La4 does not "rovide that
a ho.der 4ho is not a ho.der in due 1ourse *a/ not in an/ 1ase re1over on the
instru*ent# The on./ disadvanta8e o0 a ho.der 4ho is not in due 1ourse is that the
ne8otia+.e instru*ent is su+Ge1t to de0enses as i0 it 4ere non-ne8otia+.e# A*on8
su1h de0enses is the a+sen1e or 0ai.ure o0 1onsideration,D 4hi1h "etitioner
su31ient./ esta+.ished in this 1ase# Petitioner issued the su+Ge1t 1he1@ su""osed./
0or a .oan in 0avor o0 onsin8As 8rou", 4ho turned out to +e a s/ndi1ate de0raudin8
8u..i+.e individua.s# Sin1e there is in 0a1t no va.id .oan to s"ea@ o0, there is no
1onsideration 0or the issuan1e o0 the 1he1@# onseIuent./, "etitioner 1annot +e
o+.i8ed to "a/ the 0a1e va.ue o0 the 1he1@#
G.R. N-. =.24224 N-2,'8,& 3, 125
THE PHI=IPPINE NATIONA= BAND, ".aintiF-a""e..ee,
vs#
RAMON MAEA )(A !RANCISCO MECENAS, de0endants-a""e..ants#
$utero, $utero and :a(a for appellants.
'oman -. $acson for appellee.

MA=CO=M, J.:
The Phi.i""ine Nationa. Ban@ is suin8 Ra*on 2a<a and Fran1is1o 2e1enas on 5ve
"ro*issor/ notes o0 ten thousand "esos 9P%-,---: ea1h#
2a<a and 2e1enas eBe1uted t4o o0 the "ro*issor/ notes on Januar/ )-, %7)%, due
three *onths a0ter date# The three other notes due 0our *onths a0ter date# The
three other notes due 0our *onths a0ter date 4ere eBe1uted +/ the sa*e "arties on
Januar/ )%, %7)%# One o0 the a+ove-*entioned notes, t/"i1a. o0 the rest reads as
0o..o4s>
P%-,--- ILOILO, I#F# -an. 2?, @A2@.
A .os tres meses de .a 0e1ha, "a8are*os *an1o*unada / so.idaria*ente a .a orden
de. Philippine 5ational Bank, I.oi.o, I.oi.o, I# F#, .a 1antidad de die< *i. 9P%-,---:
"esos en e. Philippine 5ational Bank#
I.oi.o, I# F#
La.or Re1i+ido#
No# (,- Pa8adero e. ,H)-H)%
9Fdos#: RA2OS 2AYA
FRANISO 2EENAS
The notes 4ere not ta@en u" +/ 2a<a and 2e1enas at *aturit/# The o+.i8ations 4ith
a11u*u.ated interest tota.ed P=&,)-6#6( on Se"te*+er )), %7),#
To re1over the a*ounts stated on the 0a1e o0 the notes 4ith +a1@ interest, a1tion
4as +e8un +/ the Phi.i""ine Nationa. Ban@ in the 1ourt o0 5rst instan1e o0 I.oi.o
a8ainst Ra*on 2a<a and Fran1is1o 2e1enas# The s"e1ia. de0ense inter"osed +/ the
de0endants 4as that the "ro*issor/ notes 4ere sent in +.an@ to the* +/ EnriIue
E1haus 4ith the reIuest that the/ si8n the* so that he, E1haus, *i8ht ne8otiate
the* 4ith the Phi.i""ine Nationa. Ban@ in 1ase o0 needN that the de0endants have
not ne8otiated the "ro*issor/ notes 4ith the +an@, nor have the/ re1eived the
va.ue thereo0, or de.ivered the* to the +an@ in "a/*ent o0 an/ "reeBistin8 de+tN
and that it 4as EnriIue E1haus 4ho ne8otiated the noted 4ith the +an@ and 4ho is
a11ordin8./ the rea. "art/ in interest and the "art/ .ia+.e 0or the "a/*ent o0 the
notes# De0endants a.so *oved that E1haus +e ordered in1.uded as one o0 the
de0endants# The tria. Gud8e denied the *otion# Jud8*ent 4as rendered in 0avor o0
the ".aintiF and a8ainst the de0endants Goint./ and severa../ 0or a tota. o0
P=&,)-6#6(, 4ith interest at 7 "er 1ent on t4ent/ thousand "esos 9P&: a da/, and
4ith interest at 7 "er 1ent on thirt/ thousand "esos 9P(-,---: 0ro* Se"te*+er )(,
%7),, or at the rate o0 P6#& a da/, and 4ith 1osts#
Four errors are assi8ned +/ the de0endants on a""ea.# The 5rst error re.ates to the
order o0 the tria. Gud8e re0usin8 to reIuire EnriIue E1haus to +e1o*e a "art/ to the
a1tion# As the de0endants 0ai.ed to du./ eB1e"t to the order, the/ are not no4
entit.ed to as@ this 1ourt to revie4 the ru.in8# 2oreover, it is not evident that E1haus
4as an indis"ensa+.e "art/# The other three error 8o to the *erits and rest on the
sa*e 0oundation as the s"e1ia. de0ense#
Fro* the ".eadin8s and the sti"u.ation o0 0a1ts, it is dedu1ed that the de0endants
ad*it the 8enuineness and due eBe1ution o0 the instru*ents sued on # Neither do
the a""e..ants "oint out an/ *ista@e in re8ard to the a*ount and interest that the
.o4er 1ourt senten1ed the* to "a/ to the ".aintiF +an@# Predi1ated on these
"re*ises, 0ro* 4hatever "oint o0 vie4 4e .oo@ at the 1ase, 4e arrive at the sa*e
1on1.usion W that the de0endants are .ia+.e#
On the 5rst assu*"tion that 2a<a and 2e1enas 4ere the "rin1i"a.s and E1haus the
a8ent, as ar8ued +/ 1ounse. 0or the a""e..ee, the "rin1i"a.s *ust 0u.5.. their
o+.i8ations# On another assu*"tion, 4hi1h is a 0a1t, that the de0endants are eBa1t./
4hat the/ a""ear to +e, the *a@ers o0 the ne8otia+.e instru*ents, then the/ *ust
@ee" their en8a8e*ent and *ust "a/ as "ro*ised# Their .ia+i.it/ on the instru*ents
is "ri*ar/ and un1onditiona.#
The *ost ".ausi+.e and reasona+.e stand 0or the de0endants is that the/ are
a11o**odation "arties# +ut as a11o**odation "arties, the de0endants havin8
si8ned the instru*ents 4ithout re1eivin8 va.ue there0or and 0or the "ur"ose o0
.endin8 their na*es to so*e other "erson, are sti.. .ia+.e on the instru*ents# The
.a4 no4 is that the a11o**odation "art/ 1an 1.ai* no +ene5t as su1h, +ut he is
.ia+.e a11ordin8 to the 0a1e o0 his underta@in8, the sa*e as i0 he 4ere hi*se.0
5nan1ia../ interested in the transa1tion#lawphB@.net
The de0ense is *ade to the a1tion that the de0endants never re1eived the va.ue o0
the "ro*issor/ notes# it is, o0 1ourse, 0unda*enta. that an instru*ent 8iven 4ithout
1onsideration does not 1reate an/ o+.i8ation at .a4 or in eIuit/ in 0avor o0 the
"a/ee# Ho4ever, to 0asten .ia+i.it/ u"on an a11o**odation *a@er, it is not
ne1essar/ that an/ 1onsideration shou.d *ove to hi*# The 1onsideration 4hi1h
su""orts the "ro*ise o0 the a11o**odation *a@er is that "arted 4ith +/ the "erson
ta@in8 the note and re1eived +/ the "erson a11o**odated#
?hi.e "erha"s unne1essar/ to this de1ision, it *a/ "ro"er./ +e re*ar@ed that 4hen
the a11o**odation "arties *a@e "a/*ent to the ho.der o0 the notes, the/ have the
ri8ht to sue the a11o**odated "art/ 0or rei*+urse*ent, sin1e the re.ation +et4een
the* is in eFe1t that o0 "rin1i"a. and sureties, the a11o**odation "arties +ein8 the
sureties#
Jud8*ent a3r*ed 4ith 1osts#
DIGEST
!ACTS:
2a<a and 2a1enas eBe1uted a tota. o0 5ve "ro*issor/ notes# These 4ere not "aid
at *aturit/# And to re1over the a*ounts stated on the 0a1e o0 the "ro*issor/
notes, PNB initiated an a1tion a8ainst the t4o# The s"e1ia. de0ense "osed +/
the t4o is that the "ro*issor/ notes 4ere de.ivered to
the* in +.an@ +/ a 1ertain En1haus and 4ere *ade to si8n the notes so
that the .atter 1ou.d se1ure a .oan 0ro* the +an@# The/ a.so a..e8ed that the/ never
ne8otiated the notes 4ith the +an@ nor have the/ re1eived an/ va.ue thereo0#
The/ a.so "ra/ed that En1haus +e i*".eaded in the
1o*".aint +ut su1h 4as denied# The tria. 1ourt then he.d in 0avor o0 the
+an@#

HE=D:
The de0endants attested to the 8enuineness o0 the instru*ents sued on#
Neither did the/ "oint out an/ *ista@e in re8ard to the a*ount and interest
that the .o4er 1ourt senten1ed the* to "a/# $iven su1h, the de0endants are
.ia+.e# The/ a""ear as the *a@ers o0 the "ro*issor/ notes
and as su1h, the/ *ust @ee" their en8a8e*ent and "a/ as "ro*ised#
And assu*in8 that the/ are a11o**odation "arties, the de0endants havin8 si8ned
the instru*ents 4ithout re1eivin8 va.ue thereo0, 0or the "ur"ose o0 .endin8 their
na*es to so*e other "erson, are sti.. .ia+.e 0or the "ro*issor/ notes# The .a4 no4
is su1h that an a11o**odation "art/ 1annot 1.ai* no +ene5t as su1h, +ut he is
.ia+.e a11ordin8 to the 0a1e o0 his underta@in8, the sa*e as he hi*se.0
5nan1ia../ interest in the transa1tion# It is a.so no de0ense to sa/ that the/ didnSt
re1eive the va.ue o0 the notes# To 0asten .ia+i.it/ ho4ever to an a11o**odation
*a@er, it is not ne1essar/ that an/ 1onsideration shou.d *ove to hi*# The
a11o**odation 4hi1h su""orts the "ro*ise o0 the a11o**odation *a@er is
that "arted 4ith +/ the "erson ta@in8 the note and re1eived +/ the "erson
a11o**odated#
June )7, %7=&
$#R# Nos# L-)-6'6-'
?. ANTONIO ARANETA, ".aintiF-a""e..ee,
vs#
ANTONIO PEREE, de0endant-a""e..ant#
"raneta, :endo(a and Papa for plainti1=appellee.
"lfonso <eli>, -r. for defendant=appellant.
BAUTISTA ANGE=O, J.:
On June %=, %7=%, Antonio 2# Pere< eBe1uted a "ro*issor/ note 4herein he a8reed
to "a/ J# Antonio Araneta, or order, the su* o0 P(,6--#-- %%7 da/s 0ro* said date,
or on O1to+er %(, %7=%, and i0 it is not "aid on the date o0 *aturit/, to "a/ interest
at 7M "er annu* on the a*ount o0 the .oan, and P(6-#-- as attorne/Ss 0ees in
addition to 1osts and other dis+urse*ents taBa+.e under the Ru.es o0 ourt#
The note havin8 +e1o*e due and Antonio 2# Pere< havin8 0ai.ed to "a/ it des"ite
de*and *ade u"on hi* to do so, Araneta 5.ed on O1to+er (%, %7=% a 1o*".aint in
the 2uni1i"a. ourt o0 2ani.a to 1o..e1t its i*"ort under the ter*s therein sti"u.ated
9ivi. ase No# 7))=&:#
In his ans4er, de0endant Pere< ad*itted the eBe1ution o0 the "ro*issor/ note as
4e.. as his 0ai.ure to "a/ it des"ite its *aturit/ and de*and, +ut he averred 1ertain
a..e8ations that 4ere irre.evant to the 1o*".aint# Thus, Pere< a..e8ed that the
"ro1eeds o0 the note 4ere a"".ied +/ hi* to the "a/*ent o0 the *edi1a. treat*ent
o0 his *inor dau8hter An8e.a Pere< / Tuason, 4ho is the +ene51iar/ o0 the trust then
ad*inistered +/ Araneta as trustee in S"e1ia. Pro1eedin8 No# ;-6( o0 the ourt o0
First Instan1e o0 ;ue<on it/, and that the trust estate is +ound to "a/ the eB"enses
o0 said treat*ent +e1ause the/ 4ere 0or the +ene5t o0 said *inor and so the
"ersona. 0und he +orro4ed 0ro* Araneta and 0or 4hi1h he eBe1uted the a0oresaid
"ro*issor/ note shou.d +e "aid +/ Araneta in the *anner a+ove-stated# In the sa*e
ans4er, Pere< set u" a 1ounter1.ai* de*andin8 severa. a*ounts +/ 4a/ o0 *ora.
da*a8es, eBe*".ar/ da*a8es, and attorne/Ss 0ees#
On *otion 0or Gud8*ent on the ".eadin8s 5.ed +/ Araneta, and 4ithout an/
o""osition on the "art o0 de0endant Pere<, the *uni1i"a. 1ourt rendered a de1ision
on A"ri. %7=) orderin8 Pere< to "a/ the a*ounts "ra/ed 0or in the 1o*".aint and
dis*issin8 his 1ounter1.ai* 0or da*a8es# His *otion 0or re1onsideration havin8
+een denied, Pere< a""ea.ed to the 1ourt a 9uo 4here the a""ea. 4as do1@eted as
ivi. ase No# &-6-6 and 4here he 5.ed "ra1ti1a../ the sa*e ans4er he 5.ed in the
*uni1i"a. 1ourt#
In the *eanti*e, or on Fe+ruar/ ', %7=), Pere< 5.ed a 1o*".aint in the 2uni1i"a.
ourt o0 2ani.a a8ainst Araneta in his 1a"a1it/ as trustee o0 the *inor 1hi.d An8e.a
Pere< / Tuason in S"e1ia. Pro1eedin8 No# ;-6( o0 the ourt o0 First Instan1e o0
;ue<on it/ 4herein, *a@in8 re0eren1e to ivi. ase No# 7))=& 5.ed a8ainst hi* +/
Araneta, he re"eated the sa*e a..e8ations 1ontained in the ans4er he inter"osed to
the 1o*".aint o0 Araneta and "ra/ed that Araneta as trustee +e reIuired to "a/
Pere< the a*ount o0 P(,6--#-- advan1ed +/ the .atter in order to *eet the
o+.i8ation o0 the trust estate# And on the +asis o0 a *otion to dis*iss 5.ed +/
Araneta as trustee, and over the o""osition o0 Pere<, the *uni1i"a. 1ourt dis*issed
the .atterSs 1o*".aint# His *otion 0or re1onsideration havin8 +een denied, Pere<
a""ea.ed to the 1ourt a 9uo 4ere his 1ase 4as do1@eted as ivi. ase No# &-6-=
and 4here he 5.ed an a*ended 1o*".aint a8ainst Araneta#
onsiderin8 that the t4o 1ases invo.ved the sa*e "arties and the sa*e "ro*issor/
note, the/ 4ere ordered 1onso.idated# And on Se"te*+er 6, %7=), the 1ourt a
9uo issued a Goint order 4herein it a3r*ed the Gud8*ent on the ".eadin8s rendered
+/ the *uni1i"a. 1ourt in ivi. ase No# &-6-6, 4hi.e it a3r*ed the order o0
dis*issa. that 4as .i@e4ise issued +/ the sa*e 1ourt in ivi. ase No# &-6-=# His
*otion 0or re1onsideration 5.ed in the t4o 1onso.idated 1ases havin8 +een denied,
Pere< inter"osed the "resent Goint a""ea.#
A""e..ant 1ontends that 9%: the 1ourt a 9uo erred in 5ndin8 Antonio Pere< inde+ted
to Antonio Araneta in the su* o0 P(,6--#-- reIuirin8 hi* to "a/ said a*ount to
Araneta 4ith interest at the rate o0 7M "er annu* 0ro* O1to+er %(, %7=% unti. its
0u.. "a/*ent, ".us P(6-#-- as attorne/Ss 0ees, and in 0ai.in8 to 5nd that the true
de+tor 4as the trust estate o0 the 1hi.dren o0 An8e.a I# TuasonN and 9): assu*in8
that the 1ourt a 9uo1orre1t./ ru.ed in reIuirin8 Antonio Pere< to "a/ the a+ove
a*ount to Antonio Araneta, neverthe.ess, the 1ourt a 9uo erred in 0ai.in8 to reIuire
Araneta in his 1a"a1it/ as trustee o0 the a0oresaid 1hi.dren to rei*+urse Antonio
Pere< that a*ount u"on "roo0 +/ the .atter o0 the "a/*ent *ade +/ hi* o0 said
a*ount#
%# The "ro*issor/ note si8ned +/ a""e..ant 1.ear./ states that he a8reed to "a/
Araneta or order the su* o0 P(,6--#-- on O1to+er %(, %7=% and i0 the sa*e is not
"aid on said date to "a/ 7M interest thereon "er annu* unti. 0u../ "aid, ".us the
su* o0 P(6-#-- as attorne/Ss 0ees, in addition to the 1osts and other dis+urse*ents
taBa+.e under the Ru.es o0 ourt# !nder these ter*s it is 1.ear that a""e..ant +ound
hi*se.0 to "a/ "ersona../ said "ro*issor/ note 4hi1h he 1annot shi0t to another
4ithout the 1onsent o0 the "a/ee# Su1h is the underta@in8 o0 the *a@er# Indeed,
Se1tion =- o0 the Ne8otia+.e Instru*ent, La4 "rovides that Tthe *a@er o0 a
ne8otia+.e instru*ent +/ *a@in8 it en8a8es that he 4i.. "a/ it a11ordin8 to its tenor
and ad*its the eBisten1e o0 the "a/ee and his then 1a"a1it/ to indorse so that
a""e..ant 1annot no4 es1a"e .ia+i.it/ as *a@er +/ a..e8in8 that he s"ent the *one/
0or the *edi1a. treat*ent o0 his dau8hter sin1e it is not the "a/eeSs 1on1ern to
@no4 ho4 said "ro1eeds shou.d +e s"ent# That is the so.e 1on1ern o0 the *a@er#
Pa/eeSs interest is *ere./ to see that the note +e "aid a11ordin8 to its ter*s#
Neither 1an a""e..ant es1a"e .ia+i.it/ +/ resortin8 to the eB"edient that a""e..ee, +/
*ovin8 0or Gud8*ent on the ".eadin8s, is dee*ed to have ad*itted the *ateria.
a..e8ations o0 his ans4er in ivi. ase No# &-6-6, 0or the reason that said a..e8ations
are irre.evant and have no +earin8 4hatsoever on a""e..antSs "ersona. .ia+i.it/# In
this 1onne1tion, it is *eet to re1a.. that a""e..ant, a0ter ad*ittin8 the eBe1ution o0
the "ro*issor/ note and his 0ai.ure to "a/ it des"ite de*and thereo0, *ade
aver*ents 4hi1h in su+stan1e had the eFe1t o0 a re1ou"*ent o0 4hat he had s"ent
a8ainst an/ share in the trust 0und that *a/ 1o*e to the *inor 0or 4hose +ene5t he
1.ai*s to have s"ent the *one/#
Thus, he *ade the 0o..o4in8 a3r*ative de0enses> That DZa# An8e.a Tuason died in
%7,' .eavin8 estate 4orth 5ve *i..ion "esos )H7 o0 4hi1h she .e0t in trust 0or the
+ene5t o0 the 1hi.dren o0 said An8e.a Tuason under the ad*inistration o0 a""e..ee
AranetaN that the 4i.. 4as "re"ared +/ AranetaN that the estate is no4 4orth one
*i..ion "esos and des"ite thereo0 Araneta "ro0essed ina+i.it/ to "a/ the a..o4an1e o0
P%',---#-- a /ear due the +ene51iariesN that Araneta so.d so*e in1o*e W
"rodu1in8 "ro"erties o0 the trust and s"e1u.ated 4ith trust 0unds in the sto1@
*ar@etN that a""e..ant had to advan1e 1ertain eB"enses 0or the *inors and se1ure
0or the* "ro"erties 4orth at .east a Iuarter o0 a *i..ion "esosN that the t4o
+ene51iaries are 0or un@no4n reasons short o0 0unds so, that the a""e..ant had to
+orro4 the su* o0 P(,6--#-- 0or the *edi1a. treat*ent o0 *inor An8e.a Pere< /
TuasonN that a""e..ant as@ed the trustee to advan1e said a*ount 4ith the
1on1urren1e o0 the +ene51iaries +ut the trustee re0used thou8h he oFered to .end
the *one/ out o0 his o4n "o1@et, and so a""e..ant eBe1uted the "ro*issor/ note in
Iuestion#
It is 1.ear that inso0ar as the "ersona. .ia+i.it/ o0 a""e..ant Pere< on the "ro*issor/
note is 1on1erned, 4hi1h he ad*itted./ eBe1uted 0or va.ue in 0avor o0 a""e..ee
Araneta, a.. the a+ove re1ited a..e8ations are irre.evant and i**ateria. and 1annot
tender an/ issue that 4i.. aFe1t his "ersona. .ia+i.it/ under the note# And this is so
+e1ause the a..e8ation re8ardin8 the eBisten1e o0 the trust and its *is*ana8e*ent
on the "art o0 a""e..ee Araneta as trustee, 1ertain./, has nothin8 to do 4ith the
*one/ .ent +/ hi* to a""e..ant# Neither has the a..e8ation that the "ro1eeds o0 the
note 4ere s"ent +/ a""e..ant 0or the *edi1a. treat*ent o0 *inor An8e.a an/thin8 to
do 4ith his "ersona. o+.i8ation +e1ause the destination o0 the "ro1eeds o0 said note
is 1ertain./ not the 1on1ern o0 Araneta# ?e are, there0ore, o0 the o"inion that the
1ourt a 9uo did not err in renderin8 Gud8*ent on the ".eadin8s in the .i8ht o0 4hat is
averred in a""e..eeSs 1o*".aint#
)# But even assu*in8 0or the sa@e o0 ar8u*ent that 4hat is 1.ai*ed +/ a""e..ant as
to ho4 he s"ent the "ro1eeds o0 the notes is true, that 4i.. not eBe*"t hi* 0ro* his
.ia+i.it/ to Araneta +ut 4ou.d *ere./ 8ive hi* so*e +asis to 1.ai* 0or re1ou"*ent
a8ainst the share o0 the trust 0und +e.on8in8 to the +ene5ted *inor i0 it is "ro"er./
sho4n that there is 0und 1o*in8 to said *inor# Here, no su1h sho4in8 4as *ade#
2oreover, the trust herein 1reated *ere./ "rovides 0or de.iver/ to the +ene51iaries
o0 the share that *a/ 1orres"ond to the* in the net in1o*e o0 the trust 0und, +ut
does not i*"ose u"on the trustee the dut/ to "a/ an/ o+.i8ation or eB"enses that
*a/ +e needed +/ said +ene51iaries#
A""e..ant has 1ited severa. authorities to su""ort his stand that the *edi1a.
eB"enses in Iuestion 4hi1h 4ere *ade 0or the sa@e o0 the +ene51iar/ shou.d +e
+orne +/ the trust 0und, +ut 0ro* an eBa*ination thereo0 one *a/ see that the/
reIuire that +ene51iar/ +e inso.vent in order that the trust estate *a/ +e o+.i8ed to
shou.der the eB"enses#
DD
%
EE
Here the +ene51iar/ is not in that situation 0or, as
a""e..ant hi*se.0 has ad*itted, said +ene51iar/ has "ro"erties that are 4orth at
.east a Iuarter o0 a *i..ion "esos 4hi1h are under the $uardianshi" ourt o0 2ani.a#
There is, there0ore, no roo* 0or the a"".i1ation o0 the ru.in8 .aid do4n in the 1ited
authorities#
The other authorities 1ited +/ a""e..ant to +o.ster his 1.ai* are a.so ina"".i1a+.e 0or
the/ san1tion the a"".i1ations o0 the trust 0und to *edi1a. or other eB"enses o0 the
+ene51iaries on./ 4hen there is a+so.ute ne1essit/ there0or, or 4hen the/
the*se.ves are una+.e to "rovide 0or those eB"enses# As a.read/ stated, the
+ene51iaries here are 4e.. oF or have enou8h to "rovide 0or their ne1essities i0 on./
their 8uardian shou.d ta@e ste"s to attend to the* as reIuired +/ the
1ir1u*stan1es# But instead o0 doin8 so, a""e..ant insists on havin8 a""e..ee re1ou"
4ith trust *one/ 4hat he had a..e8ed./ s"ent 0or his dau8hterSs +ene5t thus 8ivin8
rise to the "resent dua. .iti8ation#
?e ta@e note o0 the 4ritten *ani0estation or T1onstan1iaT su+*itted to this ourt +/
a""e..ant dated Au8ust )), %7=( in his 1a"a1it/ as Gudi1ia. 8uardian o0 the
+ene51iaries herein, as 4e.. as o0 su"".e*ent thereo0 *ade on Se"te*+er )-, %7=(,
invitin8 attention o0 this ourt to an order issued +/ the Juveni.e and Do*esti1
Re.ations ourt authori<in8 a""e..ant as su1h 8uardian to assi8n the a*ount o0
P(,6--#-- to a""e..ee herein 0or the "ur"ose o0 rei*+ursin8 hi* 0or the a*ount he
had advan1ed and 4hi1h is the su+Ge1t o0 the "ro*issor/ note 0or 4hi1h reason
a""e..ant no4 1.ai*s that this 1ase is no4 *oot and shou.d +e dis*issed# But to
su1h *ani0estation a""e..ee has 5.ed a reGoinder dated Se"te*+er ), %7=( statin8
that the reIuest 0or dis*issa. is untena+.e sin1e the order a""ea.ed 0ro* 1a..s not
on./ 0or the "a/*ent o0 the su* o0 P(,6--#-- +ut o0 7M interest thereon "er annu*
0ro* O1to+er %(, %7=% unti. "a/*ent and o0 the su* o0 P(6-#-- as attorne/Ss 0ees#
?e ho.d that a""e..antSs 1.ai* is not Gusti5ed 1onsiderin8 that a""e..ee 4as 0or1ed
to 5.e the "resent suit in vie4 o0 a""e..antSs re0usa. to honor the note under
1onsideration# The reIuest, there0ore, 0or dis*issa. has no .e8a. +asis#
?HEREFORE, 4ith the *odi51ation that the "a/*ent o0 interest on the note shou.d
start 0ro* the date o0 eBtraGudi1ia. de*and, or O1to+er %', %7=%, 4e here+/ a3r*
the order a""ea.ed 0ro* in a.. other res"e1ts, 4ithout "ronoun1e*ent as to 1osts#
Beng(on, #.-., #oncepcion, 'eyes, -.B.$., Paredes, Di(on, 'egala, :akalintal,
Beng(on, -.P., and Caldiar, --., concur.
Barrera, -., is on leae.
!--$(-$,+
DD
%
EE
So 4here a trust 0und is to +e a"".ied to the su""ort o0 the +ene51iar/, a 1.ai*
0or *edi1a. servi1es rendered on the reIuest o0 the +ene51iar/ 4ith the @no4.ed8e
o0 the trustee, *a/ +e en0or1ed in eIuit/ as a8ainst the trustee 4here the
+ene51iar/ is inso.vent and it does not a""ear that the trustee had 0urnished hi*
4ith a.. that is ne1essar/ 4ith res"e1t to *edi1a. attendan1e# 97- #J#S# "# %%(:
G.R. N-. 168274 A5:5+$ 23, 2338
!AR EAST BAND H TRUST COMPAN>, "etitioner,
vs#
GO=D PA=ACE ?E<E==ER> CO., )+ &,4&,+,($,A 86 ?5A6 =. >)(:, ?5*#, >)(:.
G- )(A D%- S--( H5)$, res"ondent#
D E C I S I O N
NACHURA, J.:
For the revie4 o0 the ourt throu8h a Ru.e ,& "etition are the 0o..o4in8 issuan1es o0
the ourt o0 A""ea.s 9A: in A-$#R# L No# 6%'&'> 9%: the 2ar1h %&, )--&
De1ision
%
4hi1h reversed the tria. 1ourtSs ru.in8, and 9): the 2a/ )=, )--&
Reso.ution
)
4hi1h denied the *otion 0or re1onsideration o0 the said A de1ision#
The instant 1ontrovers/ tra1es its roots to a transa1tion 1onsu**ated so*eti*e in
June %77', 4hen a 0orei8ner, identi5ed as Sa*ue. Ta8oe, "ur1hased 0ro* the
res"ondent $o.d Pa.a1e Je4e..er/ o#Ss 9$o.d Pa.a1eSs: store at S2-North EDSA
severa. "ie1es o0 Ge4e.r/ va.ued atP)&',---#--#
(
In "a/*ent o0 the sa*e, he oFered
Forei8n Dra0t No# 2--=7=6- issued +/ the !nited Overseas Ban@ 92a.a/sia: BHD
2edan Pasar, Xua.a Lu*"ur Bran1h 9!OB:, addressed to the Land Ban@ o0 the
Phi.i""ines, 2ani.a 9LBP:, and "a/a+.e to the res"ondent 1o*"an/ 0orP('-,---#--#
,
Be0ore re1eivin8 the dra0t, res"ondent Jud/ Yan8, the assistant 8enera. *ana8er o0
$o.d Pa.a1e, inIuired 0ro* "etitioner Far East Ban@ \ Trust o*"an/Ss 9Far EastSs:
S2 North EDSA Bran1h, its nei8h+or *a.. tenant, the nature o0 the dra0t# The te..er
in0or*ed her that the sa*e 4as si*i.ar to a *ana8erSs 1he1@, +ut advised her not
to re.ease the "ie1es o0 Ge4e.r/ unti. the dra0t had +een 1.eared#
&
Fo..o4in8 the
+an@Ss advi1e, Yan8 issued ash Invoi1e No# %=-7
=
to the 0orei8ner, as@ed hi* to
1o*e +a1@, and in0or*ed hi* that the "ie1es o0 Ge4e.r/ 4ou.d +e re.eased 4hen the
dra0t had a.read/ +een 1.eared#
6
Res"ondent Ju.ie Yan8-$o, the *ana8er o0 $o.d
Pa.a1e, 1onseIuent./ de"osited the dra0t in the 1o*"an/Ss a11ount 4ith the
a0ore*entioned Far East +ran1h on June ), %77'#
'
?hen Far East, the 1o..e1tin8 +an@, "resented the dra0t 0or 1.earin8 to LBP, the
dra4ee +an@, the .atter 1.eared the sa*e
7
-!OBSs a11ount 4ith LBP 4as
de+ited,
%-
and $o.d Pa.a1eSs a11ount 4ith Far East 4as 1redited 4ith the a*ount
stated in the dra0t#
%%
The 0orei8ner eventua../ returned to res"ondentSs store on June =, %77' to 1.ai* the
"ur1hased 8oods# A0ter as1ertainin8 that the dra0t had +een 1.eared, res"ondent
Yan8 re.eased the "ie1es o0 Ge4e.r/ to Sa*ue. Ta8oeN and +e1ause the a*ount in
the dra0t 4as *ore than the va.ue o0 the 8oods "ur1hased, she issued, as his
1han8e, Far East he1@ No# %6(-''%
%)
0or P%)),---#--#
%(
This 1he1@ 4as .ater
"resented 0or en1ash*ent and 4as, in 0a1t, "aid +/ the said +an@#
%,
On June )=, %77', or a0ter around three 4ee@s, LBP in0or*ed Far East that the
a*ount in Forei8n Dra0t No# 2--=7=6- had +een *ateria../ a.tered 0ro* P(--#--
to P('-,---#-- and that it 4as returnin8 the sa*e# Atta1hed to its o31ia.
1orres"onden1e 4ere S"e1ia. .earin8 Re1ei"t No# --)&7( and the du./ notari<ed
and 1onsu.-authenti1ated a3davit o0 a 1or"orate o31er o0 the dra4er, !OB#
%&
It is
noted at this "oint that the *ateria. a.teration 4as dis1overed +/ !OB a0ter LBP had
in0or*ed it that its 0unds 4ere +ein8 de".eted 0o..o4in8 the en1ash*ent o0 the
su+Ge1t dra0t#
%=
Intendin8 to de+it the a*ount 0ro* res"ondentSs a11ount, Far East
su+seIuent./ re0unded the P('-,---#-- ear.ier "aid +/ LBP#
$o.d Pa.a1e, in the *eanti*e, had a.read/ uti.i<ed "ortions o0 the a*ount# Thus, on
Ju./ )-, %77', as the outstandin8 +a.an1e o0 its a11ount 4as a.read/ inadeIuate, Far
East 4as a+.e to de+it on./P%=',-&(#(=,
%6
+ut this 4as done 4ithout a "rior 4ritten
noti1e to the a11ount ho.der#
%'
Far East on./ noti5ed +/ "hone the re"resentatives o0
the res"ondent 1o*"an/#
%7
On Au8ust %), %77', "etitioner de*anded 0ro* res"ondents the "a/*ent
o0 P)%%,7,=#=, or the diFeren1e +et4een the a*ount in the *ateria../ a.tered dra0t
and the a*ount de+ited 0ro* the res"ondent 1o*"an/Ss a11ount#
)-
Be1ause $o.d
Pa.a1e did not heed the de*and, Far East 1onseIuent./ instituted ivi. ase No# 77-
)7= 0or su* o0 *one/ and da*a8es +e0ore the Re8iona. Tria. ourt 9RT:, Bran1h =,
o0 2a@ati it/#
)%
In their Ans4er, res"ondents s"e1i51a../ denied the *ateria. a..e8ations in the
1o*".aint and inter"osed as a de0ense that the 1o*".aint states no 1ause o0 a1tion-
the su+Ge1t 0orei8n dra0t havin8 +een 1.eared and the res"ondent not +ein8 the
"art/ 4ho *ade the *ateria. a.teration# Res"ondents 0urther 1ounter1.ai*ed 0or
a1tua. da*a8es, *ora. and eBe*".ar/ da*a8es, and attorne/Ss 0ees 1onsiderin8,
a*on8 others, that the "etitioner had 1on5s1ated 4ithout +asis $o.d Pa.a1eSs
+a.an1e in its a11ount resu.tin8 in o"erationa. .oss, and had *a.i1ious./ i*"uted to
the .atter the a1t o0 a.teration#
))
A0ter tria. on the *erits, the RT rendered its Ju./ (-, )--% De1ision
)(
in 0avor o0 Far
East, orderin8 $o.d Pa.a1e to "a/ the 0or*er P)%%,7,=#=, as a1tua. da*a8es
and P&-,---#-- as attorne/Ss 0ees#
),
The tria. 1ourt ru.ed that, on the +asis o0 its
4arranties as a 8enera. indorser, $o.d Pa.a1e 4as .ia+.e to Far East#
)&
On a""ea., the A, in the assai.ed 2ar1h %&, )--& De1ision,
)=
reversed the ru.in8 o0
the tria. 1ourt and a4arded res"ondentsS 1ounter1.ai*# It ru.ed in the *ain that Far
East 0ai.ed to under8o the "ro1eedin8s on the "rotest o0 the 0orei8n dra0t or to noti0/
$o.d Pa.a1e o0 the dra0tSs dishonorN thus, Far East 1ou.d not 1har8e $o.d Pa.a1e on
its se1ondar/ .ia+i.it/ as an indorser#
)6
The a""e..ate 1ourt 0urther ru.ed that the
dra4ee +an@ had 1.eared the 1he1@, and its re*ed/ shou.d +e a8ainst the "art/
res"onsi+.e 0or the a.teration# onsiderin8 that, in this 1ase, $o.d Pa.a1e neither
a.tered the dra0t nor @ne4 o0 the a.teration, it 1ou.d not +e he.d .ia+.e#
)'
The
dis"ositive "ortion o0 the A de1ision reads>
?HEREFORE, "re*ises 1onsidered, the a""ea. is $RANTEDN the assai.ed De1ision
dated (- Ju./ )--% o0 the Re8iona. Tria. ourt o0 2a@ati it/, Bran1h =, is here+/
RELERSED and SET ASIDEN the o*".aint dated Januar/ %777 is DIS2ISSEDN and
a""e..ee Far East Ban@ and Trust o*"an/ is here+/ ordered to "a/ a""e..ant $o.d
Pa.a1e Je4e..er/ o*"an/ the a*ount o0 Ph"%=',-&(#(= 0or a1tua. da*a8es ".us
.e8a. interest o0 %)M "er annu* 0ro* )- Ju./ %77', Ph"&-,---#-- 0or eBe*".ar/
da*a8es, and Ph"&-,---#-- 0or attorne/Ss 0ees# osts a8ainst a""e..ee Far East
Ban@ and Trust o*"an/#
)7
The a""e..ate 1ourt, in the 0urther 1ha..en8ed 2a/ )=, )--& Reso.ution,
(-
denied
"etitionerSs 2otion 0or Re1onsideration,
(%
4hi1h "ro*"ted the "etitioner to institute
+e0ore the ourt the instant Petition 0or Revie4 on ertiorari#
()
?e den/ the "etition#
A1t No# )-(%, or the Ne8otia+.e Instru*ents La4 9NIL:, eB".i1it./ "rovides that the
a11e"tor, +/ a11e"tin8 the instru*ent, en8a8es that he 4i.. "a/ it according to the
tenor of his acceptance#
((
This "rovision a"".ies 4ith eIua. 0or1e in 1ase the dra4ee
"a/s a +i.. 4ithout havin8 "revious./ a11e"ted it# His a1tua. "a/*ent o0 the a*ount
in the 1he1@ i*".ies not on./ his assent to the order o0 the dra4er and a re1o8nition
o0 his 1orres"ondin8 o+.i8ation to "a/ the a0ore*entioned su*, +ut a.so, his 1.ear
1o*".ian1e 4ith that o+.i8ation#
(,
A1tua. "a/*ent +/ the dra4ee is 8reater than his
a11e"tan1e, 4hi1h is *ere./ a "ro*ise in 4ritin8 to "a/# The "a/*ent o0 a 1he1@
in1.udes its a11e"tan1e#
(&
!n*ista@a+.e herein is the 0a1t that the dra4ee +an@ 1.eared and "aid the su+Ge1t
0orei8n dra0t and 0or4arded the a*ount thereo0 to the 1o..e1tin8 +an@# The .atter
then 1redited to $o.d Pa.a1eSs a11ount the "a/*ent it re1eived# Fo..o4in8 the ".ain
.an8ua8e o0 the .a4, the dra4ee, +/ the said "a/*ent, re1o8ni<ed and 1o*".ied
4ith its o+.i8ation to "a/ in a11ordan1e 4ith the tenor of his acceptance# The tenor
of the acceptance is deter*ined +/ the ter*s o0 the +i.. as it is 4hen the dra4ee
a11e"ts#
(=
Stated si*"./, LBP 4as .ia+.e on its "a/*ent o0 the 1he1@ a11ordin8 to
the tenor o0 the 1he1@ at the ti*e o0 "a/*ent, 4hi1h 4as the raised a*ount#
Be1ause o0 that en8a8e*ent, LBP 1ou.d no .on8er re"udiate the "a/*ent it
erroneous./ *ade to a due 1ourse ho.der# ?e note at this "oint that $o.d Pa.a1e 4as
not a "arti1i"ant in the a.teration o0 the dra0t, 4as not ne8.i8ent, and 4as a ho.der
in due 1ourse-it re1eived the dra0t 1o*".ete and re8u.ar on its 0a1e, +e0ore it
+e1a*e overdue and 4ithout noti1e o0 an/ dishonor, in 8ood 0aith and 0or va.ue,
and a+sent an/ @no4.ed8e o0 an/ in5r*it/ in the instru*ent or de0e1t in the tit.e o0
the "erson ne8otiatin8 it#
(6
Havin8 re.ied on the dra4ee +an@Ss 1.earan1e and
"a/*ent o0 the dra0t and not +ein8 ne8.i8ent 9it de.ivered the "ur1hased Ge4e.r/
on./ 4hen the dra0t 4as 1.eared and "aid:, res"ondent is a*"./ "rote1ted +/ the
said Se1tion =)# o**er1ia. "o.i1/ 0avors the "rote1tion o0 an/ one 4ho, in due
1ourse, 1han8es his "osition on the 0aith o0 the dra4ee +an@Ss 1.earan1e and
"a/*ent o0 a 1he1@ or dra0t#
('
This 1onstru1tion and a"".i1ation o0 the .a4 8ives eFe1t to the ".ain .an8ua8e o0 the
NIL
(7
and is in .ine 4ith the sound "rin1i".e that 4here one o0 t4o inno1ent "arties
*ust suFer a .oss, the .a4 4i.. .eave the .oss 4here it 5nds it#
,-
It 0urther reasserts
the use0u.ness, sta+i.it/ and 1urren1/ o0 ne8otia+.e "a"er 4ithout serious./
endan8erin8 a11e"ted +an@in8 "ra1ti1es# Indeed, +an@in8 institutions 1an readi./
"rote1t the*se.ves a8ainst .ia+i.it/ on a.tered instru*ents either +/ Iua.i0/in8 their
a11e"tan1e or 1erti51ation, or +/ re./in8 on 0or8er/ insuran1e and s"e1ia. "a"er
4hi1h 4i.. *a@e a.terations o+vious#
,%
This is not to *ention, +ut 4e state
neverthe.ess 0or e*"hasis, that the dra4ee +an@, in *ost 1ases, is in a +etter
"osition, 1o*"ared to the ho.der, to veri0/ 4ith the dra4er the *atters stated in the
instru*ent# As 4e have o+served in this 1ase, 4ere it not 0or LBPSs 1o**uni1ation
4ith the dra4er that its a11ount in the Phi.i""ines 4as +ein8 de".eted a0ter the
su+Ge1t 0orei8n dra0t had +een en1ashed, then, the a.teration 4ou.d not have +een
dis1overed# ?hat 4e 1annot understand is 4h/ LBP, havin8 the *ost 1onvenient
*eans to 1orres"ond 4ith !OB, did not 5rst veri0/ the a*ount o0 the dra0t +e0ore it
1.eared and "aid the sa*e# $o.d Pa.a1e, on the other hand, had no 0a1i.it/ to
as1ertain 4ith the dra4er, !OB 2a.a/sia, the true a*ount in the dra0t# It 4as .e0t
4ith no o"tion +ut to re./ on the re"resentations o0 LBP that the dra0t 4as 8ood#
In arrivin8 at this 1on1.usion, the ourt is not 1.osin8 its e/es to the other vie4
es"oused in 1o**on .a4 Gurisdi1tions that a drawee bank, haing paid to an
innocent holder the amount of an uncertifed, altered check in good faith and
without negligence which contributed to the loss, could recoer from the person to
whom payment was made as for money paid by mistake#
,)
Ho4ever, 8iven the
0ore8oin8 dis1ussion, 4e 5nd no 1o*"e..in8 reason to a""./ the "rin1i".e to the
instant 1ase#
The ourt is a.so a4are that under the !ni0or* o**er1ia. ode in the !nited
States o0 A*eri1a, if an unaccepted draft is presented to a drawee for payment or
acceptance and the drawee pays or accepts the draft, the person obtaining
payment or acceptance, at the time of presentment, and a preious transferor of
the draft, at the time of transfer, warrant to the drawee making payment or
accepting the draft in good faith that the draft has not been altered#
,(
Nonethe.ess,
a+sent an/ si*i.ar "rovision in our .a4, 4e 1annot eBtend the sa*e "re0erentia.
treat*ent to the "a/in8 +an@#
Thus, 1onsiderin8 that, in this 1ase, $o.d Pa.a1e is "rote1ted +/ Se1tion =) o0 the
NIL, its 1o..e1tin8 a8ent, Far East, shou.d not have de+ited the *one/ "aid +/ the
dra4ee +an@ 0ro* res"ondent 1o*"an/Ss a11ount# ?hen $o.d Pa.a1e de"osited the
1he1@ 4ith Far East, the .atter, under the ter*s o0 the de"osit and the "rovisions o0
the NIL, +e1a*e an a8ent o0 the 0or*er 0or the 1o..e1tion o0 the a*ount in the
dra0t#
,,
The su+seIuent "a/*ent +/ the dra4ee +an@ and the 1o..e1tion o0 the
a*ount +/ the 1o..e1tin8 +an@ 1.osed the transa1tion inso0ar as the dra4ee and the
ho.der o0 the 1he1@ or his a8ent are 1on1erned, 1onverted the 1he1@ into a *ere
vou1her,
,&
and, as a.read/ dis1ussed, 0ore1.osed the re1over/ +/ the dra4ee o0 the
a*ount "aid# This 1.osure o0 the transa1tion is a *atter o0 1ourseN other4ise,
un1ertaint/ in 1o**er1ia. transa1tions, de.a/ and anno/an1e 4i.. arise i0 a +an@ at
so*e 0uture ti*e 4i.. 1a.. on the "a/ee 0or the return o0 the *one/ "aid to hi* on
the 1he1@#
,=
As the transa1tion in this 1ase had +een 1.osed and the "rin1i"a.-a8ent re.ationshi"
+et4een the "a/ee and the 1o..e1tin8 +an@ had a.read/ 1eased, the .atter in
returnin8 the a*ount to the dra4ee +an@ 4as a.read/ a1tin8 on its o4n and shou.d
no4 +e res"onsi+.e 0or its o4n a1tions# Neither 1an "etitioner +e 1onsidered to have
a1ted as the re"resentative o0 the dra4ee +an@ 4hen it de+ited res"ondentSs
a11ount, +e1ause, as a.read/ eB".ained, the dra4ee +an@ had no ri8ht to re1over
4hat it "aid# Li@e4ise, Far East 1annot invo@e the 4arrant/ o0 the "a/eeHde"ositor
4ho indorsed the instru*ent 0or 1o..e1tion to shi0t the +urden it +rou8ht u"on itse.0#
This is "re1ise./ +e1ause the said indorse*ent is on./ 0or "ur"oses o0 1o..e1tion
4hi1h, under Se1tion (= o0 the NIL, is a restri1tive indorse*ent#
,6
It did not in an/
4a/ trans0er the tit.e o0 the instru*ent to the 1o..e1tin8 +an@# Far East did not o4n
the dra0t, it *ere./ "resented it 0or "a/*ent# onsiderin8 that the 4arranties o0 a
8enera. indorser as "rovided in Se1tion == o0 the NIL are +ased u"on a trans0er o0
tit.e and are avai.a+.e on./ to ho.ders in due 1ourse,
,'
these 4arranties did not
atta1h to the indorse*ent 0or de"osit and 1o..e1tion *ade +/ $o.d Pa.a1e to Far
East# ?ithout an/ .e8a. ri8ht to do so, the 1o..e1tin8 +an@, there0ore, 1ou.d not de+it
res"ondentSs a11ount 0or the a*ount it re0unded to the dra4ee +an@#
The 0ore8oin8 1onsidered, 4e a3r* the ru.in8 o0 the a""e..ate 1ourt to the eBtent
that Far East 1ou.d not de+it the a11ount o0 $o.d Pa.a1e, and 0or doin8 so, it *ust
return 4hat it had erroneous./ ta@en# Far EastSs re*ed/ under the .a4 is not a8ainst
$o.d Pa.a1e +ut a8ainst the dra4ee-+an@ or the "erson res"onsi+.e 0or the
a.teration# That, ho4ever, is another issue 4hi1h 4e do not 5nd ne1essar/ to
dis1uss in this 1ase#
Ho4ever, 4e de.ete the eBe*".ar/ da*a8es a4arded +/ the a""e..ate 1ourt#
Res"ondents have not sho4n that the/ are entit.ed to *ora., te*"erate or
1o*"ensator/ da*a8es#
,7
Neither 4as "etitioner i*"e..ed +/ *a.i1e or +ad 0aith in
de+itin8 the a11ount o0 the res"ondent 1o*"an/ and in "ursuin8 its 1ause#
&-
On the
1ontrar/, "etitioner 4as honest./ 1onvin1ed o0 the "ro"riet/ o0 the de+it# ?e a.so
de.ete the a4ard o0 attorne/Ss 0ees 0or, in a ".ethora o0 1ases, 4e have ru.ed that it
is not a sound "u+.i1 "o.i1/ to ".a1e a "re*iu* on the ri8ht to .iti8ate# No da*a8es
1an +e 1har8ed to those 4ho eBer1ise su1h "re1ious ri8ht in 8ood 0aith, even i0 done
erroneous./#
&%
<HERE!ORE, "re*ises 1onsidered, the 2ar1h %&, )--& De1ision and the 2a/ )=,
)--& Reso.ution o0 the ourt o0 A""ea.s in A-$#R# L No# 6%'&' are A!!IRMED
<ITH THE MODI!ICATION that the a4ard o0 eBe*".ar/ da*a8es and attorne/Ss
0ees is DE=ETED#
SO ORDERED#
DIGEST
!ACTS:
June %77'> Sa*ue. Ta8oe, a 0orei8ner, "ur1hased 0ro* $o.d Pa.a1e Je4e..er/
o#Ss 9$o.d Pa.a1eSs: store at S2-North EDSA severa. "ie1es o0 Ge4e.r/ va.ued
at P)&',---
"aid 4H Forei8n Dra0t issued +/ the !nited Overseas Ban@ 92a.a/sia: to
Land Ban@ o0 the Phi.i""ines, 2ani.a 9LBP: 0or P('-,---
Te..er o0 Far East Ban@, neBt door tenant, in0or*ed Ju.ie Yan8-$o 9*ana8er o0
$o.d Pa.a1e: that a 0orei8n dra0t has si*i.ar nature to a *ana8erSs 1he1@, +ut
advised her not to re.ease the "ie1es o0 Ge4e.r/ unti. the dra0t had +een
1.eared
Yan8 issued ash Invoi1e so the Ge4e.ries 1an +e re.eased
Yan8 de"osited the dra0t in the 1o*"an/Ss a11ount 4ith the Far East on
June ), %77'
?hen Far East, the 1o..e1tin8 +an@, "resented the dra0t 0or 1.earin8 to LBP,
the dra4ee +an@, 1.eared the it and $o.d Pa.a1eSs a11ount 4ith Far East 4as
1redited
June =, %77'> The 0orei8ner eventua../ returned to 1.ai* the "ur1hased
8oods#
A0ter as1ertainin8 that the dra0t had +een 1.eared, Yan8 re.eased the
"ie1es o0 Ge4e.r/ and his 1han8e, Far East he1@ o0 P%)),--- "aid +/
the +an@
June )=, %77'> LBP in0or*ed Far East that the Forei8n Dra0t had +een
*ateria../ a.tered 0ro* P(-- to P(--,---and that it 4as returnin8 the sa*e
Far East re0unded the a*ount to LBP and de+it on./ P%=',-&(#(= o0 the
a*ount .e0t in $o.d Pa.a1eS a11ount 4ithout a "rior 4ritten noti1e to the
a11ount ho.der
Far East on./ noti5ed +/ "hone the re"resentatives o0 the $o.d
Pa.a1e
Au8ust %), %77'> Far East de*anded 0ro* $o.d Pa.a1e the "a/*ent o0
+a.an1e and u"on re0usa. 5.ed in the RT
RT> in 0avor o0 Far East on the +asis that $o.d Pa.a1e 4as .ia+.e under the
.ia+i.ities o0 a 8enera. indorser
A> reversed sin1e Far East 0ai.ed to under8o the "ro1eedin8s on the "rotest
o0 the 0orei8n dra0t or to noti0/ $o.d Pa.a1e o0 the dra0tSs dishonorN thus, Far
East 1ou.d not 1har8e $o.d Pa.a1e on its se1ondar/ .ia+i.it/ as an indorser
ISSUE:
?HN $o.d Pa.a1e shou.d +e .ia+.e 0or the a.tered Forei8n Dra0t
HE=D:
NO# AFFIR2ED ?ITH THE 2ODIFIATION that the a4ard o0 eBe*".ar/ da*a8es and
attorne/Ss 0ees is DELETED
A1t No# )-(%, or the Ne8otia+.e Instru*ents La4 9NIL:, eB".i1it./ "rovides that the
a11e"tor, +/ a11e"tin8 the instru*ent, en8a8es that he 4i.. "a/ it according to the
tenor of his acceptance#
This "rovision a"".ies 4ith eIua. 0or1e in 1ase the dra4ee "a/s a +i.. 4ithout
havin8 "revious./ a11e"ted it#
A1tua. "a/*ent +/ the dra4ee is 8reater than his a11e"tan1e, 4hi1h is
*ere./ a "ro*ise in 4ritin8 to "a/
The "a/*ent o0 a 1he1@ in1.udes its a11e"tan1e
The tenor of the acceptance is deter*ined +/ the ter*s o0 the +i.. as it is
4hen the dra4ee a11e"ts#
LBP 4as .ia+.e on its "a/*ent o0 the 1he1@ a11ordin8 to the tenor o0
the 1he1@ at the ti*e o0 "a/*ent, 4hi1h 4as the raised a*ount#
$o.d Pa.a1e 4as not a "arti1i"ant in the a.teration o0 the dra0t, 4as not
ne8.i8ent, and 4as a ho.der in due 1ourse
LBP, havin8 the *ost 1onvenient *eans to 1orres"ond 4ith !OB, did not 5rst
veri0/ the a*ount o0 the dra0t +e0ore it 1.eared and "aid the sa*e
$o.d Pa.a1e had no 0a1i.it/ to as1ertain 4ith the dra4er, !OB 2a.a/sia,
the true a*ount inthe dra0t# It 4as .e0t 4ith no o"tion +ut to re./ on the
re"resentations o0 LBP that the dra0t 4as 8ood
Principle that the drawee bank, haing paid to an innocent holder the
amount of an uncertifed, altered check in good faith and without negligence
which contributed to the loss, could recoer from the person to whom
payment was made as for money paid by mistake = 52% applicable
The ourt is a.so a4are that under the !ni0or* o**er1ia. ode in the
!nited States o0 A*eri1a, if an unaccepted draft is presented to a drawee for
payment or acceptance and the drawee pays or accepts the draft, the person
obtaining payment or acceptance, at the time of presentment, and a
preious transferor of the draft, at the time of transfer, warrant to the drawee
making payment or accepting the draft in good faith that the drafthas not
been altered = a+sent an/ si*i.ar "rovision in our .a4, 1annot eBtend the
sa*e "re0erentia. treat*ent to the "a/in8 +an@
$o.d Pa.a1e is "rote1ted +/ Se1tion =) o0 the NIL, its 1o..e1tin8 a8ent, Far
East, shou.d not have de+ited the *one/ "aid +/ the dra4ee +an@ 0ro*
res"ondent 1o*"an/Ss a11ount# ?hen $o.d Pa.a1e de"osited the 1he1@ 4ith
Far East, it, under the ter*s o0 the de"osit and the "rovisions o0 the NIL,
+e1a*e an a8ent o0 the $o.d Pa.a1e 0or the 1o..e1tion o0 the a*ount in the
dra0t
The su+seIuent "a/*ent +/ the dra4ee +an@ and the 1o..e1tion o0 the
a*ount +/ the 1o..e1tin8 +an@ 1.osed the transa1tion inso0ar as the dra4ee
and the ho.der o0 the 1he1@ or his a8ent are 1on1erned, 1onverted the 1he1@
into a *ere vou1her, and, as a.read/ dis1ussed, 0ore1.osed the re1over/ +/
the dra4ee o0 the a*ount "aid# This 1.osure o0 the transa1tion is a *atter o0
1ourseN other4ise, un1ertaint/ in 1o**er1ia. transa1tions, de.a/ and
anno/an1e 4i.. arise i0 a +an@ at so*e 0uture ti*e 4i.. 1a.. on the "a/ee 0or
the return o0 the *one/ "aid to hi* on the 1he1@
As the transa1tion in this 1ase had +een 1.osed and the "rin1i"a.-a8ent
re.ationshi" +et4een the "a/ee and the 1o..e1tin8 +an@ had a.read/
1eased, the .atter in returnin8 the a*ount to the dra4ee +an@ 4as
a.read/ a1tin8 on its o4n and shou.d no4 +e res"onsi+.e 0or its o4n
a1tions# Neither 1an "etitioner +e 1onsidered to have a1ted as the
re"resentative o0 the dra4ee +an@ 4hen it de+ited res"ondentSs
a11ount, +e1ause, as a.read/ eB".ained, the dra4ee +an@ had no ri8ht
to re1over 4hat it "aid# Li@e4ise, Far East 1annot invo@e the 4arrant/
o0 the "a/eeHde"ositor 4ho indorsed the instru*ent 0or 1o..e1tion to
shi0t the +urden it +rou8ht u"on itse.0# This is "re1ise./ +e1ause the
said indorse*ent is on./ 0or "ur"oses o0 1o..e1tion 4hi1h, under
Se1tion (= o0 the NIL, is a restri1tive indorse*ent# It did not in an/
4a/ trans0er the tit.e o0 the instru*ent to the 1o..e1tin8 +an@# Far East
did not o4n the dra0t, it *ere./ "resented it 0or "a/*ent# onsiderin8
that the 4arranties o0 a 8enera. indorser as "rovided in Se1tion == o0
the NIL are +ased u"on a trans0er o0 tit.e and are avai.a+.e on./ to
ho.ders in due 1ourse, these 4arranties did not atta1h to the
indorse*ent 0or de"osit and 1o..e1tion *ade +/ $o.d Pa.a1e to Far
East# ?ithout an/ .e8a. ri8ht to do so, the 1o..e1tin8 +an@, there0ore,
1ou.d not de+it res"ondentSs a11ount 0or the a*ount it re0unded to the
dra4ee +an@#
BAND O! THE PHI=IPPINE IS=ANDS, P,$#$#-(,&,
. 2,&+5+ .
COURT O! APPEA=S, ANNABE==E A. SA=AEAR, )(A ?U=IO R. TEMP=ONUE@O,
R,+4-(A,($+.
G.R. N-. 136232 ?)(5)&6 25, 2337
DECISION
AECUNA, J.:
This is a "etition 0or revie4 under Ru.e ,& o0 the Ru.es o0 ourt see@in8 the reversa.
o0 the De1ision
D%E
dated A"ri. (, %77', and the Reso.ution
D)E
dated Nove*+er 7, %77',
o0 the ourt o0 A""ea.s in A-$#R# L No# ,)),%
The 0a1ts
D(E
are as 0o..o4s>
A#A# Sa.a<ar onstru1tion and En8ineerin8 Servi1es 5.ed an a1tion 0or a su* o0
*one/ 4ith da*a8es a8ainst herein "etitioner Ban@ o0 the Phi.i""ine Is.ands 9BPI:
on De1e*+er &, %77% +e0ore Bran1h %&= o0 the Re8iona. Tria. ourt 9RT: o0 Pasi8
it/# The 1o*".aint 4as .ater a*ended +/ su+stitutin8 the na*e o0 Anna+e..e A#
Sa.a<ar as the rea. "art/ in interest in ".a1e o0 A#A# Sa.a<ar onstru1tion and
En8ineerin8 Servi1es# Private res"ondent Sa.a<ar "ra/ed 0or the re1over/ o0 the
a*ount o0 T4o Hundred SiBt/-Seven Thousand, Seven Hundred Seven Pesos and
Sevent/ entavos 9P)=6,6-6#6-: de+ited +/ "etitioner BPI 0ro* her a11ount# She
.i@e4ise "ra/ed 0or da*a8es and attorne/As 0ees#
Petitioner BPI, in its ans4er, a..e8ed that on Au8ust (%, %77%, Ju.io R# Te*".onuevo,
third-"art/ de0endant and herein a.so a "rivate res"ondent, de*anded 0ro* the
0or*er "a/*ent o0 the a*ount o0 T4o Hundred SiBt/-Seven Thousand, SiB Hundred
Ninet/-T4o Pesos and Fi0t/ entavos 9P)=6,=7)#&-: re"resentin8 the a88re8ate
va.ue o0 three 9(: 1he1@s, 4hi1h 4ere a..e8ed./ "a/a+.e to hi*, +ut 4hi1h 4ere
de"osited 4ith the "etitioner +an@ to "rivate res"ondent Sa.a<arAs a11ount 9A11ount
No# -)-(-%%'6-=6: 4ithout his @no4.ed8e and 1orres"ondin8 endorse*ent#
A11e"tin8 that Te*".onuevoAs 1.ai* 4as a va.id one, "etitioner BPI 0ro<e A11ount
No# -)-%--&''-,' o0 A#A# Sa.a<ar and onstru1tion and En8ineerin8 Servi1es,
instead o0 A11ount No# -)-(-%%'6-=6 4here the 1he1@s 4ere de"osited, sin1e this
a11ount 4as a.read/ 1.osed +/ "rivate res"ondent Sa.a<ar or had an insu31ient
+a.an1e#
Private res"ondent Sa.a<ar 4as advised to sett.e the *atter 4ith Te*".onuevo +ut
the/ did not arrive at an/ sett.e*ent# As it a""eared that "rivate res"ondent
Sa.a<ar 4as not entit.ed to the 0unds re"resented +/ the 1he1@s 4hi1h 4ere
de"osited and a11e"ted 0or de"osit, "etitioner BPI de1ided to de+it the a*ount
o0 P)=6,6-6#6- 0ro* her A11ount No# -)-%--&''-,' and the su* o0 P)=6,=7)#&-
4as "aid to Te*".onuevo +/ *eans o0 a 1ashierAs 1he1@# The diFeren1e +et4een
the va.ue o0 the 1he1@s 9P)=6,=7)#&-: and the a*ount a1tua../ de+ited 0ro* her
a11ount 9P)=6,6-6#6-: re"resented +an@ 1har8es in 1onne1tion 4ith the issuan1e o0
a 1ashierAs 1he1@ to Te*".onuevo#
In the ans4er to the third-"art/ 1o*".aint, "rivate res"ondent Te*".onuevo
ad*itted the "a/*ent to hi* o0 P)=6,=7)#&- and ar8ued that said "a/*ent 4as to
1orre1t the *a.i1ious de"osit *ade +/ "rivate res"ondent Sa.a<ar to her "rivate
a11ount, and that "etitioner +an@As ne8.i8en1e and to.eran1e re8ardin8 the *atter
4as vio.ative o0 the "ri*ar/ and ordinar/ ru.es o0 +an@in8# He .i@e4ise 1ontended
that the de+itin8 or ta@in8 o0 the rei*+ursed a*ount 0ro* the a11ount o0 "rivate
res"ondent Sa.a<ar +/ "etitioner BPI 4as a *atter eB1.usive./ +et4een said "arties
and *a/ +e "ursuant to +an@in8 ru.es and re8u.ations, +ut did not in an/ 4a/ aFe1t
hi*# The de+itin8 0ro* another a11ount o0 "rivate res"ondent Sa.a<ar, 1onsiderin8
that her other a11ount 4as eFe1tive./ 1.osed, 4as not his 1on1ern#
A0ter tria., the RT rendered a de1ision, the dis"ositive "ortion o0 4hi1h reads thus>
?HEREFORE, "re*ises 1onsidered, Gud8*ent is here+/ rendered in 0avor o0 the
".aintiF D"rivate res"ondent Sa.a<arE and a8ainst the de0endant D"etitioner BPIE and
orderin8 the .atter to "a/ as 0o..o4s>
%# The a*ount o0 P)=6,6-6#6- 4ith %)M interest thereon 0ro* Se"te*+er
%=, %77% unti. the said a*ount is 0u../ "aidN
)# The a*ount o0 P(-,---#-- as and 0or a1tua. da*a8esN
(# The a*ount o0 P&-,---#-- as and 0or *ora. da*a8esN
,# The a*ount o0 P&-,---#-- as and 0or eBe*".ar/ da*a8esN
&# The a*ount o0 P(-,---#-- as and 0or attorne/As 0eesN and
=# osts o0 suit#
The 1ounter1.ai* is here+/ ordered DIS2ISSED 0or .a1@ o0 0a1tua. +asis#
The third-"art/ 1o*".aint D5.ed +/ "etitionerE is here+/ .i@e4ise ordered DIS2ISSED
0or .a1@ o0 *erit#
Third-"art/ de0endantAs Di#e#, "rivate res"ondent Te*".onuevoAsE 1ounter1.ai* is
here+/ .i@e4ise DIS2ISSED 0or .a1@ o0 0a1tua. +asis#
SO ORDERED#
D,E

On a""ea., the ourt o0 A""ea.s 9A: a3r*ed the de1ision o0 the RT and he.d that
res"ondent Sa.a<ar 4as entit.ed to the "ro1eeds o0 the three 9(: 1he1@s
not4ithstandin8 the .a1@ o0 endorse*ent thereon +/ the "a/ee# The A 1on1.uded
that Sa.a<ar and Te*".onuevo had "revious./ a8reed that the 1he1@s "a/a+.e to JRT
onstru1tion and Tradin8
D&E
a1tua../ +e.on8ed to Sa.a<ar and 4ou.d +e de"osited to
her a11ount, 4ith "etitioner a1Iuies1in8 to the arran8e*ent#
D=E
Petitioner there0ore 5.ed this "etition on these 8rounds>
I#
The ourt o0 A""ea.s 1o**itted reversi+.e error in *isinter"retin8 Se1tion ,7 o0 the
Ne8otia+.e Instru*ents La4 and Se1tion ( 9r and s: o0 Ru.e %(% o0 the Ne4 Ru.es on
Eviden1e#
II#
The ourt o0 A""ea.s 1o**itted reversi+.e error in NOT a""./in8 the "rovisions o0
Arti1.es )), %)6' and %)7- o0 the ivi. ode in 0avor o0 BPI#
III#
The ourt o0 A""ea.s 1o**itted a reversi+.e error in ho.din8, +ased on a
*isa""rehension o0 0a1ts, that the a11ount 0ro* 4hi1h BPI de+ited the a*ount
o0 P)=6,6-6#6- +e.on8ed to a 1or"oration 4ith a se"arate and distin1t "ersona.it/#
IL#
The ourt o0 A""ea.s 1o**itted a reversi+.e error in ho.din8, +ased entire./ on
s"e1u.ations, sur*ises or 1onGe1tures, that there 4as an a8ree*ent +et4een
SALAYAR and TE2PLON!ELO that 1he1@s "a/a+.e to TE2PLON!ELO *a/ +e
de"osited +/ SALAYAR to her "ersona. a11ount and that BPI 4as "riv/ to this
a8ree*ent#
L#
The ourt o0 A""ea.s 1o**itted reversi+.e error in ho.din8, +ased entire./ on
s"e1u.ation, sur*ises or 1onGe1tures, that SALAYAR suFered 8reat da*a8e and
"reGudi1e and that her +usiness standin8 4as eroded#
LI#
The ourt o0 A""ea.s erred in a3r*in8 instead o0 reversin8 the de1ision o0 the .o4er
1ourt a8ainst BPI and dis*issin8 SALAYARAs 1o*".aint#
LII#
The Honora+.e ourt erred in a3r*in8 the de1ision o0 the .o4er 1ourt dis*issin8
the third-"art/ 1o*".aint o0 BPI#
D6E
The issues 1enter on the "ro"riet/ o0 the dedu1tions *ade +/ "etitioner 0ro*
"rivate res"ondent Sa.a<arAs a11ount# Stated other4ise, does a 1o..e1tin8 +an@,
over the o+Ge1tions o0 its de"ositor, have the authorit/ to 4ithdra4 uni.atera../ 0ro*
su1h de"ositorAs a11ount the a*ount it had "revious./ "aid u"on 1ertain
unendorsed order instru*ents de"osited +/ the de"ositor to another a11ount that
she .ater 1.osedP
Petitioner ar8ues thus>
%# There is no "resu*"tion in .a4 that a 1he1@ "a/a+.e to order, 4hen
0ound in the "ossession o0 a "erson 4ho is neither a "a/ee nor the indorsee thereo0,
has +een .a40u../ trans0erred 0or va.ue# Hen1e, the A shou.d not have "resu*ed
that Sa.a<ar 4as a trans0eree 0or va.ue 4ithin the 1onte*".ation o0 Se1tion ,7 o0 the
Ne8otia+.e Instru*ents La4,
D'E
as the .atter a"".ies on./ to a ho.der de5ned under
Se1tion %7%o0 the sa*e#
D7E
)# Sa.a<ar 0ai.ed to addu1e su31ient eviden1e to "rove that her
"ossession o0 the three 1he1@s 4as .a40u. des"ite her a..e8ations that these 1he1@s
4ere de"osited "ursuant to a "rior interna. arran8e*ent 4ith Te*".onuevo and that
"etitioner 4as "riv/ to the arran8e*ent#
(# The A shou.d have a"".ied the ivi. ode "rovisions on .e8a.
1o*"ensation +e1ause in dedu1tin8 the su+Ge1t a*ount 0ro* Sa.a<arAs a11ount,
"etitioner 4as *ere./ re1ti0/in8 the undue "a/*ent it *ade u"on the 1he1@s and
eBer1isin8 its "rero8ative to a.ter or *odi0/ an erroneous 1redit entr/ in the re8u.ar
1ourse o0 its +usiness#
,# The de+it o0 the a*ount 0ro* the a11ount o0 A#A# Sa.a<ar onstru1tion
and En8ineerin8 Servi1es 4as "ro"er even thou8h the va.ue o0 the 1he1@s had +een
ori8ina../ 1redited to the "ersona. a11ount o0 Sa.a<ar +e1ause A#A# Sa.a<ar
onstru1tion and En8ineerin8 Servi1es, an unin1or"orated sin8.e "ro"rietorshi", had
no se"arate and distin1t "ersona.it/ 0ro* Sa.a<ar#
&# Assu*in8 the dedu1tion 0ro* Sa.a<arAs a11ount 4as i*"ro"er, the A
shou.d not have dis*issed "etitionerAs third-"art/ 1o*".aint a8ainst Te*".onuevo
+e1ause the .atter 4ou.d have the .e8a. dut/ to return to "etitioner the "ro1eeds o0
the 1he1@s 4hi1h he "revious./ re1eived 0ro* it#
=# There 4as no 0a1tua. +asis 0or the a4ard o0 da*a8es to Sa.a<ar#
The "etition is "art./ *eritorious#
First, the issue raised +/ "etitioner reIuires an inIuir/ into the 0a1tua. 5ndin8s *ade
+/ the A# The AAs 1on1.usion that the dedu1tions 0ro* the +an@ a11ount o0 A#A#
Sa.a<ar onstru1tion and En8ineerin8 Servi1es 4ere i*"ro"er ste**ed 0ro* its
5ndin8 that there 4as no ineFe1tive "a/*ent to Sa.a<ar 4hi1h 4ou.d 1a.. 0or the
eBer1ise o0 "etitionerAs ri8ht to set oF a8ainst the 0or*erAs +an@ de"osits# This
5ndin8, in turn, 4as dra4n 0ro* the ".eadin8s o0 the "arties, the eviden1e addu1ed
durin8 tria. and u"on the ad*issions and sti"u.ations o0 0a1t *ade durin8 the "re-
tria., *ost si8ni51ant./ the 0o..o4in8>
9a: That Sa.a<ar "revious./ had in her "ossession the 0o..o4in8 1he1@s>
9%: So.id Ban@ he1@ No# B6==&&= dated Januar/ (-, %77- in the a*ount
o0 P&6,6%)#&-N
9): So.id Ban@ he1@ No# B'7'76' dated Ju./ (%, %77- in the a*ount
o0 P&&,%'-#--N and,
9(: EIuita+.e Ban@in8 or"oration he1@ No# ()('-=(' dated Au8ust )',
%77- 0or the a*ount o0 P%&,,'--#--N
9+: That these 1he1@s 4hi1h had an a88re8ate a*ount o0 P)=6,=7)#&- 4ere
"a/a+.e to the order o0 JRT onstru1tion and Tradin8, the na*e and st/.e under
4hi1h Te*".onuevo does +usinessN
91: That des"ite the .a1@ o0 endorse*ent o0 the desi8nated "a/ee u"on
su1h 1he1@s, Sa.a<ar 4as a+.e to de"osit the 1he1@s in her "ersona. savin8s a11ount
4ith "etitioner and en1ash the sa*eN
9d: That "etitioner a11e"ted and "aid the 1he1@s on three 9(: se"arate
o11asions over a s"an o0 ei8ht *onths in %77-N and
9e: That Te*".onuevo on./ "rotested the "ur"orted./ unauthori<ed
en1ash*ent o0 the 1he1@s a0ter the .a"se o0 one /ear 0ro* the date o0 the .ast
1he1@#
D%-E
Petitioner 1on1edes that 4hen it 1redited the va.ue o0 the 1he1@s to the a11ount o0
"rivate res"ondent Sa.a<ar, it *ade a *ista@e +e1ause it 0ai.ed to noti1e the .a1@ o0
endorse*ent thereon +/ the desi8nated "a/ee# The A, ho4ever, did not .end
1reden1e to this 1.ai* and 1on1.uded that "etitionerAs a1tions 4ere de.i+erate, in
vie4 o0 its ad*ission that the J*ista@eK 4as 1o**itted three ti*es on three
se"arate o11asions, indi1atin8 a1Iuies1en1e to the interna. arran8e*ent +et4een
Sa.a<ar and Te*".onuevo# The A eB".ained thus>
It 4as Iuite a""arent that the three 1he1@s 4hi1h a""e..ee Sa.a<ar de"osited 4ere
not indorsed# Three ti*es she de"osited the* to her a11ount and three ti*es the
a*ounts +orne +/ these 1he1@s 4ere 1redited to the sa*e# And in those se"arate
o11asions, the +an@ did not return the 1he1@s to her so that she 1ou.d have the*
indorsed# Neither did the +an@ Iuestion her as to 4h/ she 4as de"ositin8 the
1he1@s to her a11ount 1onsiderin8 that she 4as not the "a/ee thereo0, thus a..o4in8
us to 1o*e to the 1on1.usion that de0endant-a""e..ant BPI 4as 0u../ a4are that the
"ro1eeds o0 the three 1he1@s +e.on8 to a""e..ee#
For i0 the +an@ 4as not "riv/ to the a8ree*ent +et4een Sa.a<ar and Te*".onuevo, it
is *ost un.i@e./ that a""e..ant BPI 9or an/ +an@ 0or that *atter: 4ou.d have
a11e"ted the 1he1@s 0or de"osit on three se"arate ti*es nar/ an/ Iuestion# Ban@s
are *ost 5ni1@/ over a11e"tin8 1he1@s 0or de"osit 4ithout the 1orres"ondin8
indorse*ent +/ their "a/ee# In 0a1t, the/ hesitate to a11e"t indorsed 1he1@s 0or
de"osit i0 the de"ositor is not one the/ @no4 ver/ 4e..#
D%%E
The A .i@e4ise sustained Sa.a<arAs "osition that she re1eived the 1he1@s 0ro*
Te*".onuevo "ursuant to an interna. arran8e*ent +et4een the*, ratio1inatin8 as
0o..o4s>
I0 there 4as indeed no arran8e*ent +et4een Te*".onuevo and the ".aintiF over the
three Iuestioned 1he1@s, it +a]es us 4h/ it 4as on./ on Au8ust (%, %77% or *ore
than a /ear a0ter the third and .ast 1he1@ 4as de"osited that he de*anded 0or the
re0und o0 the tota. a*ount o0 P)=6,=7)#&-#
A "rudent *an @no4in8 that "a/*ent is due hi* 4ou.d have de*anded "a/*ent
+/ his de+tor 0ro* the *o*ent the sa*e +e1a*e due and de*anda+.e# 2ore so i0
the su* invo.ved runs in hundreds o0 thousand o0 "esos# B/ and .ar8e, ever/
"erson, at the ver/ *o*ent he .earns that he 4as de"rived o0 a thin8 4hi1h
ri8ht0u../ +e.on8s to hi*, 4ou.d have 1reated a +i8 0uss# He 4ou.d not have 4aited
0or a /ear 4ithin 4hi1h to do so# It is *ost in1on1eiva+.e that Te*".onuevo did not
do this#
D%)E
$enera../, on./ Iuestions o0 .a4 *a/ +e raised in an a""ea. +/ certiorari under Ru.e
,& o0 the Ru.es o0 ourt#
D%(E
Fa1tua. 5ndin8s o0 the A are entit.ed to 8reat 4ei8ht
and res"e1t, es"e1ia../ 4hen the A a3r*s the 0a1tua. 5ndin8s o0 the tria. 1ourt#
D%,E
Su1h Iuestions on 4hether 1ertain ite*s o0 eviden1e shou.d +e a11orded
"ro+ative va.ue or 4ei8ht, or reGe1ted as 0ee+.e or s"urious, or 4hether or not the
"roo0s on one side or the other are 1.ear and 1onvin1in8 and adeIuate to esta+.ish a
"ro"osition in issue, are Iuestions o0 0a1t# The sa*e ho.ds true 0or Iuestions on
4hether or not the +od/ o0 "roo0s "resented +/ a "art/, 4ei8hed and ana./<ed in
re.ation to 1ontrar/ eviden1e su+*itted +/ the adverse "art/ *a/ +e said to +e
stron8, 1.ear and 1onvin1in8, or 4hether or not in1onsisten1ies in the +od/ o0 "roo0s
o0 a "art/ are o0 su1h 8ravit/ as to Gusti0/ re0usin8 to 8ive said "roo0s 4ei8ht Q a..
these are issues o0 0a1t 4hi1h are not revie4a+.e +/ the ourt#
D%&E
This ru.e, ho4ever, is not a+so.ute and ad*its o0 1ertain eB1e"tions, na*e./> a:
4hen the 1on1.usion is a 5ndin8 8rounded entire./ on s"e1u.ations, sur*ises, or
1onGe1turesN +: 4hen the in0eren1e *ade is *ani0est./ *ista@en, a+surd, or
i*"ossi+.eN 1: 4hen there is a 8rave a+use o0 dis1retionN d: 4hen the Gud8*ent is
+ased on a *isa""rehension o0 0a1tsN e: 4hen the 5ndin8s o0 0a1t are 1onCi1tin8N 0:
4hen the A, in *a@in8 its 5ndin8s, 4ent +e/ond the issues o0 the 1ase and the
sa*e are 1ontrar/ to the ad*issions o0 +oth a""e..ant and a""e..eeN 8: 4hen the
5ndin8s o0 the A are 1ontrar/ to those o0 the tria. 1ourtN h: 4hen the 5ndin8s o0
0a1t are 1on1.usions 4ithout 1itation o0 s"e1i51 eviden1e on 4hi1h the/ are +asedN i:
4hen the 5ndin8 o0 0a1t o0 the A is "re*ised on the su""osed a+sen1e o0 eviden1e
+ut is 1ontradi1ted +/ the eviden1e on re1ordN and G: 4hen the A *ani0est./
over.oo@ed 1ertain re.evant 0a1ts not dis"uted +/ the "arties and 4hi1h, i0 "ro"er./
1onsidered, 4ou.d Gusti0/ a diFerent 1on1.usion#
D%=E
In the "resent 1ase, the re1ords do not su""ort the 5ndin8 *ade +/ the A and the
tria. 1ourt that a "rior arran8e*ent eBisted +et4een Sa.a<ar and Te*".onuevo
re8ardin8 the trans0er o0 o4nershi" o0 the 1he1@s# This 0a1t is 1ru1ia. as Sa.a<arAs
entit.e*ent to the va.ue o0 the instru*ents is +ased on the assu*"tion that she is a
trans0eree 4ithin the 1onte*".ation o0 Se1tion ,7 o0 the Ne8otia+.e Instru*ents
La4#
Se1tion ,7 o0 the Ne8otia+.e Instru*ents La4 1onte*".ates a situation 4here+/ the
"a/ee or indorsee de.ivers a ne8otia+.e instru*ent 0or va.ue 4ithout indorsin8 it,
thus>
%ransfer without indorsement; e1ect of- ?here the ho.der o0 an instru*ent "a/a+.e
to his order trans0ers it 0or va.ue 4ithout indorsin8 it, the trans0er vests in the
trans0eree su1h tit.e as the trans0eror had therein, and the trans0eree a1Iuires in
addition, the ri8ht to have the indorse*ent o0 the trans0eror# But 0or the "ur"ose o0
deter*inin8 4hether the trans0eree is a ho.der in due 1ourse, the ne8otiation ta@es
eFe1t as o0 the ti*e 4hen the indorse*ent is a1tua../ *ade#
D%6E
It +ears stressin8 that the a+ove transa1tion is an eIuita+.e assi8n*ent and the
trans0eree a1Iuires the instru*ent su+Ge1t to de0enses and eIuities avai.a+.e
a*on8 "rior "arties# Thus, i0 the trans0eror had .e8a. tit.e, the trans0eree a1Iuires
su1h tit.e and, in addition, the ri8ht to have the indorse*ent o0 the trans0eror and
a.so the ri8ht, as ho.der o0 the .e8a. tit.e, to *aintain .e8a. a1tion a8ainst the *a@er
or a11e"tor or other "art/ .ia+.e to the trans0eror# The under./in8 "re*ise o0 this
"rovision, ho4ever, is that a va.id trans0er o0 o4nershi" o0 the ne8otia+.e
instru*ent in Iuestion has ta@en ".a1e#
Trans0erees in this situation do not enGo/ the "resu*"tion o0 o4nershi" in 0avor o0
ho.ders sin1e the/ are neither "a/ees nor indorsees o0 su1h instru*ents# The 4ei8ht
o0 authorit/ is that the *ere "ossession o0 a ne8otia+.e instru*ent does not in itse.0
1on1.usive./ esta+.ish either the ri8ht o0 the "ossessor to re1eive "a/*ent, or o0 the
ri8ht o0 one 4ho has *ade "a/*ent to +e dis1har8ed 0ro* .ia+i.it/# Thus, so*ethin8
*ore than *ere "ossession +/ "ersons 4ho are not "a/ees or indorsers o0 the
instru*ent is ne1essar/ to authori<e "a/*ent to the* in the a+sen1e o0 an/ other
0a1ts 0ro* 4hi1h the authorit/ to re1eive "a/*ent *a/ +e in0erred#
D%'E
The A and the tria. 1ourt sur*ised that the su+Ge1t 1he1@s +e.on8ed to "rivate
res"ondent Sa.a<ar +ased on the "re-tria. sti"u.ation that Te*".onuevo in1urred a
one-/ear de.a/ in de*andin8 rei*+urse*ent 0or the "ro1eeds o0 the sa*e# To the
ourtAs *ind, ho4ever, su1h "eriod o0 de.a/ is not o0 su1h unreasona+.e .en8th as
to esto" Te*".onuevo 0ro* assertin8 o4nershi" over the 1he1@s es"e1ia../
1onsiderin8 that it 4as readi./ a""arent on the 0a1e o0 the instru*ents
D%7E
that these
4ere 1rossed 1he1@s#
In *tate !nestment )ouse . !"#,
D)-E
the ourt enu*erated the eFe1ts o0 1rossin8 a
1he1@, thus> 9%: that the 1he1@ *a/ not +e en1ashed +ut on./ de"osited in the +an@N
9): that the 1he1@ *a/ +e ne8otiated on./ on1e - to one 4ho has an a11ount 4ith a
+an@N and 9(: that the a1t o0 1rossin8 the 1he1@ serves as a 4arnin8 to the ho.der
that the 1he1@ has +een issued 0or a de5nite "ur"ose so that su1h ho.der *ust
inIuire i0 the 1he1@ has +een re1eived "ursuant to that "ur"ose#
Thus, even i0 the de.a/ in the de*and 0or rei*+urse*ent is ta@en in 1onGun1tion
4ith Sa.a<arAs "ossession o0 the 1he1@s, it 1annot +e said that the "resu*"tion o0
o4nershi" in Te*".onuevoAs 0avor as the desi8nated "a/ee therein 4as su31ient./
over1o*e# This is 1onsistent 4ith the "rin1i".e that i0 instru*ents "a/a+.e to na*ed
"a/ees or to their order have not +een indorsed in +.an@, on./ su1h "a/ees or their
indorsees 1an +e ho.ders and entit.ed to re1eive "a/*ent in their o4n ri8ht#
D)%E
The "resu*"tion under Se1tion %(%9s: o0 the Ru.es o0 ourt statin8 that a
ne8otia+.e instru*ent 4as 8iven 0or a su31ient 1onsideration 4i.. not inure to the
+ene5t o0 Sa.a<ar +e1ause the ter* J8ivenK does not "ertain *ere./ to a trans0er o0
"h/si1a. "ossession o0 the instru*ent# The "hrase J8iven or indorsedK in the
1onteBt o0 a ne8otia+.e instru*ent re0ers to the *anner in 4hi1h su1h instru*ent
*a/ +e ne8otiated# Ne8otia+.e instru*ents are ne8otiated +/ Jtrans0er to one
"erson or another in su1h a *anner as to 1onstitute the trans0eree
the %-*A,& thereo0# I0 "a/a+.e to +earer it is ne8otiated +/ de.iver/# I0 "a/a+.e to
order it is ne8otiated +/ the indorse*ent 1o*".eted +/ de.iver/#K
D))E
The "resent
1ase invo.ves 1he1@s "a/a+.e to order# Not +ein8 a 4)6,, or #(A-&+,, o0 the
1he1@s, "rivate res"ondent Sa.a<ar 1ou.d not +e a %-*A,& thereo0#
It is an eB1e"tion to the 8enera. ru.e 0or a "a/ee o0 an order instru*ent to trans0er
the instru*ent 4ithout indorse*ent# Pre1ise./ +e1ause the situation is a+nor*a., it
is +ut 0air to the *a@er and to "rior ho.ders to reIuire "ossessors to "rove 4ithout
the aid o0 an initia. "resu*"tion in their 0avor, that the/ 1a*e into "ossession +/
virtue o0 a .e8iti*ate transa1tion 4ith the .ast ho.der#
D)(E
Sa.a<ar 0ai.ed to dis1har8e
this +urden, and the return o0 the 1he1@ "ro1eeds to Te*".onuevo 4as there0ore
4arranted under the 1ir1u*stan1es des"ite the 0a1t that Te*".onuevo *a/ not
have 1.ear./ de*onstrated that he never authori<ed Sa.a<ar to de"osit the 1he1@s
or to en1ash the sa*e# Note4orth/ a.so is the 0a1t that "etitioner sta*"ed on the
+a1@ o0 the 1he1@s the 4ords> TA.. "rior endorse*ents andHor .a1@ o0 endorse*ents
8uaranteed,T there+/ *a@in8 the assuran1e that it had as1ertained the 8enuineness
o0 a.. "rior endorse*ents# Havin8 assu*ed the .ia+i.it/ o0 a 8enera. indorser,
"etitionerAs .ia+i.it/ to the desi8nated "a/ee 1annot +e denied#
onseIuent./, "etitioner, as the 1o..e1tin8 +an@, had the ri8ht to de+it Sa.a<arAs
a11ount 0or the va.ue o0 the 1he1@s it "revious./ 1redited in her 0avor# It is o0 no
*o*ent that the a11ount de+ited +/ "etitioner 4as diFerent 0ro* the ori8ina.
a11ount to 4hi1h the "ro1eeds o0 the 1he1@ 4ere 1redited +e1ause +oth ad*itted./
+e.on8ed to Sa.a<ar, the 0or*er +ein8 the a11ount o0 the so.e "ro"rietorshi" 4hi1h
had no se"arate and distin1t "ersona.it/ 0ro* her, and the .atter +ein8 her "ersona.
a11ount#
The ri8ht o0 set-oF 4as eB".ained in "ssociated Bank . %an8
[24]

A +an@ 8enera../ has a ri8ht o0 set-oF over the de"osits therein 0or the "a/*ent o0
an/ 4ithdra4a.s on the "art o0 a de"ositor# The ri8ht o0 a 1o..e1tin8 +an@ to de+it a
1.ientSs a11ount 0or the va.ue o0 a dishonored 1he1@ that has "revious./ +een
1redited has 0air./ +een esta+.ished +/ Guris"ruden1e# To +e8in 4ith, Arti1.e %7'- o0
the ivi. ode "rovides that TD0EiBed, savin8s, and 1urrent de"osits o0 *one/ in
+an@s and si*i.ar institutions sha.. +e 8overned +/ the "rovisions 1on1ernin8 si*".e
.oan#K
Hen1e, the re.ationshi" +et4een +an@s and de"ositors has +een he.d to +e that o0
1reditor and de+tor# Thus, .e8a. 1o*"ensation under Arti1.e %)6' o0 the ivi. ode
*a/ ta@e ".a1e T4hen a.. the reIuisites *entioned in Arti1.e %)67 are "resent,T as
0o..o4s>
9%: That ea1h one o0 the o+.i8ors +e +ound "rin1i"a../, and that he +e at the
sa*e ti*e a "rin1i"a. 1reditor o0 the otherN
9): That +oth de+ts 1onsist in a su* o0 *one/, or i0 the thin8s due are
1onsu*a+.e, the/ +e o0 the sa*e @ind, and a.so o0 the sa*e Iua.it/ i0 the .atter has
+een statedN
9(: That the t4o de+ts +e dueN
9,: That the/ +e .iIuidated and de*anda+.eN
9&: That over neither o0 the* there +e an/ retention or 1ontrovers/,
1o**en1ed +/ third "ersons and 1o**uni1ated in due ti*e to the de+tor#
?hi.e, ho4ever, it is 1on1eded that "etitioner had the ri8ht o0 set-oF over the
a*ount it "aid to Te*".onuevo a8ainst the de"osit o0 Sa.a<ar, the issue o0 4hether
it a1ted Gudi1ious./ is an entire./ diFerent *atter#
D)&E
As +usinesses aFe1ted 4ith
"u+.i1 interest, and +e1ause o0 the nature o0 their 0un1tions, +an@s are under
o+.i8ation to treat the a11ounts o0 their de"ositors 4ith *eti1u.ous 1are, a.4a/s
havin8 in *ind the 5du1iar/ nature o0 their re.ationshi"#
D)=E
In this re8ard, "etitioner
4as 1.ear./ re*iss in its dut/ to "rivate res"ondent Sa.a<ar as its de"ositor#
To +e8in 4ith, the irre8u.arit/ a""eared ".ain./ on the 0a1e o0 the 1he1@s# Des"ite
the o+vious .a1@ o0 indorse*ent thereon, "etitioner "er*itted the en1ash*ent o0
these 1he1@s three ti*es on three se"arate o11asions# This ne8ates "etitionerAs
1.ai* that it *ere./ *ade a *ista@e in 1reditin8 the va.ue o0 the 1he1@s to Sa.a<arAs
a11ount and instead +o.sters the 1on1.usion o0 the A that "etitioner re1o8ni<ed
Sa.a<arAs 1.ai* o0 o4nershi" o0 1he1@s and a1ted de.i+erate./ in "a/in8 the sa*e,
1ontrar/ to ordinar/ +an@in8 "o.i1/ and "ra1ti1e# It *ust +e e*"hasi<ed that the
.a4 i*"oses a dut/ o0 di.i8en1e on the 1o..e1tin8 +an@ to s1rutini<e 1he1@s
de"osited 4ith it, 0or the "ur"ose o0 deter*inin8 their 8enuineness and re8u.arit/#
The 1o..e1tin8 +an@, +ein8 "ri*ari./ en8a8ed in +an@in8, ho.ds itse.0 out to the
"u+.i1 as the eB"ert on this 5e.d, and the .a4 thus ho.ds it to a hi8h standard o0
1ondu1t#
D)6E
The ta@in8 and 1o..e1tion o0 a 1he1@ 4ithout the "ro"er indorse*ent
a*ount to a 1onversion o0 the 1he1@ +/ the +an@#
D)'E
2ore i*"ortant./, ho4ever, so.e./ u"on the "ro*"tin8 o0 Te*".onuevo, and 4ith 0u..
@no4.ed8e o0 the +re4in8 dis"ute +et4een Sa.a<ar and Te*".onuevo, "etitioner
de+ited the a11ount he.d in the na*e o0 the so.e "ro"rietorshi" o0 Sa.a<ar 4ithout
even servin8 due noti1e u"on her# This ran 1ontrar/ to "etitionerAs assuran1es to
"rivate res"ondent Sa.a<ar that the a11ount 4ou.d re*ain untou1hed, "endin8 the
reso.ution o0 the 1ontrovers/ +et4een her and Te*".onuevo#
D)7E
In this 1onne1tion,
the A 1ited the .etter dated Se"te*+er &, %77% o0 2r# 2anue. A+.an, Senior
2ana8er o0 "etitioner +an@As Pasi8HOrti8as +ran1h, to "rivate res"ondent Sa.a<ar
in0or*in8 her that her a11ount had +een 0ro<en, thus>
Fro* the tenor o0 the .etter o0 2anue. A+.an, it is sa0e to 1on1.ude that A11ount No#
-)-%--&''-,' 4i.. re*ain 0ro<en or untou1hed unti. herein DSa.a<arE has sett.ed
*atters 4ith Te*".onuevo# But, in an uneB"e1ted *ove, in .ess than t4o 4ee@s
9e.even da/s to +e "re1ise: 0ro* the ti*e that .etter 4as 4ritten, D"etitionerE +an@
issued a 1ashierAs 1he1@ in the na*e o0 Ju.io R# Te*".onuevo o0 the J#R#T#
onstru1tion and Tradin8 0or the su* o0 P)=6,=7)#&- 9EBhi+it J'K: and de+ited said
a*ount 0ro* 2s# Ar1i..aAs a11ount No# -)-%--&''-,' 4hi1h 4as su""osed to +e
0ro<en or 1ontro..ed# Su1h a *ove +/ BPI is, to Our *inds, a 1.ear 1ase o0
ne8.i8en1e, i0 not a 0raudu.ent, 4anton and re1@.ess disre8ard o0 the ri8ht o0 its
de"ositor#
The re1ords 0urther +ear out the 0a1t that res"ondent Sa.a<ar had issued severa.
1he1@s dra4n a8ainst the a11ount o0 A#A# Sa.a<ar onstru1tion and En8ineerin8
Servi1es "rior to an/ noti1e o0 dedu1tion +ein8 served# The A sustained "rivate
res"ondent Sa.a<arAs 1.ai* o0 da*a8es in this re8ard>
The a1t o0 the +an@ in 0ree<in8 and .ater de+itin8 the a*ount o0 P)=6,=7)#&- 0ro*
the a11ount o0 A#A# Sa.a<ar onstru1tion and En8ineerin8 Servi1es 1aused ".aintiF-
a""e..ee 8reat da*a8e and "reGudi1e "arti1u.ar./ 4hen she had a.read/ issued
1he1@s dra4n a8ainst the said a11ount# As 1an +e eB"e1ted, the said 1he1@s
+oun1ed# To "rove this, ".aintiF-a""e..ee "resented as eBhi+its "hoto1o"ies o0
1he1@s dated Se"te*+er ', %77%, O1to+er )', %77%, and Nove*+er %,,
%77% 9EBhi+its JDK, JEK and JFK res"e1tive./:
D(-E
These 1he1@s, it *ust +e e*"hasi<ed, 4ere su+seIuent./ dishonored, there+/
1ausin8 "rivate res"ondent Sa.a<ar undue e*+arrass*ent and inCi1tin8 da*a8e to
her standin8 in the +usiness 1o**unit/# !nder the 1ir1u*stan1es, she 4as 1.ear./
not 8iven the o""ortunit/ to "rote1t her interest 4hen "etitioner uni.atera../
4ithdre4 the a+ove a*ount 0ro* her a11ount 4ithout in0or*in8 her that it had
a.read/ done so#
For the a+ove reasons, the ourt 5nds no reason to distur+ the a4ard o0 da*a8es
8ranted +/ the A a8ainst "etitioner# This 4ho.e in1ident 4ou.d have +een avoided
had "etitioner adhered to the standard o0 di.i8en1e eB"e1ted o0 one en8a8ed in the
+an@in8 +usiness# A de"ositor has the ri8ht to re1over reasona+.e *ora. da*a8es
even i0 the +an@As ne8.i8en1e *a/ not have +een attended 4ith *a.i1e and +ad
0aith, i0 the 0or*er suFered *enta. an8uish, serious anBiet/, e*+arrass*ent and
hu*i.iation#
D(%E
2ora. da*a8es are not *eant to enri1h a 1o*".ainant at the
eB"ense o0 de0endant# It is on./ intended to a..eviate the *ora. suFerin8 she has
under8one# The a4ard o0 eBe*".ar/ da*a8es is Gusti5ed, on the other hand, 4hen
the a1ts o0 the +an@ are attended +/ *a.i1e, +ad 0aith or 8ross ne8.i8en1e# The
a4ard o0 reasona+.e attorne/As 0ees is "ro"er 4here eBe*".ar/ da*a8es are
a4arded# It is "ro"er 4here de"ositors are 1o*"e..ed to .iti8ate to "rote1t their
interest#
D()E
<HERE!ORE, the "etition is "artia../ GRANTED. The assai.ed De1ision dated A"ri.
(, %77' and Reso.ution dated A"ri. (, %77' rendered +/ the ourt o0 A""ea.s in A-
$#R# L No# ,)),% are MODI!IED inso0ar as it ordered "etitioner Ban@ o0 the
Phi.i""ine Is.ands to return the a*ount o0 T4o Hundred SiBt/-seven Thousand Seven
Hundred and Seven and 6-H%-- Pesos 9P)=6,6-6#6-: to res"ondent Anna+e..e A#
Sa.a<ar, 4hi1h "ortion is RE@ERSED and SET ASIDE# In a.. other res"e1ts, the
sa*e areA!!IRMED.
No 1osts#
SO ORDERED.
DIGEST
!ACTS:
Te*".onuevo de*anded "a/*ent 0ro* "etitioner o0 a su* o0 *one/
re"resentin8 the a88re8ate va.ue o0 three 1he1@s 4hi1h 4ere a..e8ed./
"a/a+.e to hi* +ut 4hi1h 4ere de"osited 4ith the "etitioner to Sa.a<arAs
a11ount, 4ithout his @no4.ed8e and 1orres"ondin8 endorse*ent# Findin8
*erit in the de*ands o0 Te*".onuevo, the +an@ then 0ro<e the a11ount o0 the
en8ineerin8 5r* as the a11ount o0 Sa.a<ar 4as a.read/ 1.osed or had insu31ient
0unds# Fai.ure o0 an/ sett.e*ent +et4een Te*".onuevo and Sa.a<ar, this
"ro*"ted the +an@ to de+it the a11ount o0 Sa.a<ar and 8ive +a1@ the *one/ to
Te*".onuevo throu8h 1ashierAs 1he1@# The a11ount o0 Sa.a<ar 4as a.so de+ited 0or
4hatever 1har8es in1urred 0or the issuan1e o0 the 1ashierAs 1he1@#

The tria. 1ourt he.d in 0avor o0 Sa.a<ar#

ISSUE>
Does a 1o..e1tin8 +an@, over the o+Ge1tions o0 its de"ositor, have the
authorit/ to 4ithdra4 uni.atera../ 0ro* su1h de"ositorAs a11ount the a*ount it
had "revious./ "aid u"on 1ertain unendorsed order instru*ents de"osited +/ the
de"ositor to another a11ount that she .ater 1.osedP

HE=D:
In the "resent 1ase, the re1ords do not su""ort the 5ndin8 *ade +/ the A and the
tria. 1ourt that a "rior arran8e*ent eBisted +et4een Sa.a<ar and Te*".onuevo
re8ardin8 the trans0er o0 o4nershi" o0 the 1he1@s# This 0a1t is 1ru1ia. as Sa.a<arAs
entit.e*ent to the va.ue o0 the instru*ents is +ased on the assu*"tion that she is a
trans0eree 4ithin the 1onte*".ation o0 Se1tion ,7 o0 the Ne8otia+.e Instru*ents
La4#

Trans0erees in this situation do not enGo/ the "resu*"tion o0 o4nershi" in 0avor o0
ho.ders sin1e the/ are neither "a/ees nor indorsees o0 su1h instru*ents# The
4ei8ht o0 authorit/ is that the *ere "ossession o0 a ne8otia+.e instru*ent
does not in itse.0 1on1.usive./ esta+.ish either the ri8ht o0 the "ossessor to
re1eive "a/*ent, or o0 the ri8ht o0 one 4ho has *ade "a/*ent to +e dis1har8ed
0ro* .ia+i.it/# Thus, so*ethin8 *ore than *ere "ossession +/ "ersons 4ho are
not "a/ees or indorsers o0 the instru*ent is ne1essar/ to authori<e "a/*ent
to the* in the a+sen1e o0 an/ other 0a1ts 0ro* 4hi1h the authorit/ to
re1eive "a/*ent *a/ +e in0erred#

Even i0 the de.a/ in the de*and 0or rei*+urse*ent is ta@en in 1onGun1tion 4ith
Sa.a<arAs "ossession o0 the 1he1@s, it 1annot +e said that the "resu*"tion o0
o4nershi" in Te*".onuevoAs 0avor as the desi8nated "a/ee therein 4as su31ient./
over1o*e# This is 1onsistent 4ith the "rin1i".e that i0 instru*ents "a/a+.e to
na*ed "a/ees or to their order have not +een indorsed in +.an@, on./ su1h
"a/ees or their indorsees 1an +e ho.ders and entit.ed to re1eive
"a/*ent in their o4n ri8ht#

The "resu*"tion that a ne8otia+.e instru*ent 4as 8iven 0or a su31ient
1onsideration 4i.. not inure to the +ene5t o0 Sa.a<ar +e1ause the ter*
J8ivenK does not "ertain *ere./ to a trans0er o0 "h/si1a. "ossession o0 the
instru*ent# The "hrase J8iven or indorsedK in the 1onteBt o0 a ne8otia+.e
instru*ent re0ers to the *anner in 4hi1h su1h instru*ent *a/ +e
ne8otiated#

It is an eB1e"tion to the 8enera. ru.e 0or a "a/ee o0 an order instru*ent to trans0er
the instru*ent 4ithout indorse*ent# Pre1ise./ +e1ause the situation is
a+nor*a., it is +ut 0air to the *a@er and to "rior ho.ders to reIuire
"ossessors to "rove 4ithout the aid o0 an initia. "resu*"tion in
their 0avor, that the/ 1a*e into "ossession +/ virtue o0 a .e8iti*ate
transa1tion 4ith the .ast ho.der# Sa.a<ar 0ai.ed to dis1har8e this +urden, and
the return o0 the 1he1@ "ro1eeds to Te*".onuevo 4as there0ore 4arranted
under the 1ir1u*stan1es des"ite the 0a1t that Te*".onuevo *a/ not have 1.ear./
de*onstrated that he never authori<ed Sa.a<ar to de"osit the 1he1@s or to
en1ash the sa*e# Note4orth/ a.so is the 0a1t that "etitioner sta*"ed on the
+a1@ o0 the 1he1@s the 4ords> TA.. "rior endorse*ents andHor .a1@ o0
endorse*ents 8uaranteed,T there+/ *a@in8 the assuran1e that it had
as1ertained the 8enuineness o0 a.. "rior endorse*ents# Havin8 assu*ed the
.ia+i.it/ o0 a 8enera. indorser, "etitionerAs .ia+i.it/ to the desi8nated
"a/ee 1annot +e denied#

onseIuent./, "etitioner, as the 1o..e1tin8 +an@, had the ri8ht to de+it
Sa.a<arAs a11ount 0or the va.ue o0 the 1he1@s it "revious./ 1redited in her 0avor#
Ho4ever, the issue o0 4hether it a1ted Gudi1ious./ is an entire./ diFerent
*atter# As +usinesses aFe1ted 4ith "u+.i1 interest, and +e1ause
o0 the nature o0 their 0un1tions, +an@s are under o+.i8ation to treat the
a11ounts o0 their de"ositors 4ith *eti1u.ous 1are, a.4a/s havin8 in *ind the
5du1iar/ nature o0 their re.ationshi"# In this re8ard, "etitioner 4as 1.ear./
re*iss in its dut/ to "rivate res"ondent Sa.a<ar as its de"ositor#

To +e8in 4ith, the irre8u.arit/ a""eared ".ain./ on the 0a1e o0 the 1he1@s# Des"ite
the o+vious .a1@ o0 indorse*ent thereon, "etitioner "er*itted the en1ash*ent o0
these 1he1@s three ti*es on three se"arate o11asions# This ne8ates "etitionerAs
1.ai* that it *ere./ *ade a *ista@e in 1reditin8 the va.ue o0 the 1he1@s to
Sa.a<arAs a11ount and instead +o.sters the 1on1.usion o0 the A that "etitioner
re1o8ni<ed Sa.a<arAs 1.ai* o0 o4nershi" o0 1he1@s and a1ted de.i+erate./ in
"a/in8 the sa*e, 1ontrar/ to ordinar/ +an@in8 "o.i1/ and "ra1ti1e# It *ust +e
e*"hasi<ed that the .a4 i*"oses a dut/ o0 di.i8en1e on the 1o..e1tin8 +an@ to
s1rutini<e 1he1@s de"osited 4ith it, 0or the "ur"ose o0 deter*inin8 their
8enuineness and re8u.arit/# The 1o..e1tin8 +an@, +ein8 "ri*ari./ en8a8ed in
+an@in8, ho.ds itse.0 out to the "u+.i1 as the eB"ert on this 5e.d, and the .a4
thus ho.ds it to a hi8h standard o0 1ondu1t# The ta@in8 and 1o..e1tion o0 a
1he1@ 4ithout the "ro"er indorse*ent a*ount to a 1onversion o0 the
1he1@ +/ the +an@#

2ore i*"ortant./, ho4ever, so.e./ u"on the "ro*"tin8 o0 Te*".onuevo, and
4ith 0u.. @no4.ed8e o0 the +re4in8 dis"ute +et4een Sa.a<ar and Te*".onuevo,
"etitioner de+ited the a11ount he.d in the na*e o0 the so.e "ro"rietorshi" o0
Sa.a<ar 4ithout even servin8 due noti1e u"on her# This ran 1ontrar/ to
"etitionerAs assuran1es to "rivate res"ondent Sa.a<ar that the a11ount 4ou.d
re*ain untou1hed, "endin8 the reso.ution o0 the 1ontrovers/ +et4een her and
Te*".onuevo# For the a+ove reasons, the ourt 5nds no reason to distur+ the a4ard
o0 da*a8es 8ranted +/ the A a8ainst "etitioner# This 4ho.e in1ident 4ou.d
have +een avoided had "etitioner adhered to the standard o0 di.i8en1e
eB"e1ted o0 one en8a8ed in the +an@in8 +usiness# A de"ositor has the ri8ht to
re1over reasona+.e *ora. da*a8es even i0 the +an@As ne8.i8en1e *a/ not
have +een attended 4ith *a.i1e and +ad 0aith, i0 the 0or*er suFered *enta.
an8uish, serious anBiet/, e*+arrass*ent and hu*i.iation#
MARIA TUAEON, A=E?ANDRO P. TUAEON, ME=ECIO P. TUAEON, S4-5+,+
ANASTACIO )(A MAR> BUENA@ENTURA,P,$#$#-(,&+,
. 2,&+5+ .
HEIRS O! BARTO=OME RAMOS, R,+4-(A,($+.
G.R. N-. 156262 ?5*6 14, 2335
DECISION
PANGANIBAN, J.:
tri""ed o0 nonessentia.s, the "resent 1ase invo.ves the 1o..e1tion o0 a su* o0
*one/# S"e1i51a../, this 1ase arose 0ro* the 0ai.ure o0 "etitioners to "a/
res"ondentsA "rede1essor-in-interest# This 0a1t 4as sho4n +/ the non-en1ash*ent
o0 1he1@s issued +/ a third "erson, +ut indorsed +/ herein Petitioner 2aria Tua<on in
0avor o0 the said "rede1essor# !nder these 1ir1u*stan1es, to ena+.e res"ondents to
1o..e1t on the inde+tedness, the 1he1@ dra4er need not +e i*".eaded in the
S
o*".aint# Thus, the suit is dire1ted, not a8ainst the dra4er, +ut a8ainst the de+tor
4ho indorsed the 1he1@s in "a/*ent o0 the o+.i8ation#
T%, C)+,
Be0ore us is a Petition 0or Revie4
D%E
under Ru.e ,& o0 the Ru.es o0 ourt,
1ha..en8in8 the Ju./ (%, )--) De1ision
D)E
o0 the ourt o0 A""ea.s 9A: in A-$R L
No# ,=&(&# The de1reta. "ortion o0 the assai.ed De1ision reads>
J<HERE!ORE, the a""ea. is DISMISSED and the a""ea.ed de1ision
is A!!IRMED#K
On the other hand, the a3r*ed De1ision
D(E
o0 Bran1h (, o0 the Re8iona. Tria.
ourt 9RT: o0 $a"an, Nueva E1iGa, dis"osed as 0o..o4s
J?HEREFORE, Gud8*ent is here+/ rendered in 0avor o0 the ".aintiFs and
a8ainst the de0endants, orderin8 the de0endants s"ouses Leoni.o Tua<on and 2aria
Tua<on to "a/ the ".aintiFs, as 0o..o4s>
J%# The su* o0 P%,6&-,-&-#--, 4ith interests 0ro* the 5.in8 o0 the se1ond a*ended
1o*".aintN
J)# The su* o0 P&-,---#--, as attorne/As 0eesN
J(# The su* o0 P)-,---#--, as *ora. da*a8es
J,# And to "a/ the 1osts o0 suit#

B B B B B B B B BK
D,E
T%, !)7$+
The 0a1ts are narrated +/ the A as 0o..o4s>
JDRes"ondentsE a..e8ed that +et4een the "eriod o0 2a/ ), %7'' and June &, %7'',
s"ouses Leoni.o and 2aria Tua<on "ur1hased a tota. o0 ',()= 1avans o0 ri1e 0ro*
Dthe de1eased Barto.o*eE Ra*os D"rede1essor-in-interest o0 res"ondentsE# That o0
this DIuantit/,E B B B on./ ,,,(6 1avans Dhave +een "aid 0or so 0arE, .eavin8 un"aid
(,''7 1avans va.ued at P%,)%%,7%7#--# In "a/*ent there0or, the s"ouses Tua<on
issued B B B Dsevera.E Traders Ro/a. Ban@ 1he1@s#

B B B B B B B B B

DBEut 4hen these D1he1@sE 4ere en1ashed, a.. o0 the 1he1@s +oun1ed due to
insu31ien1/ o0 0unds# DRes"ondentsE advan1ed that +e0ore issuin8 said 1he1@sD,E
s"ouses Tua<on a.read/ @ne4 that the/ had no avai.a+.e 0und to su""ort the 1he1@s,
and the/ 0ai.ed to "rovide 0or the "a/*ent o0 these des"ite re"eated de*ands
*ade on the*
JDRes"ondentsE averred that +e1ause s"ouses Tua<on anti1i"ated that the/
4ou.d +e sued, the/ 1ons"ired 4ith the other Dde0endantsE to de0raud the* as
1reditors +/ eBe1utin8 B B B 51titious sa.es o0 their "ro"erties# The/ eBe1uted B B B
si*u.ated sa.eDsE Do0 three .otsE in 0avor o0 the B B B s"ouses Buenaventura B B BD,E
as 4e.. as their residentia. .ot and the house thereonD,E a.. .o1ated at Nueva E1iGa,
and another si*u.ated deed o0 sa.e dated Ju./ %), %7'' o0 a Sta@e To/ota re8istered
4ith the Land Trans"ortation O31e o0 a+anatuan it/ on Se"te*+er 6, %7''# Do-
"etitionerE 2e.e1io Tua<on, a son o0 s"ouses Tua<on, re8istered a 51titious Deed o0
Sa.e on Ju./ %7, %7'' B B B over a residentia. .ot .o1ated at Nueva E1iGa# Another
si*u.ated sa.e o0 a To/ota ?i../s 4as eBe1uted on Januar/ )&, %7'' in 0avor o0 their
other son, D1o-"etitionerE A.eGandro Tua<on B B B# As a resu.t o0 the said sa.es, the
tit.es o0 these "ro"erties issued in the na*es o0 s"ouses Tua<on 4ere 1an1e..ed and
ne4 ones 4ere issued in 0avor o0 the D1o-Ede0endants s"ouses Buenaventura,
A.eGandro Tua<on and 2e.e1io Tua<on# Resu.tant./, +/ the said ante-dated and
si*u.ated sa.es and the 1orres"ondin8 trans0ers there 4as no *ore "ro"ert/ .e0t
re8istered in the na*es o0 s"ouses Tua<on ans4era+.e to 1reditors, to the da*a8e
and "reGudi1e o0 Dres"ondentsE#
JFor their "art, de0endants denied havin8 "ur1hased B B B ri1e 0ro*
DBarto.o*eE Ra*os# The/ a..e8ed that it 4as 2a8da.ena Ra*os, 4i0e o0 said
de1eased, 4ho o4ned and traded the *er1handise and 2aria Tua<on 4as *ere./
her a8ent# The/ ar8ued that it 4as Evan8e.ine Santos 4ho 4as the +u/er o0 the ri1e
and issued the 1he1@s to 2aria Tua<on as "a/*ents there0or# In 8ood 0aithD,E the
1he1@s 4ere re1eived D+/ "etitionerE 0ro* Evan8e.ine Santos and turned over to
Ra*os 4ithout @no4in8 that these 4ere not 0unded# And it is 0or this reason that
D"etitionersE have +een insistin8 on the in1.usion o0 Evan8e.ine Santos as an
indis"ensa+.e "art/, and her non-in1.usion 4as a 0ata. error# Re0utin8 that the sa.e
o0 severa. "ro"erties 4ere 51titious or si*u.ated, s"ouses Tua<on 1ontended that
these 4ere so.d +e1ause the/ 4ere then *eetin8 5nan1ia. di31u.ties +ut the
dis"osa.s 4ere *ade 0or va.ue and in 8ood 0aith and done +e0ore the 5.in8 o0 the
instant suit# To dis"ute the 1ontention o0 ".aintiFs that the/ 4ere the +u/ers o0 the
ri1e, the/ ar8ued that there 4as no sa.es invoi1e, o31ia. re1ei"ts or .i@e eviden1e to
"rove this# The/ assert that the/ 4ere *ere./ a8ents and shou.d not +e he.d
ans4era+.e#K
D&E

The 1orres"ondin8 1ivi. and 1ri*ina. 1ases 4ere 5.ed +/ res"ondents a8ainst
S"ouses Tua<on# Those 1ases 4ere .ater 1onso.idated and a*ended to in1.ude
S"ouses Anasta1io and 2ar/ Buenaventura, 4ith A.eGandro Tua<on and 2e.e1io
Tua<on as additiona. de0endants# Havin8 "assed a4a/ +e0ore the "retria.,
Barto.o*e Ra*os 4as su+stituted +/ his heirs, herein res"ondents#
ontendin8 that Evan8e.ine Santos 4as an indis"ensa+.e "art/ in the 1ase,
"etitioners *oved to 5.e a third-"art/ 1o*".aint a8ainst her# A..e8ed./, she 4as
"ri*ari./ .ia+.e to res"ondents, +e1ause she 4as the one 4ho had "ur1hased the
*er1handise 0ro* their "rede1essor, as eviden1ed +/ the 0a1t that the 1he1@s had
+een dra4n in her na*e# The RT, ho4ever, denied "etitionersA 2otion#
Sin1e the tria. 1ourt a1Iuitted "etitioners in a.. three o0 the 1onso.idated
1ri*ina. 1ases, the/ a""ea.ed on./ its de1ision 5ndin8 the* 1ivi../ .ia+.e to
res"ondents#
R5*#(: -0 $%, C-5&$ -0 A44,)*+
Sustainin8 the RT, the A he.d that "etitioners had 0ai.ed to "rove the
eBisten1e o0 an a8en1/ +et4een res"ondents and S"ouses Tua<on# The a""e..ate
1ourt dis+e.ieved "etitionersA 1ontention that Evan8e.ine Santos shou.d have +een
i*".eaded as an indis"ensa+.e "art/# Inas*u1h as a.. the 1he1@s had +een indorsed
+/ 2aria Tua<on, 4ho there+/ +e1a*e .ia+.e to su+seIuent ho.ders 0or the a*ounts
stated in those 1he1@s, there 4as no need to i*".ead Santos#
Hen1e, this Petition#
D=E
I++5,+
Petitioners raise the 0o..o4in8 issues 0or our 1onsideration>
J%# ?hether or not the Honora+.e ourt o0 A""ea.s erred in ru.in8 that
"etitioners are not a8ents o0 the res"ondents#

J)# ?hether or not the Honora+.e ourt o0 A""ea.s erred in renderin8
Gud8*ent a8ainst the "etitioners des"ite B B B the 0ai.ure o0 the res"ondents to
in1.ude in their a1tion Evan8e.ine Santos, an indis"ensa+.e "art/ to the suit#K
D6E
T%, C-5&$F+ R5*#(:
The Petition is un*eritorious#
!#&+$ I++5,:
Agency
?e..-entren1hed is the ru.e that the Su"re*e ourtAs ro.e in a "etition under
Ru.e ,& is .i*ited to revie4in8 errors o0 .a4 a..e8ed./ 1o**itted +/ the ourt o0
A""ea.s# Fa1tua. 5ndin8s o0 the tria. 1ourt, es"e1ia../ 4hen a3r*ed +/ the A, are
1on1.usive on the "arties and this ourt#
D'E
Petitioners have not 8iven us su31ient
reasons to deviate 0ro* this ru.e#
In a 1ontra1t o0 a8en1/, one +inds onese.0 to render so*e servi1e or to do
so*ethin8 in re"resentation or on +eha.0 o0 another, 4ith the .atterAs 1onsent or
authorit/#
D7E
The 0o..o4in8 are the e.e*ents o0 a8en1/> 9%: the "artiesA consent,
eB"ress or i*".ied, to esta+.ish the re.ationshi"N 9): the obDect, 4hi1h is the
eBe1ution o0 a Guridi1a. a1t in re.ation to a third "ersonN 9(: the representation, +/
4hi1h the one 4ho a1ts as an a8ent does so, not 0or onese.0, +ut as a
re"resentativeN 9,: thelimitation that the a8ent a1ts 4ithin the s1o"e o0 his or her
authorit/#
D%-E
As the +asis o0 a8en1/ is re"resentation, there *ust +e, on the "art o0
the "rin1i"a., an a1tua. intention to a""oint, an intention natura../ in0era+.e 0ro*
the "rin1i"a.As 4ords or a1tions# In the sa*e *anner, there *ust +e an intention on
the "art o0 the a8ent to a11e"t the a""oint*ent and a1t u"on it# A+sent su1h
*utua. intent, there is 8enera../ no a8en1/#
D%%E
This ourt 5nds no reversi+.e error in the 5ndin8s o0 the 1ourts a 9uo that
"etitioners 4ere the ri1e +u/ers the*se.vesN the/ 4ere not *ere a8ents o0
res"ondents in their ri1e dea.ershi"# The Iuestion o0 4hether a 1ontra1t is one o0
sa.e or o0 a8en1/ de"ends on the intention o0 the "arties#
D%)E
The de1.arations o0 a8ents alone are 8enera../ insu31ient to esta+.ish the 0a1t or
eBtent o0 their authorit/#
D%(E
The .a4 *a@es no "resu*"tion o0 a8en1/N "rovin8 its
eBisten1e, nature and eBtent is in1u*+ent u"on the "erson a..e8in8 it#
D%,E
In the
"resent 1ase, "etitioners raise the 0a1t o0 a8en1/ as an a3r*ative de0ense, /et 0ai.
to "rove its eBisten1e#
The ourt notes that "etitioners, on their o4n +eha.0, sued Evan8e.ine Santos 0or
1o..e1tion o0 the a*ounts re"resented +/ the +oun1ed 1he1@s, in a se"arate 1ivi.
1ase that the/ sou8ht to +e 1onso.idated 4ith the 1urrent one# I0, as the/ 1.ai*,
the/ 4ere *ere a8ents o0 res"ondents, "etitioners shou.d have +rou8ht the suit
a8ainst Santos 0or and on +eha.0 o0 their a..e8ed "rin1i"a., in a11ordan1e 4ith
Se1tion ) o0 Ru.e ( o0 the Ru.es on ivi. Pro1edure#
D%&E
Their 5.in8 a suit a8ainst
her in their own names ne8ates their 1.ai* that the/ a1ted as *ere a8ents in se..in8
the ri1e o+tained 0ro* Barto.o*e Ra*os#
S,7-(A I++5,:
Indispensable Party
Petitioners ar8ue that the .o4er 1ourts erred in not a..o4in8 Evan8e.ine
Santos to +e i*".eaded as an indis"ensa+.e "art/# The/ insist that res"ondentsA
o*".aint a8ainst the* is +ased on the +oun1in8 1he1@s she issuedN hen1e, the/
"oint to her as the "erson "ri*ari./ .ia+.e 0or the o+.i8ation#
?e ho.d that res"ondentsA 1ause o0 a1tion is 1.ear./ 0ounded on "etitionersA
0ai.ure to "a/ the "ur1hase "ri1e o0 the ri1e# The tria. 1ourt he.d that Petitioner
2aria Tua<on had indorsed the Iuestioned 1he1@s in 0avor o0 res"ondents, in
a11ordan1e 4ith Se1tions (% and =( o0 the Ne8otia+.e Instru*ents La4#
D%=E
That
Santos 4as the dra4er o0 the 1he1@s is thus i**ateria. to the res"ondentsA 1ause o0
a1tion#
As indorser, Petitioner 2aria Tua<on 4arranted that u"on due "resent*ent,
the 1he1@s 4ere to +e a11e"ted or "aid, or +oth, a11ordin8 to their tenorN andthat in
1ase the/ 4ere dishonored, she 4ou.d "a/ the 1orres"ondin8 a*ount#
D%6E
A0ter an
instru*ent is dishonored +/ non"a/*ent, indorsers 1ease to +e *ere./ se1ondari./
.ia+.eN the/ +e1o*e "rin1i"a. de+tors 4hose .ia+i.it/ +e1o*es identi1a. to that o0 the
ori8ina. o+.i8or# The ho.der o0 a ne8otia+.e instru*ent need not even "ro1eed
a8ainst the *a@er +e0ore suin8 the indorser#
D%'E
.ear./, Evan8e.ine Santos -- as the
dra4er o0 the 1he1@s -- is not an indis"ensa+.e "art/ in an a1tion a8ainst 2aria
Tua<on, the indorser o0 the 1he1@s#
Indis"ensa+.e "arties are de5ned as J"arties in interest 4ithout 4ho* no 5na.
deter*ination 1an +e had#K
D%7E
The instant 1ase 4as ori8ina../ one 0or the 1o..e1tion
o0 the "ur1hase "ri1e o0 the ri1e +ou8ht +/ 2aria Tua<on 0ro* res"ondentsA
"rede1essor# In this 1ase, it is 1.ear that there is no "rivit/ o0 1ontra1t +et4een
res"ondents and Santos# Hen1e, a 5na. deter*ination o0 the ri8hts and interest o0
the "arties *a/ +e *ade 4ithout an/ need to i*".ead her#
?HEREFORE, the Petition is DEIED and the assai.ed De1ision A!!I"#ED# osts
a8ainst "etitioners#

SO ORDERED#
DIGEST
Tua<on, et# A.# vs# Heirs o0 Barto.o*e Ra*os# $#R# No# %&=)=), Ju./ %,, )--&
Fa1ts> Heirs o0 Barto.o*e Ra*os a..e8ed that s"ouses Leoni.o and 2aria Tua<on
"ur1hased a tota. o0 ',()= 1avans o0 ri1e 0ro* Dthe de1eased Barto.o*eE Ra*os
D"rede1essor-in-interest o0 res"ondentsE# That o0 this DIuantit/,E # # # on./ ,,,(6
1avans Dhave +een "aid 0or so 0arE, .eavin8 un"aid (,''7 1avans va.ued at
P%,)%%,7%7#--# In "a/*ent there0or, the s"ouses Tua<on issued severa. Traders
Ro/a. Ban@ 1he1@s# But 4hen these 1he1@s 4ere en1ashed, a.. o0 the 1he1@s
+oun1ed due to insu31ien1/ o0 0unds# DRes"ondentsE advan1ed that +e0ore issuin8
said 1he1@sD,E s"ouses Tua<on a.read/ @ne4 that the/ had no avai.a+.e 0und to
su""ort the 1he1@s, and the/ 0ai.ed to "rovide 0or the "a/*ent o0 these des"ite
re"eated de*ands *ade on the*#
For their "art, de0endants denied havin8 "ur1hased ri1e 0ro* DBarto.o*eE Ra*os#
The/ a..e8ed that it 4as 2a8da.ena Ra*os, 4i0e o0 said de1eased, 4ho o4ned and
traded the *er1handise and 2aria Tua<on 4as *ere./ her a8ent# The/ ar8ued that
it 4as Evan8e.ine Santos 4ho 4as the +u/er o0 the ri1e and issued the 1he1@s to
2aria Tua<on as "a/*ents there0or# In 8ood 0aithD,E the 1he1@s 4ere re1eived D+/
"etitionerE 0ro* Evan8e.ine Santos and turned over to Ra*os 4ithout @no4in8 that
these 4ere not 0unded#
Issue> ?ON there 4as a 1ontra1t o0 a8en1/ +et4een s"ouses Tua<on and s"ouses
Ra*os
He.d> there 4as no 1ontra1t o0 A8en1/
Ratio> In a 1ontra1t o0 a8en1/, one +inds onese.0 to render so*e servi1e or to do
so*ethin8 in re"resentation or on +eha.0 o0 another, 4ith the .atterSs 1onsent or
authorit/# 7 The 0o..o4in8 are the e.e*ents o0 a8en1/> 9%: the "artiesS 1onsent,
eB"ress or i*".ied, to esta+.ish the re.ationshi"N 9): the o+Ge1t, 4hi1h is the
eBe1ution o0 a Guridi1a. a1t in re.ation to a third "ersonN 9(: the re"resentation, +/
4hi1h the one 4ho a1ts as an a8ent does so, not 0or onese.0, +ut as a
re"resentativeN 9,: the .i*itation that the a8ent a1ts 4ithin the s1o"e o0 his or her
authorit/# %- As the +asis o0 a8en1/ is re"resentation, there *ust +e, on the "art o0
the "rin1i"a., an a1tua. intention to a""oint, an intention natura../ in0era+.e 0ro*
the "rin1i"a.Ss 4ords or a1tions# In the sa*e *anner, there *ust +e an intention on
the "art o0 the a8ent to a11e"t the a""oint*ent and a1t u"on it# A+sent su1h
*utua. intent, there is 8enera../ no a8en1/# %%
This ourt 5nds no reversi+.e error in the 5ndin8s o0 the 1ourts a Iuo that
"etitioners 4ere the ri1e +u/ers the*se.vesN the/ 4ere not *ere a8ents o0
res"ondents in their ri1e dea.ershi"# The Iuestion o0 4hether a 1ontra1t is one o0
sa.e or o0 a8en1/ de"ends on the intention o0 the "arties#
The ourt notes that "etitioners, on their o4n +eha.0, sued Evan8e.ine Santos 0or
1o..e1tion o0 the a*ounts re"resented +/ the +oun1ed 1he1@s, in a se"arate 1ivi.
1ase that the/ sou8ht to +e 1onso.idated 4ith the 1urrent one# I0, as the/ 1.ai*, the/
4ere *ere a8ents o0 res"ondents, "etitioners shou.d have +rou8ht the suit a8ainst
Santos 0or and on +eha.0 o0 their a..e8ed "rin1i"a., in a11ordan1e 4ith Se1tion ) o0
Ru.e ( o0 the Ru.es on ivi. Pro1edure# %& Their 5.in8 a suit a8ainst her in their o4n
na*es ne8ates their 1.ai* that the/ a1ted as *ere a8ents in se..in8 the ri1e
o+tained 0ro* Barto.o*e Ra*os#
G.R. N-. 15624 N-2,'8,& 2, 2336
ME=@A THERESA A=@IAR GONEA=ES, Petitioner,
vs#
RIEA= COMMERCIA= BANDING CORPORATION, Res"ondent#
D E I S I O N
GARCIA, J.:
An a1tion 0or a su* o0 *one/ ori8inatin8 0ro* the Re8iona. Tria. ourt 9RT: o0
2a@ati it/, Bran1h =%, thereat do1@eted as ivi. ase No# ''-%&-), 4as de1ided in
0avor o0 therein ".aintiF, no4 res"ondent Ri<a. o**er1ia. Ban@in8 or"oration
9RB:# On a""ea. to the ourt o0 A""ea.s 9A: in A-$#R# L No# ,'&7=, that 1ourt,
in a de1ision
%
dated Au8ust (-, )--), a3r*ed the RT *inus the a4ard o0
attorne/As 0ees# !"on the instan1e o0 herein "etitioner 2e.va Theresa A.viar
$on<a.es, the 1ase is no4 +e0ore this ourt via this "etition 0or revie4 on 1ertiorari,
+ased on the 0o..o4in8 undis"uted 0a1ts as unani*ous./ 0ound +/ the RT and the
A, 4hi1h the .atter su**ari<ed as 0o..o4s>
$on<a.es 4as an e*".o/ee o0 Ri<a. o**er1ia. Ban@in8 or"oration 9or RB: as
Ne4 A11ounts .er@ in the Retai. Ban@in8 De"art*ent at its Head O31e#
A 0orei8n 1he1@ in the a*ount o0 ^6,&-- 4as dra4n +/ Dr# Don Ya"anta o0 the Ade
2edi1a. $rou" 4ith address at &=7 ?estern Avenue, Los An8e.es, a.i0ornia, a8ainst
the dra4ee +an@ ?i.shire enter Ban@, N#A#, o0 Los An8e.es, a.i0ornia, !#S#A#, and
"a/a+.e to $on<a.esA *other, de0endant Eva A.viar 9or A.viar:# A.viar then endorsed
this 1he1@# Sin1e RB 8ives s"e1ia. a11o**odations to its e*".o/ees to re1eive
the 1he1@As va.ue 4ithout a4aitin8 the 1.earin8 "eriod, $on<a.es "resented the
0orei8n 1he1@ to O.ivia $o*e<, the RBAs Head o0 Retai. Ban@in8# A0ter eBa*inin8
this, O.ivia $o*e< reIuested $on<a.es to endorse it 4hi1h she did# O.ivia $o*e<
then a1Iuies1ed to the ear./ en1ash*ent o0 the 1he1@ and si8ned the 1he1@ +ut
indi1ated thereon her authorit/ o0 Tu" to P%6,&--#-- on./T# A0ter4ards, O.ivia
$o*e< dire1ted $on<a.es to "resent the 1he1@ to RB e*".o/ee ar.os Ra*os and
"ro1ure his si8nature# A0ter ins"e1tin8 the 1he1@, ar.os Ra*os a.so si8ned it 4ith
an To@T annotation# A0ter 8ettin8 the said si8natures $on<a.es "resented the 1he1@
to Ro.ando Yornosa, Su"ervisor o0 the Re*ittan1e se1tion o0 the Forei8n
De"art*ent o0 the RB Head O31e, 4ho a0ter s1rutini<in8 the entries and
si8natures therein authori<ed its en1ash*ent# $on<a.es then re1eived its "eso
eIuiva.ent o0 P%&&,)6-#'&#
RB then tried to 1o..e1t the a*ount o0 the 1he1@ 4ith the dra4ee +an@ +/ the
.atter throu8h its 1orres"ondent +an@, the First Interstate Ban@ o0 a.i0ornia, on t4o
o11asions dishonored the 1he1@ +e1ause o0 TEND# IRRE$T or irre8u.ar indorse*ent#
Insistin8, RB a8ain sent the 1he1@ to the dra4ee +an@, +ut this ti*e the 1he1@
4as returned due to Ta11ount 1.osedT# !na+.e to 1o..e1t, RB de*anded 0ro*
$on<a.es the "a/*ent o0 the "eso eIuiva.ent o0 the 1he1@ that she re1eived#
$on<a.es sett.ed the *atter +/ a8reein8 that "a/*ent +e *ade thru sa.ar/
dedu1tion# This te*"orar/ arran8e*ent 0or sa.ar/ dedu1tions 4as 1o**uni1ated
+/ $on<a.es to RB throu8h a .etter dated Nove*+er )6, %7'6 BBB
B B B B B B B B B
The dedu1tions 4as i*".e*ented startin8 O1to+er %7'6# On 2ar1h 6, %7'' RB
sent a de*and .etter to A.viar 0or the "a/*ent o0 her o+.i8ation +ut this 0e.. on dea0
ears as RB did not re1eive an/ res"onse 0ro* A.viar# Ta@in8 0urther a1tion to
1o..e1t, RB then 1onve/ed the *atter to its 1ounse. and on June %=, %7'', a .etter
4as sent to $on<a.es re*indin8 her o0 her .ia+i.it/ as an indorser o0 the su+Ge1t
1he1@ and that 0or her to avoid .iti8ation she has to 0u.5.. her 1o**it*ent to sett.e
her o+.i8ation as assured in her said .etter# On Ju./ %7'' $on<a.es resi8ned 0ro*
RB# ?hat had +een dedu1ted 0ro* her sa.ar/ 4as on./ P%),'))#)- 1overin8 ten
*onths#
It 4as a8ainst the 0ore8oin8 0a1tua. +a1@dro" that RB 5.ed a 1o*".aint 0or a su*
o0 *one/ a8ainst Eva A.viar, 2e.va Theresa A.viar-$on<a.es and the .atterAs
hus+and $ino $on<a.es# The s"ouses $on<a.es 5.ed an Ans4er 4ith ounter1.ai*
"ra/in8 0or the dis*issa. o0 the 1o*".aint as 4e.. as "a/*ent o0 P%-,'))#)- as
a1tua. da*a8es, P)-,---#-- as *ora. da*a8es, P)-,---#-- as eBe*".ar/ da*a8es,
and P)-,---#-- as attorne/As 0ees and .iti8ation eB"enses# De0endant Eva A.viar, on
the other hand, 4as de1.ared in de0au.t 0or havin8 5.ed her Ans4er out o0 ti*e#
A0ter tria., the RT, in its three-"a8e de1ision,
)
he.d t4o o0 the three de0endants
.ia+.e as 0o..o4s>
?HEREFORE, "re*ises a+ove 1onsidered and ".aintiF havin8 esta+.ished its 1ase
a8ainst the de0endants as a+ove stated, Gud8*ent is here+/ rendered 0or ".aintiF
and as a8ainst de0endant ELA# P# ALLIAR as "rin1i"a. de+tor and de0endants 2ELLA
THERESA ALLIAR $ONYLAES as 8uarantor as 0o..o4s>
%# To "a/ ".aintiF the a*ount o0 P%,),=,'#=& 9P%&&,)6-#'& .ess the a*ount
o0 P%),=))#)-, as sa.ar/ dedu1tion o0 D$on<a.esE:, re"resentin8 the outstandin8
o+.i8ation o0 the de0endants 4ith interest o0 %)M "er annu* startin8 Fe+ruar/ %7'6
unti. 0u../ "aidN
)# To "a/ the a*ount o0 P,-,---#-- as and 0or attorne/As 0eesN and to
(# Pa/ the 1osts o0 this suit#
SO ORDERED#
On a""ea., the A, eB1e"t 0or the a4ard o0 attorne/As 0ees, a3r*ed the RT
Gud8*ent#
Hen1e, this re1ourse +/ the "etitioner on her su+*ission that the A erred _
OOO IN FINDIN$ DPETITIONERE, AN AO22ODATION PARTY TO A HEX
S!BSE;!ENTLY ENDORSED PARTIALLY, LIABLE TO RB AS $!ARANTORN
OOO IN FINDIN$ THAT THE SI$NAT!RE OF $O2EY, AN RB E2PLOYEE, DOES NOT
ONSTIT!TE AS AN ENDORSE2ENT B!T ONLY AN INTER-BANX APPROLAL OF
SI$NAT!RE NEESSARY FOR THE ENASH2ENT OF THE HEXN
OOO IN NOT FINDIN$ RB LIABLE ON THE O!NTERLAI2S OF DTHE PETITIONERE#
The re1ourse is i*"ressed 4ith *erit#
The do..ar-1he1@
(
in Iuestion in the a*ount o0 ^6,&--#-- dra4n +/ Don Ya"anta o0
Ade 2edi1a. $rou" 9!#S#A#: a8ainst a Los An8e.es, a.i0ornia +an@, ?i.shire enter
Ban@ N#A#, 4as dishonored +e1ause o0 TEnd# Irre8u.ar,T i#e#, an irre8u.ar
endorse*ent# ?hi.e the 0orei8n dra4ee +an@ did not s"e1i51a../ state 4hi1h a*on8
the 0our si8natures 0ound on the dorsa. "ortion o0 the 1he1@ *ade the 1he1@
irre8u.ar./ endorsed, it is a+so.ute./ undenia+.e that on./ the si8nature o0 O.ivia
$o*e<, an RB e*".o/ee, 4as a Iua.i5ed endorse*ent +e1ause o0 the "hrase Tu"
to P%6,&--#-- on./#T There 1an +e no other a11e"ta+.e eB".anation 0or the dishonor
o0 the 0orei8n 1he1@ than this si8nature o0 O.ivia $o*e< 4ith the "hrase Tu"
to P%6,&--#-- on./T a11o*"an/in8 it# This ourt de5nite./ a8rees 4ith the
"etitioner that the 0orei8n dra4ee +an@ 4ou.d not have dishonored the 1he1@ had it
not +een 0or this si8nature o0 $o*e< 4ith the sa*e "hrase 4ritten +/ her#
The 0orei8n dra4ee +an@, ?i.shire enter Ban@ N#A#, re0used to "a/ the +earer o0
this do..ar-1he1@ dra4n +/ Don Ya"anta +e1ause o0 the de0e1t introdu1ed +/ RB,
throu8h its e*".o/ee, O.ivia $o*e<# It is, there0ore, a use.ess "ie1e o0 "a"er i0
returned in that state to its ori8ina. "a/ee, Eva A.viar#
There is no dou+t in the *ind o0 the ourt that a su+seIuent "art/ 4hi1h 1aused
the de0e1t in the instru*ent 1annot have an/ re1ourse a8ainst an/ o0 the "rior
endorsers in 8ood 0aith# Eva A.viarAs and the "etitionerAs .ia+i.it/ to su+seIuent
ho.ders o0 the 0orei8n 1he1@ is 8overned +/ the Ne8otia+.e Instru*ents La4 as
0o..o4s>
Se1# ==# $iability of general indorser. - Ever/ indorser 4ho indorses 4ithout
Iua.i51ation, 4arrants to a.. su+seIuent ho.ders in due 1ourseN
9a: The *atters and thin8s *entioned in su+divisions 9a:, 9+:, and 91: o0 the neBt
"re1edin8 se1tionN and
9+: That the instru*ent is, at the ti*e o0 his indorse*ent, va.id and su+sistin8N
And, in addition, he en8a8es that, on due "resent*ent, it sha.. +e a11e"ted or "aid,
or +oth, as the 1ase *a/ +e, a11ordin8 to its tenor, and that i0 it +e dishonored and
the ne1essar/ "ro1eedin8s on dishonor +e du./ ta@en, he 4i.. "a/ the a*ount
thereo0 to the ho.der, or to an/ su+seIuent indorser 4ho *a/ +e 1o*"e..ed to "a/
it#
The *atters and thin8s *entioned in su+divisions 9a:, 9+: and 91: o0 Se1tion =& are
the 0o..o4in8>
9a: That the instru*ent is 8enuine and in a.. res"e1ts 4hat it "ur"orts to +eN
9+: That he has a 8ood tit.e to itN
91: That a.. "rior "arties had 1a"a1it/ to 1ontra1tN
!nder Se1tion ==, the 4arranties 0or 4hi1h A.viar and $on<a.es are .ia+.e as 8enera.
endorsers in 0avor o0 su+seIuent endorsers eBtend on./ to the state o0 the
instru*ent at the ti*e o0 their endorse*ents, s"e1i51a../, that the instru*ent is
8enuine and in a.. res"e1ts 4hat it "ur"orts to +eN that the/ have 8ood tit.e theretoN
that a.. "rior "arties had 1a"a1it/ to 1ontra1tN and that the instru*ent, at the ti*e
o0 their endorse*ents, is va.id and su+sistin8# This "rovision, ho4ever, 1annot +e
used +/ the "art/ 4hi1h introdu1ed a de0e1t on the instru*ent, su1h as res"ondent
RB in this 1ase, 4hi1h Iua.i5ed./ endorsed the sa*e, to ho.d "rior endorsers
.ia+.e on the instru*ent +e1ause it resu.ts in the a+surd situation 4here+/ a
su+seIuent "art/ *a/ render an instru*ent use.ess and inuti.e and .et inno1ent
"arties +ear the .oss 4hi.e he hi*se.0 8ets a4a/ s1ot-0ree# It 1annot +e over-
stressed that had it not +een 0or the Iua.i5ed endorse*ent 9Tu" toP%6,&--#-- on./T:
o0 O.ivia $o*e<, 4ho is the e*".o/ee o0 RB, there 4ou.d have +een no reason 0or
the dishonor o0 the 1he1@, and 0u.. "a/*ent +/ dra4ee +an@ there0or 4ou.d have
ta@en ".a1e as a *atter o0 1ourse#
Se1tion == o0 the Ne8otia+.e Instru*ents La4 4hi1h 0urther states that the 8enera.
endorser additiona../ en8a8es that, on due "resent*ent, the instru*ent sha.. +e
a11e"ted or "aid, or +oth, as the 1ase *a/ +e, a11ordin8 to its tenor, and that i0 it
+e dishonored and the ne1essar/ "ro1eedin8s on dishonor +e du./ ta@en, he 4i.. "a/
the a*ount thereo0 to the ho.der, or to an/ su+seIuent endorser 4ho *a/ +e
1o*"e..ed to "a/ it, *ust +e read in the .i8ht o0 the ru.e in eIuit/ reIuirin8 that
those 4ho 1o*e to 1ourt shou.d 1o*e 4ith 1.ean hands# The ho.der or su+seIuent
endorser 4ho tries to 1.ai* under the instru*ent 4hi1h had +een dishonored 0or
Tirre8u.ar endorse*entT *ust not +e the irre8u.ar endorser hi*se.0 4ho 8ave 1ause
0or the dishonor# Other4ise, a 1.ear inGusti1e resu.ts 4hen an/ su+seIuent "art/ to
the instru*ent *a/ si*"./ *a@e the instru*ent de0e1tive and .ater 1.ai* 0ro* "rior
endorsers 4ho have no @no4.ed8e or "arti1i"ation in 1ausin8 or introdu1in8 said
de0e1t to the instru*ent, 4hi1h there+/ 1aused its dishonor#
ourts in this Gurisdi1tion are not on./ 1ourts o0 .a4 +ut a.so o0 eIuit/, and there0ore
1annot unIua.i5ed./ a""./ a "rovision o0 .a4 so as to 1ause 1.ear inGusti1e 4hi1h the
0ra*ers o0 the .a4 1ou.d not have intended to so de.i+erate./ 1ause# In ar1e..er v#
ourt o0 A""ea.s,
,
this ourt had o11asion to stress>
ourts o0 .a4, +ein8 a.so 1ourts o0 eIuit/, *a/ not 1ountenan1e su1h 8ross./ un0air
resu.ts 4ithout doin8 vio.en1e to its so.e*n o+.i8ation to ad*inister 0air and eIua.
Gusti1e 0or a..#
RB, 4hi1h 1aused the dishonor o0 the 1he1@ u"on "resent*ent to the dra4ee
+an@, throu8h the Iua.i5ed endorse*ent o0 its e*".o/ee, O.ivia $o*e<, 1annot ho.d
"rior endorsers, A.viar and $on<a.es in this 1ase, .ia+.e on the instru*ent#
2oreover, it is a 4e..-esta+.ished "rin1i".e in .a4 that as +et4een t4o "arties, he
4ho, +/ his a1ts, 1aused the .oss sha.. +ear the sa*e#
&
RB, in this instan1e,
shou.d there0ore +ear the .oss#
Re.ative to the "etitionerAs 1ounter1.ai* a8ainst RB 0or the a*ount o0 P%),'))#)-
4hi1h it ad*itted./ dedu1ted 0ro* "etitionerAs sa.ar/, the ourt *ust order the
return thereo0 to the "etitioner, 4ith .e8a. interest o0 %)M "er annu*,
not4ithstandin8 the "etitionerAs a""arent a1Iuies1en1e to su1h an arran8e*ent# It
*ust +e noted that "etitioner is not an/ ordinar/ 1.ient or de"ositor 4ith 4ho*
RB had this iso.ated transa1tion# Petitioner 4as a ran@-and-5.e e*".o/ee o0 RB,
+ein8 a ne4 a11ounts 1.er@ thereat# It is eas/ to understand ho4 a vu.nera+.e
$on<a.es, 4ho is 5nan1ia../ de"endent u"on RB, 4ou.d rather +ite the +u..et, so
to s"ea@, and eB"e1ted./ o"t 0or sa.ar/ dedu1tion rather than .ose her Go+ and her
entire sa.ar/ a.to8ether# In this sense, 4e 1annot ta@e "etitionerAs a""arent
a1Iuies1en1e to the sa.ar/ dedu1tion as +ein8 an entire./ 0ree and vo.untar/ a1t on
her "art# Additiona../, under the o+tainin8 0a1ts and 1ir1u*stan1es surroundin8 the
"resent 1o*".aint 0or 1o..e1tion o0 su* o0 *one/ +/ RB a8ainst its e*".o/ee,
4hi1h *a/ +e dee*ed tanta*ount to harass*ent, and the 0a1t that RB itse.0 4as
the one, a1tin8 throu8h its e*".o/ee, O.ivia $o*e<, 4hi1h 8ave reason 0or the
dishonor o0 the do..ar-1he1@ in Iuestion, RB *a/ .i@e4ise +e he.d .ia+.e 0or *ora.
and eBe*".ar/ da*a8es and attorne/As 0ees +/ 4a/ o0 da*a8es, in the a*ount
o0 P)-,---#-- 0or ea1h#
<HERE!ORE, the assai.ed A De1ision dated Au8ust (-, )--) is RELERSED and
SET ASIDE and the o*".aint in this 1ase DIS2ISSED 0or .a1@ o0 *erit# PetitionerAs
1ounter1.ai* is $RANTED, orderin8 the res"ondent RB to rei*+urse "etitioner the
a*ount P%),'))#)-, 4ith .e8a. interest 1o*"uted 0ro* the ti*e o0 sa.ar/ dedu1tion
u" to a1tua. "a/*ent, and to "a/ "etitioner the tota. a*ount o0 P=-,---#-- as
*ora. and eBe*".ar/ da*a8es, and attorne/As 0ees#
osts a8ainst the res"ondent#
SO ORDERED#
DIGEST
!ACTS:
$on<a.es, Ne4 A11ounts .er@ in the Retai. Ban@in8 De"art*ent
at RB Head O31e
Dr# Don Ya"anta o0 the Ade 2edi1a. $rou" dre4 a 0orei8n 1he1@ o0 ^6,&--
a8ainst the dra4ee +an@ ?i.shire enter Ban@, LA, a.i0ornia "a/a+.e to Eva
A.viar 9A.viar:, $on<a.es *other#
A.viar then endorsed this 1he1@#
Sin1e RB 8ives s"e1ia. a11o**odations to its e*".o/ees to re1eive the
1he1@As va.ue 4Ho a4aitin8 the 1.earin8 "eriod, $on<a.es "resented the
0orei8n 1he1@ to O.ivia $o*e<, the RBAs Head o0 Retai. Ban@in8
O.ivia $o*e< reIuested $on<a.es to endorse it 4hi1h she did# O.ivia
$o*e< then a1Iuies1ed to the ear./ en1ash*ent o0 the 1he1@ and
si8ned the 1he1@ +ut indi1ated thereon her authorit/ o0 Tu"
to P%6,&--#-- on./T#
ar.os Ra*os si8ned it 4ith an To@T annotation#
Presented the 1he1@ to Ro.ando Yornosa, Su"ervisor o0 the Re*ittan1e
se1tion o0 the Forei8n De"art*ent o0 the RB Head O31e, 4ho a0ter
s1rutini<in8 the entries and si8natures authori<ed its en1ash*ent#
$on<a.es re1eived its "eso eIuiva.ent P%&&,)6-#'&
RB tried to 1o..e1t throu8h its 1orres"ondent +an@, the First Interstate Ban@
o0 a.i0ornia +ut it 4as dishonored the 1he1@ +e1ause>
TEND# IRRE$T or irre8u.ar indorse*en
Ta11ount 1.osedT
!na+.e to 1o..e1t, RB de*anded 0ro* $on<a.es
Nove*+er )6, %7'6> Throu8h .etter $on<a.es a8reed that the "a/*ent
+e *ade thru sa.ar/ dedu1tion#
O1to+er %7'6> dedu1tions started
2ar1h 6, %7''> RB sent a de*and .etter to A.viar 0or the "a/*ent +ut she
did not res"ond
June %=, %7''> a .etter 4as sent to $on<a.es re*indin8 her o0 her .ia+i.it/ as
an indorser
Ju./ %7''> $on<a.es resi8ned 0ro* RB "a/in8 on./ P%),'))#)- 1overin8 %-
*onths
RB 5.ed a 1o*".aint 0or a su* o0 *one/ a8ainst Eva A.viar, 2e.va Theresa
A.viar-$on<a.es and the .atterAs hus+and $ino $on<a.es
A A3r*ed RT> .ia+.e Eva A.viar as "rin1i"a. de+tor and 2e.va Theresa
A.viar-$on<a.es as 8uarantor
ISSUE:
?HN Eva A.viar and 2e.va Theresa A.via-$on<a.es is .ia+.e as 8enera. endorsers
HE=D:
NO# A RELERSED# RB rei*+urse $on<a.es
Se1# ==# $iability of general indorser. - Ever/ indorser 4ho indorses 4ithout
Iua.i51ation, 4arrants to a.. su+seIuent ho.ders in due 1ourse
%# The *atters and thin8s *entioned in su+divisions 9a:, 9+:, and 91: o0 the neBt
"re1edin8 se1tionN
9a: That the instru*ent is 8enuine and in a.. res"e1ts 4hat it "ur"orts to +e
9+: That he has a 8ood tit.e to it
91: That a.. "rior "arties had 1a"a1it/ to 1ontra1t
)# That the instru*ent is, at the ti*e o0 his indorse*ent, va.id and su+sistin8
In addition, he en8a8es that, on due "resent*ent, it sha.. +e a11e"ted or
"aid, or +oth, as the 1ase *a/ +e, a11ordin8 to its tenor, and that i0 it
+e dishonored and the ne1essar/ "ro1eedin8s on dishonor +e du./
ta@en, he 4i.. "a/ the a*ount thereo0 to the ho.der, or to an/ su+seIuent
indorser 4ho *a/ +e 1o*"e..ed to "a/ it
!nder Se1tion ==, the 4arranties 0or 4hi1h A.viar and $on<a.es are .ia+.e as
8enera. endorsers in 0avor o0 su+seIuent endorsers eBtend on./ to the state
o0 the instru*ent at the ti*e o0 their endorse*ents,
This "rovision 1annot +e used +/ the "art/ 4hi1h introdu1ed a de0e1t on the
instru*ent 9RB: 4H1 Iua.i5ed./ endorsed it
Had it not +een 0or the Iua.i5ed endorse*ent Tu" to P%6,&--#-- on./T
o0 O.ivia $o*e<, 4ho is the e*".o/ee o0 RB, there 4ou.d have +een
no reason 0or the dishonor o0 the 1he1@
The ho.der or su+seIuent endorser 4ho tries to 1.ai* under the instru*ent
4hi1h had +een dishonored 0or Tirre8u.ar endorse*entT *ust not +e the
irre8u.ar endorser hi*se.0 4ho 8ave 1ause 0or the dishonor#
Other4ise, a 1.ear inGusti1e resu.ts 4hen an/ su+seIuent "art/ to the
instru*ent *a/ si*"./ *a@e the instru*ent de0e1tive and .ater 1.ai*
0ro* "rior endorsers 4ho have no @no4.ed8e or "arti1i"ation in
1ausin8 or introdu1in8 said de0e1t to the instru*ent, 4hi1h there+/
1aused its dishonor#
G.R. N-. 2244 !,8&5)&6 , 13
NATI@IDAD GEMPESA<, "etitioner,
vs#
THE HONORAB=E COURT O! APPEA=S )(A PHI=IPPINE BAND O!
COMMUNICATIONS, res"ondents#
$.B. #amins for petitioner.
"ngara, "bello, #oncepcion, 'egals 6 #ru( for priate respondent

CAMPOS, ?R., J.:
Fro* the adverse de1ision G o0 the ourt o0 A""ea.s 9A-$#R# L No# %=,,6:,
"etitioner, Natividad $e*"esa4, a""ea.ed to this ourt in a Petition 0or Revie4, on
the issue o0 the ri8ht o0 the dra4er to re1over 0ro* the dra4ee +an@ 4ho "a/s a
1he1@ 4ith a 0or8ed indorse*ent o0 the "a/ee, de+itin8 the sa*e a8ainst the
dra4erSs a11ount#
The re1ords sho4 that on Januar/ )(, %7'&, "etitioner 5.ed a o*".aint a8ainst the
"rivate res"ondent Phi.i""ine Ban@ o0 o**uni1ations 9res"ondent dra4ee Ban@:
0or re1over/ o0 the *one/ va.ue o0 ei8ht/-t4o 9'): 1he1@s 1har8ed a8ainst the
"etitionerSs a11ount 4ith the res"ondent dra4ee Ban@ on the 8round that the
"a/eesS indorse*ents 4ere 0or8eries# The Re8iona. Tria. ourt, Bran1h OOLIII o0
a.oo1an it/, 4hi1h tried the 1ase, rendered a de1ision on Nove*+er %6, %7'6
dis*issin8 the 1o*".aint as 4e.. as the res"ondent dra4ee Ban@Ss 1ounter1.ai*# On
a""ea., the ourt o0 A""ea.s in a de1ision rendered on Fe+ruar/ )), %77-, a3r*ed
the de1ision o0 the RT on t4o 8rounds, na*e./ 9%: that the ".aintiFSs 9"etitioner
herein: 8ross ne8.i8en1e in issuin8 the 1he1@s 4as the "roBi*ate 1ause o0 the .oss
and 9): assu*in8 that the +an@ 4as a.so ne8.i8ent, the .oss *ust neverthe.ess +e
+orne +/ the "art/ 4hose ne8.i8en1e 4as the "roBi*ate 1ause o0 the .oss# On 2ar1h
&, %77-, the "etitioner 5.ed this "etition under Ru.e ,& o0 the Ru.es o0 ourt settin8
0orth the 0o..o4in8 as the a..e8ed errors o0 the res"ondent ourt>
1
I
THE RESPONDENT O!RT OF APPEALS ERRED IN R!LIN$ THAT THE NE$LI$ENE OF
THE DRA?ER IS THE PROOI2ATE A!SE OF THE RES!LTIN$ INJ!RY TO THE DRA?EE
BANX, AND THE DRA?ER IS PREL!DED FRO2 SETTIN$ !P THE FOR$ERY OR ?ANT
OF A!THORITY#
II
THE RESPONDENT O!RT OF APPEALS ALSO ERRED IN NOT FINDIN$ AND R!LIN$
THAT IT IS THE $ROSS AND INEO!SABLE NE$LI$ENE AND FRA!D!LENT ATS OF
THE OFFIIALS AND E2PLOYEES OF THE RESPONDENT BANX IN FOR$IN$ THE
SI$NAT!RE OF THE PAYEES AND THE ?RON$ ANDHOR ILLE$AL PAY2ENTS 2ADE TO
PERSONS, OTHER THAN TO THE INTENDED PAYEES SPEIFIED IN THE HEXS, IS
THE DIRET AND PROOI2ATE A!SE OF THE DA2A$E TO PETITIONER ?HOSE
SALIN$ 9*!#: AO!NT ?AS DEBITED#
III
THE RESPONDENT O!RT OF APPEALS ALSO ERRED IN NOT ORDERIN$ THE
RESPONDENT BANX TO RESTORE OR RE-REDIT THE HEXIN$ AO!NT OF THE
PETITIONER IN THE ALOOAN ITY BRANH BY THE LAL!E OF THE EI$HTY-T?O
9'): HEXS ?HIH IS IN THE A2O!NT OF P%,)-',=-=#'7 ?ITH LE$AL INTEREST#
Fro* the re1ords, the re.evant 0a1ts are as 0o..o4s>
Petitioner Natividad O# $e*"esa4 9"etitioner: o4ns and o"erates 0our 8ro1er/
stores .o1ated at Ri<a. Avenue EBtension and at Se1ond Avenue, a.oo1an it/#
A*on8 these 8ro1eries are D#$# Sho""erSs 2art and D#$# ?ho.e Sa.e 2art# Petitioner
*aintains a 1he1@in8 a11ount nu*+ered %(----('-% 4ith the a.oo1an it/ Bran1h
o0 the res"ondent dra4ee Ban@# To 0a1i.itate "a/*ent o0 de+ts to her su"".iers,
"etitioner dra4s 1he1@s a8ainst her 1he1@in8 a11ount 4ith the res"ondent +an@ as
dra4ee# Her 1usto*ar/ "ra1ti1e o0 issuin8 1he1@s in "a/*ent o0 her su"".iers 4as
as 0o..o4s> the 1he1@s 4ere "re"ared and 5..ed u" as to a.. *ateria. "arti1u.ars +/
her trusted +oo@@ee"er, A.i1ia $a.an8, an e*".o/ee 0or *ore than ei8ht 9': /ears#
A0ter the +oo@@ee"er "re"ared the 1he1@s, the 1o*".eted 1he1@s 4ere su+*itted to
the "etitioner 0or her si8nature, to8ether 4ith the 1orres"ondin8 invoi1e re1ei"ts
4hi1h indi1ate the 1orre1t o+.i8ations due and "a/a+.e to her su"".iers# Petitioner
si8ned ea1h and ever/ 1he1@ 4ithout +otherin8 to veri0/ the a11ura1/ o0 the 1he1@s
a8ainst the 1orres"ondin8 invoi1es +e1ause she re"osed 0u.. and i*".i1it trust and
1on5den1e on her +oo@@ee"er# The issuan1e and de.iver/ o0 the 1he1@s to the
"a/ees na*ed therein 4ere .e0t to the +oo@@ee"er# Petitioner ad*itted that she did
not *a@e an/ veri51ation as to 4hether or not the 1he1@s 4ere de.ivered to their
res"e1tive "a/ees# A.thou8h the res"ondent dra4ee Ban@ noti5ed her o0 a.. 1he1@s
"resented to and "aid +/ the +an@, "etitioner did not veri0/ he 1orre1tness o0 the
returned 1he1@s, *u1h .ess 1he1@ i0 the "a/ees a1tua../ re1eived the 1he1@s in
"a/*ent 0or the su"".ies she re1eived# In the 1ourse o0 her +usiness o"erations
1overin8 a "eriod o0 t4o /ears, "etitioner issued, 0o..o4in8 her usua. "ra1ti1e stated
a+ove, a tota. o0 ei8ht/-t4o 9'): 1he1@s in 0avor o0 severa. su"".iers# These 1he1@s
4ere a.. "resented +/ the indorsees as ho.ders thereo0 to, and honored +/, the
res"ondent dra4ee Ban@# Res"ondent dra4ee Ban@ 1orres"ondin8./ de+ited the
a*ounts thereo0 a8ainst "etitionerSs 1he1@in8 a11ount nu*+ered (-----('-%# 2ost
o0 the a0ore*entioned 1he1@s 4ere 0or a*ounts in eB1ess o0 her a1tua. o+.i8ations
to the various "a/ees as sho4n in their 1orres"ondin8 invoi1es# To *ention a 0e4>
# # # %: in he1@ No# =)%%)6, dated June )6, %7', in the a*ount o0 P%%,'7&#)( in
0avor o0 Xa4se@ In1# 9EBh# A-=-:, a""e..antSs a1tua. o+.i8ation to said "a/ee 4as
on./ P'7&#(( 9EBh# A-'(:N 9): in he1@ No# =&))') issued on Se"te*+er %', %7', in
0avor o0 Senson Enter"rises in the a*ount o0 P%%,-,%#)- 9EBh# A-=6: a""e..antSs
a1tua. o+.i8ation to said "a/ee 4as on./ P%,-,%#)- 9EBh# 6:N 9(: in he1@ No#
&'7-7) dated A"ri. 6, %7', 0or the a*ount o0 P%%,=6)#,6 in 0avor o0 2ar1he* 9EBh#
A-=%: a""e..antSs o+.i8ation 4as on./ P%,=6)#,6 9EBh# B:N 9,: in he1@ No# =)-,&-
dated 2a/ %-, %7', in 0avor o0 Xnot+err/ 0or P%%,=66#%- 9EBh# A-(%: her a1tua.
o+.i8ation 4as on./ P=66#%- 9EBhs# and -%:N 9&: in he1@ No# =&%'=) dated
Au8ust 7, %7', in 0avor o0 2a.inta EB1han8e 2art 0or P%%,%-6#%= 9EBh# A-=):, her
o+.i8ation 4as on./ P%,%-6#%= 9EBh# D-):N 9=: in he1@ No# =&%'=( dated Au8ust %%,
%7', in 0avor o0 $ro1erSs Internationa. Food or"# in the a*ount o0 P%%,((&#=- 9EBh#
A-==:, her o+.i8ation 4as on./ P%,((&#=- 9EBh# E and E-%:N 96: in he1@ No# &'7-%7
dated 2ar1h %6, %7', in 0avor o0 So"h/ Produ1ts in the a*ount o0 P%%,=,'#-- 9EBh#
A-6':, her o+.i8ation 4as on./ P=,'#-- 9EBh# $:N 9': in he1@ No# &'7-)' dated
2ar1h %-, %7', 0or the a*ount o0 P%%,&)-#-- in 0avor o0 the Ya@u.t Phi.i""ines 9EBh#
A-6(:, the .atterSs invoi1e 4as on./ P&)-#-- 9EBh# H-):N 97: in he1@ No# =)-(( dated
2a/ )(, %7', in the a*ount o0 P%%,&-,#-- in 0avor o0 2onde Den*ar@ Bis1uit 9EBh#
A-(,:, her o+.i8ation 4as on./ P&-,#-- 9EBhs# I-% and I-):#
2
Pra1ti1a../, a.. the 1he1@s issued and honored +/ the res"ondent dra4ee +an@ 4ere
1rossed 1he1@s#
3
Aside 0ro* the dai./ noti1e 8iven to the "etitioner +/ the
res"ondent dra4ee Ban@, the .atter a.so 0urnished her 4ith a *onth./ state*ent o0
her transa1tions, atta1hin8 thereto a.. the 1an1e..ed 1he1@s she had issued and
4hi1h 4ere de+ited a8ainst her 1urrent a11ount# It 4as on./ a0ter the .a"se o0 *ore
t4o 9): /ears that "etitioner 0ound out a+out the 0raudu.ent *ani"u.ations o0 her
+oo@@ee"er#
A.. the ei8ht/-t4o 9'): 1he1@s 4ith 0or8ed si8natures o0 the "a/ees 4ere +rou8ht to
Ernest L# Boon, hie0 A11ountant o0 res"ondent dra4ee Ban@ at the Buendia +ran1h,
4ho, 4ithout authorit/ there0or, a11e"ted the* a.. 0or de"osit at the Buendia +ran1h
to the 1redit andHor in the a11ounts o0 A.0redo Y# Ro*ero and Benito La*# Ernest L#
Boon 4as a ver/ 1.ose 0riend o0 A.0redo Y# Ro*ero# SiBt/-three 9=(: out o0 the ei8ht/-
t4o 9'): 1he1@s 4ere de"osited in Savin8s A11ount No# --',,-& o0 A.0redo Y#
Ro*ero at the res"ondent dra4ee Ban@Ss Buendia +ran1h, and 0our 9,: 1he1@s in his
Savin8s A11ount No# ()-'%-7 at its On8"in +ran1h# The rest o0 the 1he1@s 4ere
de"osited in A11ount No# -,,(-,, under the na*e o0 Benito La* at the E.1aZo
+ran1h o0 the res"ondent dra4ee Ban@#
A+out thirt/ 9(-: o0 the "a/ees 4hose na*es 4ere s"e1i51a../ 4ritten on the 1he1@s
testi5ed that the/ did not re1eive nor even see the su+Ge1t 1he1@s and that the
indorse*ents a""earin8 at the +a1@ o0 the 1he1@s 4ere not theirs#
The tea* o0 auditors 0ro* the *ain o31e o0 the res"ondent dra4ee Ban@ 4hi1h
1ondu1ted "eriodi1 ins"e1tion o0 the +ran1hesS o"erations 0ai.ed to dis1over, 1he1@
or sto" the unauthori<ed a1ts o0 Ernest L# Boon# !nder the ru.es o0 the res"ondent
dra4ee Ban@, on./ a Bran1h 2ana8er and no other o31ia. o0 the res"ondent dra4ee
+an@, *a/ a11e"t a se1ond indorse*ent on a 1he1@ 0or de"osit# In the 1ase at +ar,
a.. the de"osit s.i"s o0 the ei8ht/-t4o 9'): 1he1@s in Iuestion 4ere initia.ed andHor
a""roved 0or de"osit +/ Ernest L# Boon# The Bran1h 2ana8ers o0 the On8"in and
E.1aZo +ran1hes a11e"ted the de"osits *ade in the Buendia +ran1h and 1redited
the a11ounts o0 A.0redo Y# Ro*ero and Benito La* in their res"e1tive +ran1hes#
On Nove*+er 6, %7',, "etitioner *ade a 4ritten de*and on res"ondent dra4ee
Ban@ to 1redit her a11ount 4ith the *one/ va.ue o0 the ei8ht/-t4o 9'): 1he1@s
tota..in8 P%,)-'#=-=#'7 0or havin8 +een 4ron80u../ 1har8ed a8ainst her a11ount#
Res"ondent dra4ee Ban@ re0used to 8rant "etitionerSs de*and# On Januar/ )(,
%7'&, "etitioner 5.ed the 1o*".aint 4ith the Re8iona. Tria. ourt#
This is not a suit +/ the "art/ 4hose si8nature 4as 0or8ed on a 1he1@ dra4n a8ainst
the dra4ee +an@# The "a/ees are not "arties to the 1ase# Rather, it is the dra4er,
4hose si8nature is 8enuine, 4ho instituted this a1tion to re1over 0ro* the dra4ee
+an@ the *one/ va.ue o0 ei8ht/-t4o 9'): 1he1@s "aid out +/ the dra4ee +an@ to
ho.ders o0 those 1he1@s 4here the indorse*ents o0 the "a/ees 4ere 0or8ed# Ho4
and +/ 4ho* the 0or8eries 4ere 1o**itted are not esta+.ished on the re1ord, +ut
the res"e1tive "a/ees ad*itted that the/ did not re1eive those 1he1@s and
there0ore never indorsed the sa*e# The a"".i1a+.e .a4 is the Ne8otia+.e
Instru*ents La4
4
9hereto0ore re0erred to as the NIL:# Se1tion )( o0 the NIL "rovides>
?hen a si8nature is 0or8ed or *ade 4ithout the authorit/ o0 the "erson 4hose
si8nature it "ur"orts to +e, it is 4ho../ ino"erative, and no ri8ht to retain the
instru*ent, or to 8ive a dis1har8e there0or, or to en0or1e "a/*ent thereo0 a8ainst
an/ "art/ thereto, 1an +e a1Iuired throu8h or under su1h si8nature, un.ess the
"art/ a8ainst 4ho* it is sou8ht to en0or1e su1h ri8ht is "re1.uded 0ro* settin8 u"
the 0or8er/ or 4ant o0 authorit/#
!nder the a0ore1ited "rovision, 0or8er/ is a rea. or a+so.ute de0ense +/ the "art/
4hose si8nature is 0or8ed# A "art/ 4hose si8nature to an instru*ent 4as 0or8ed 4as
never a "art/ and never 8ave his 1onsent to the 1ontra1t 4hi1h 8ave rise to the
instru*ent# Sin1e his si8nature does not a""ear in the instru*ent, he 1annot +e
he.d .ia+.e thereon +/ an/one, not even +/ a ho.der in due 1ourse# Thus, i0 a
"ersonSs si8nature is 0or8ed as a *a@er o0 a "ro*issor/ note, he 1annot +e *ade to
"a/ +e1ause he never *ade the "ro*ise to "a/# Or 4here a "ersonSs si8nature as a
dra4er o0 a 1he1@ is 0or8ed, the dra4ee +an@ 1annot 1har8e the a*ount thereo0
a8ainst the dra4erSs a11ount +e1ause he never 8ave the +an@ the order to "a/# And
said se1tion does not re0er on./ to the 0or8ed si8nature o0 the *a@er o0 a "ro*issor/
note and o0 the dra4er o0 a 1he1@# It 1overs a.so a 0or8ed indorse*ent, i#e#, the
0or8ed si8nature o0 the "a/ee or indorsee o0 a note or 1he1@# Sin1e under said
"rovision a 0or8ed si8nature is T4ho../ ino"erativeT, no one 1an 8ain tit.e to the
instru*ent throu8h su1h 0or8ed indorse*ent# Su1h an indorse*ent "revents an/
su+seIuent "art/ 0ro* a1Iuirin8 an/ ri8ht as a8ainst an/ "art/ 4hose na*e
a""ears "rior to the 0or8er/# A.thou8h ri8hts *a/ eBist +et4een and a*on8 "arties
su+seIuent to the 0or8ed indorse*ent, not one o0 the* 1an a1Iuire ri8hts a8ainst
"arties "rior to the 0or8er/# Su1h 0or8ed indorse*ent 1uts oF the ri8hts o0 a..
su+seIuent "arties as a8ainst "arties "rior to the 0or8er/# Ho4ever, the .a4 *a@es
an eB1e"tion to these ru.es 4here a "art/ is "re1.uded 0ro* settin8 u" 0or8er/ as a
de0ense#
As a *atter o0 "ra1ti1a. si8ni51an1e, "ro+.e*s arisin8 0ro* 0or8ed indorse*ents o0
1he1@s *a/ 8enera../ +e +ro@en into t4o t/"es o0 1ases> 9%: 4here 0or8er/ 4as
a11o*".ished +/ a "erson not asso1iated 4ith the dra4er W 0or eBa*".e a *ai.
ro++er/N and 9): 4here the indorse*ent 4as 0or8ed +/ an a8ent o0 the dra4er# This
diFeren1e in situations 4ou.d deter*ine the eFe1t o0 the dra4erSs ne8.i8en1e 4ith
res"e1t to 0or8ed indorse*ents# ?hi.e there is no dut/ restin8 on the de"ositor to
.oo@ 0or 0or8ed indorse*ents on his 1an1e..ed 1he1@s in 1ontrast to a dut/ i*"osed
u"on hi* to .oo@ 0or 0or8eries o0 his o4n na*e, a de"ositor is under a dut/ to set u"
an a11ountin8 s/ste* and a +usiness "ro1edure as are reasona+./ 1a.1u.ated to
"revent or render di31u.t the 0or8er/ o0 indorse*ents, "arti1u.ar./ +/ the
de"ositorSs o4n e*".o/ees# And i0 the dra4er 9de"ositor: .earns that a 1he1@ dra4n
+/ hi* has +een "aid under a 0or8ed indorse*ent, the dra4er is under dut/
"ro*"t./ to re"ort su1h 0a1t to the dra4ee +an@#
5
For his ne8.i8en1e or 0ai.ure
either to dis1over or to re"ort "ro*"t./ the 0a1t o0 su1h 0or8er/ to the dra4ee, the
dra4er .oses his ri8ht a8ainst the dra4ee 4ho has de+ited his a11ount under a
0or8ed indorse*ent#
6
In other 4ords, he is "re1.uded 0ro* usin8 0or8er/ as a +asis
0or his 1.ai* 0or re-1reditin8 o0 his a11ount#
In the 1ase at +ar, "etitioner ad*itted that the 1he1@s 4ere 5..ed u" and 1o*".eted
+/ her trusted e*".o/ee, A.i1ia $a.an8, and 4ere 8iven to her 0or her si8nature# Her
si8nin8 the 1he1@s *ade the ne8otia+.e instru*ent 1o*".ete# Prior to si8nin8 the
1he1@s, there 4as no va.id 1ontra1t /et#
Ever/ 1ontra1t on a ne8otia+.e instru*ent is in1o*".ete and revo1a+.e unti.
de.iver/ o0 the instru*ent to the "a/ee 0or the "ur"ose o0 8ivin8 eFe1t
thereto#
7
The 5rst de.iver/ o0 the instru*ent, 1o*".ete in 0or*, to the "a/ee 4ho
ta@es it as a ho.der, is 1a..ed issuan1e o0 the instru*ent#
8
?ithout the initia.
de.iver/ o0 the instru*ent 0ro* the dra4er o0 the 1he1@ to the "a/ee, there 1an +e
no va.id and +indin8 1ontra1t and no .ia+i.it/ on the instru*ent#
Petitioner 1o*".eted the 1he1@s +/ si8nin8 the* as dra4er and therea0ter
authori<ed her e*".o/ee A.i1ia $a.an8 to de.iver the ei8ht/-t4o 9'): 1he1@s to their
res"e1tive "a/ees# Instead o0 issuin8 the 1he1@s to the "a/ees as na*ed in the
1he1@s, A.i1ia $a.an8 de.ivered the* to the hie0 A11ountant o0 the Buendia +ran1h
o0 the res"ondent dra4ee Ban@, a 1ertain Ernest L# Boon# It 4as esta+.ished that the
si8natures o0 the "a/ees as 5rst indorsers 4ere 0or8ed# The re1ord 0ai.s to sho4 the
identit/ o0 the "art/ 4ho *ade the 0or8ed si8natures# The 1he1@s 4ere then
indorsed 0or the se1ond ti*e 4ith the na*es o0 A.0redo Y# Ro*ero and Benito La*,
and 4ere de"osited in the .atterSs a11ounts as ear.ier noted# The se1ond
indorse*ents 4ere a.. 8enuine si8natures o0 the a..e8ed ho.ders# A.. the ei8ht/-t4o
9'): 1he1@s +earin8 the 0or8ed indorse*ents o0 the "a/ees and the 8enuine se1ond
indorse*ents o0 A.0redo Y# Ro*ero and Benito La* 4ere a11e"ted 0or de"osit at the
Buendia +ran1h o0 res"ondent dra4ee Ban@ to the 1redit o0 their res"e1tive savin8s
a11ounts in the Buendia, On8"in and E.1aZo +ran1hes o0 the sa*e +an@# The tota.
a*ount o0 P%,)-',=-=#'7, re"resented +/ ei8ht/-t4o 9'): 1he1@s, 4ere 1redited and
"aid out +/ res"ondent dra4ee Ban@ to A.0redo Y# Ro*ero and Benito La*, and
de+ited a8ainst "etitionerSs 1he1@in8 a11ount No# %(----('-%, a.oo1an +ran1h#
As a ru.e, a dra4ee +an@ 4ho has "aid a 1he1@ on 4hi1h an indorse*ent has +een
0or8ed 1annot 1har8e the dra4erSs a11ount 0or the a*ount o0 said 1he1@# An
eB1e"tion to this ru.e is 4here the dra4er is 8ui.t/ o0 su1h ne8.i8en1e 4hi1h 1auses
the +an@ to honor su1h a 1he1@ or 1he1@s# I0 a 1he1@ is sto.en 0ro* the "a/ee, it is
Iuite o+vious that the dra4er 1annot "ossi+./ dis1over the 0or8ed indorse*ent +/
*ere eBa*ination o0 his 1an1e..ed 1he1@# This a11ounts 0or the ru.e that a.thou8h a
de"ositor o4es a dut/ to his dra4ee +an@ to eBa*ine his 1an1e..ed 1he1@s 0or
0or8er/ o0 his o4n si8nature, he has no si*i.ar dut/ as to 0or8ed indorse*ents# A
diFerent situation arises 4here the indorse*ent 4as 0or8ed +/ an e*".o/ee or
a8ent o0 the dra4er, or done 4ith the a1tive "arti1i"ation o0 the .atter# 2ost o0 the
1ases invo.vin8 0or8er/ +/ an a8ent or e*".o/ee dea. 4ith the "a/eeSs indorse*ent#
The dra4er and the "a/ee o0ten ti*e shave +usiness re.ations o0 .on8 standin8# The
1ontinued o11urren1e o0 +usiness transa1tions o0 the sa*e nature "rovides the
o""ortunit/ 0or the a8entHe*".o/ee to 1o**it the 0raud a0ter havin8 deve.o"ed
0a*i.iarit/ 4ith the si8natures o0 the "arties# Ho4ever, sooner or .ater, so*e .ea@
4i.. sho4 on the dra4erSs +oo@s# It 4i.. then +e Gust a Iuestion o0 ti*e unti. the 0raud
is dis1overed# This is s"e1ia../ true 4hen the a8ent "er"etrates a series o0 0or8eries
as in the 1ase at +ar#
The ne8.i8en1e o0 a de"ositor 4hi1h 4i.. "revent re1over/ o0 an unauthori<ed
"a/*ent is +ased on 0ai.ure o0 the de"ositor to a1t as a "rudent +usiness*an 4ou.d
under the 1ir1u*stan1es# In the 1ase at +ar, the "etitioner re.ied i*".i1it./ u"on the
honest/ and .o/a.t/ o0 her +oo@@ee"er, and did not even veri0/ the a11ura1/ o0
a*ounts o0 the 1he1@s she si8ned a8ainst the invoi1es atta1hed thereto#
Further*ore, a.thou8h she re8u.ar./ re1eived her +an@ state*ents, she a""arent./
did not 1are0u../ eBa*ine the sa*e nor the 1he1@ stu+s and the returned 1he1@s,
and did not 1o*"are the* 4ith the sa*e invoi1es# Other4ise, she 1ou.d have easi./
dis1overed the dis1re"an1ies +et4een the 1he1@s and the do1u*ents servin8 as
+ases 0or the 1he1@s# ?ith su1h dis1over/, the su+seIuent 0or8eries 4ou.d not have
+een a11o*".ished# It 4as not unti. t4o /ears a0ter the +oo@@ee"er 1o**en1ed her
0raudu.ent s1he*e that "etitioner dis1overed that ei8ht/-t4o 9'): 1he1@s 4ere
4ron80u../ 1har8ed to her a11ount, at 4hi1h she noti5ed the res"ondent dra4ee
+an@#
It is hi8h./ i*"ro+a+.e that in a "eriod o0 t4o /ears, not one o0 PetitionerSs su"".iers
1o*".ained o0 non-"a/*ent# Assu*in8 that even one sin8.e 1o*".aint had +een
*ade, "etitioner 4ou.d have +een dut/-+ound, as 0ar as the res"ondent dra4ee
Ban@ 4as 1on1erned, to *a@e an adeIuate investi8ation on the *atter# Had this
+een done, the dis1re"an1ies 4ou.d have +een dis1overed, sooner or .ater#
PetitionerSs 0ai.ure to *a@e su1h adeIuate inIuir/ 1onstituted ne8.i8en1e 4hi1h
resu.ted in the +an@Ss honorin8 o0 the su+seIuent 1he1@s 4ith 0or8ed indorse*ents#
On the other hand, sin1e the re1ord *entions nothin8 a+out su1h a 1o*".aint, the
"ossi+i.it/ eBists that the 1he1@s in Iuestion 1overed ineBistent sa.es# But even in
su1h a 1ase, 1onsiderin8 the .en8th o0 a "eriod o0 t4o 9): /ears, it is hard to +e.ieve
that "etitioner did not @no4 or rea.i<e that she 4as "a/in8 *ore than she shou.d 0or
the su"".ies she 4as a1tua../ 8ettin8# A de"ositor *a/ not sit id./ +/, a0ter
@no4.ed8e has 1o*e to her that her 0unds see* to +e disa""earin8 or that there
*a/ +e a .ea@ in her +usiness, and re0rain 0ro* ta@in8 the ste"s that a 1are0u. and
"rudent +usiness*an 4ou.d ta@e in su1h 1ir1u*stan1es and i0 ta@en, 4ou.d resu.t in
sto""in8 the 1ontinuan1e o0 the 0raudu.ent s1he*e# I0 she 0ai.s to ta@e ste"s, the
0a1ts *a/ esta+.ish her ne8.i8en1e, and in that event, she 4ou.d +e esto""ed 0ro*
re1overin8 0ro* the +an@#

One thin8 is 1.ear 0ro* the re1ords W that the "etitioner 0ai.ed to eBa*ine her
re1ords 4ith reasona+.e di.i8en1e 4hether +e0ore she si8ned the 1he1@s or a0ter
re1eivin8 her +an@ state*ents# Had the "etitioner eBa*ined her re1ords *ore
1are0u../, "arti1u.ar./ the invoi1e re1ei"ts, 1an1e..ed 1he1@s, 1he1@ +oo@ stu+s, and
had she 1o*"ared the su*s 4ritten as a*ounts "a/a+.e in the ei8ht/-t4o 9'):
1he1@s 4ith the "ertinent sa.es invoi1es, she 4ou.d have easi./ dis1overed that in
so*e 1he1@s, the a*ounts did not ta../ 4ith those a""earin8 in the sa.es invoi1es#
Had she noti1ed these dis1re"an1ies, she shou.d not have si8ned those 1he1@s, and
shou.d have 1ondu1ted an inIuir/ as to the reason 0or the irre8u.ar entries# Li@e4ise
had "etitioner +een *ore vi8i.ant in 8oin8 over her 1urrent a11ount +/ ta@in8
1are0u. note o0 the dai./ re"orts *ade +/ res"ondent dra4ee Ban@ in her issued
1he1@s, or at .east *ade rando* s1rutin/ o0 1an1e..ed 1he1@s returned +/
res"ondent dra4ee Ban@ at the 1.ose o0 ea1h *onth, she 1ou.d have easi./
dis1overed the 0raud +ein8 "er"etrated +/ A.i1ia $a.an8, and 1ou.d have re"orted
the *atter to the res"ondent dra4ee Ban@# The res"ondent dra4ee Ban@ then 1ou.d
have ta@en i**ediate ste"s to "revent 0urther 1o**ission o0 su1h 0raud# Thus,
"etitionerSs ne8.i8en1e 4as the "roBi*ate 1ause o0 her .oss# And sin1e it 4as her
ne8.i8en1e 4hi1h 1aused the res"ondent dra4ee Ban@ to honor the 0or8ed 1he1@s
or "revented it 0ro* re1overin8 the a*ount it had a.read/ "aid on the 1he1@s,
"etitioner 1annot no4 1o*".ain shou.d the +an@ re0use to re1redit her a11ount 4ith
the a*ount o0 su1h 1he1@s#
13
!nder Se1tion )( o0 the NIL, she is no4 "re1.uded
0ro* usin8 the 0or8er/ to "revent the +an@Ss de+itin8 o0 her a11ount#
The do1trine in the 1ase o0 /reat ;astern $ife !nsurance #o# s# )ongkong 6
*hanghai Bank
11
is not a"".i1a+.e to the 1ase at +ar +e1ause in said 1ase, the
1he1@ 4as 0raudu.ent./ ta@en and the si8nature o0 the "a/ee 4as 0or8ed not +/ an
a8ent or e*".o/ee o0 the dra4er# The dra4er 4as not 0ound to +e ne8.i8ent in the
hand.in8 o0 its +usiness aFairs and the the0t o0 the 1he1@ +/ a tota. stran8er 4as not
attri+uta+.e to ne8.i8en1e o0 the dra4erN neither 4as the 0or8in8 o0 the "a/eeSs
indorse*ent due to the dra4erSs ne8.i8en1e# Sin1e the dra4er 4as not ne8.i8ent,
the dra4ee 4as dut/-+ound to restore to the dra4erSs a11ount the a*ount
thereto0ore "aid under the 1he1@ 4ith a 0or8ed "a/eeSs indorse*ent +e1ause the
dra4ee did not "a/ as ordered +/ the dra4er#
Petitioner ar8ues that res"ondent dra4ee Ban@ shou.d not have honored the 1he1@s
+e1ause the/ 4ere 1rossed 1he1@s# Issuin8 a 1rossed 1he1@ i*"oses no .e8a.
o+.i8ation on the dra4ee not to honor su1h a 1he1@# It is *ore o0 a 4arnin8 to the
ho.der that the 1he1@ 1annot +e "resented to the dra4ee +an@ 0or "a/*ent in 1ash#
Instead, the 1he1@ 1an on./ +e de"osited 4ith the "a/eeSs +an@ 4hi1h in turn *ust
"resent it 0or "a/*ent a8ainst the dra4ee +an@ in the 1ourse o0 nor*a. +an@in8
transa1tions +et4een +an@s# The 1rossed 1he1@ 1annot +e "resented 0or "a/*ent
+ut it 1an on./ +e de"osited and the dra4ee +an@ *a/ on./ "a/ to another +an@ in
the "a/eeSs or indorserSs a11ount#
Petitioner .i@e4ise 1ontends that +an@in8 ru.es "rohi+it the dra4ee +an@ 0ro*
havin8 1he1@s 4ith *ore than one indorse*ent# The +an@in8 ru.e +annin8
a11e"tan1e o0 1he1@s 0or de"osit or 1ash "a/*ent 4ith *ore than one indorse*ent
un.ess 1.eared +/ so*e +an@ o31ia.s does not inva.idate the instru*entN neither
does it inva.idate the ne8otiation or trans0er o0 the said 1he1@# In eFe1t, this ru.e
destro/s the ne8otia+i.it/ o0 +i..sH1he1@s +/ .i*itin8 their ne8otiation +/
indorse*ent o0 on./ the "a/ee# !nder the NIL, the on./ @ind o0 indorse*ent 4hi1h
sto"s the 0urther ne8otiation o0 an instru*ent is a restri1tive indorse*ent 4hi1h
"rohi+its the 0urther ne8otiation thereo0#
Se1# (=# ?hen indorse*ent restri1tive# W An indorse*ent is restri1tive 4hi1h either
9a: Prohi+its 0urther ne8otiation o0 the instru*entN or
BBB BBB BBB
In this @ind o0 restri1tive indorse*ent, the "rohi+ition to trans0er or ne8otiate *ust
+e 4ritten in eB"ress 4ords at the +a1@ o0 the instru*ent, so that an/ su+seIuent
"art/ *a/ +e 0ore4arned that 1eases to +e ne8otia+.e# Ho4ever, the restri1tive
indorsee a1Iuires the ri8ht to re1eive "a/*ent and +rin8 an/ a1tion thereon as an/
indorser, +ut he 1an no .on8er trans0er his ri8hts as su1h indorsee 4here the 0or* o0
the indorse*ent does not authori<e hi* to do so#
12
A.thou8h the ho.der o0 a 1he1@ 1annot 1o*"e. a dra4ee +an@ to honor it +e1ause
there is no "rivit/ +et4een the*, as 0ar as the dra4er-de"ositor is 1on1erned, su1h
+an@ *a/ not .e8a../ re0use to honor a ne8otia+.e +i.. o0 eB1han8e or a 1he1@ dra4n
a8ainst it 4ith *ore than one indorse*ent i0 there is nothin8 irre8u.ar 4ith the +i..
or 1he1@ and the dra4er has su31ient 0unds# The dra4ee 1annot +e 1o*"e..ed to
a11e"t or "a/ the 1he1@ +/ the dra4er or an/ ho.der +e1ause as a dra4ee, he in1urs
no .ia+i.it/ on the 1he1@ un.ess he a11e"ts it# But the dra4ee 4i.. *a@e itse.0 .ia+.e
to a suit 0or da*a8es at the instan1e o0 the dra4er 0or 4ron80u. dishonor o0 the +i..
or 1he1@#
Thus, it is 1.ear that under the NIL, "etitioner is "re1.uded 0ro* raisin8 the de0ense
o0 0or8er/ +/ reason o0 her 8ross ne8.i8en1e# But under Se1tion %7= o0 the NIL, an/
1ase not "rovided 0or in the A1t sha.. +e 8overned +/ the "rovisions o0 eBistin8
.e8is.ation# !nder the .a4s o0 9uasi=delict, she 1annot "oint to the ne8.i8en1e o0 the
res"ondent dra4ee Ban@ in the se.e1tion and su"ervision o0 its e*".o/ees as +ein8
the 1ause o0 the .oss +e1ause ne8.i8en1e is the "roBi*ate 1ause thereo0 and under
Arti1.e )%67 o0 the ivi. ode, she *a/ not +e a4arded da*a8es# Ho4ever, under
Arti1.e %%6- o0 the sa*e ode the res"ondent dra4ee Ban@ *a/ +e he.d .ia+.e 0or
da*a8es# The arti1.e "rovides W
Those 4ho in the "er0or*an1e o0 their o+.i8ations are 8ui.t/ o0 0raud, ne8.i8en1e or
de.a/, and those 4ho in an/ *anner 1ontravene the tenor thereo0, are .ia+.e 0or
da*a8es#
There is no Iuestion that there is a 1ontra1tua. re.ation +et4een "etitioner as
de"ositor 9o+.i8ee: and the res"ondent dra4ee +an@ as the o+.i8or# In the
"er0or*an1e o0 its o+.i8ation, the dra4ee +an@ is +ound +/ its interna. +an@in8 ru.es
and re8u.ations 4hi1h 0or* "art o0 an/ 1ontra1t it enters into 4ith an/ o0 its
de"ositors# ?hen it vio.ated its interna. ru.es that se1ond endorse*ents are not to
+e a11e"ted 4ithout the a""rova. o0 its +ran1h *ana8ers and it did a11e"t the
sa*e u"on the *ere a""rova. o0 Boon, a 1hie0 a11ountant, it 1ontravened the tenor
o0 its o+.i8ation at the ver/ .east, i0 it 4ere not a1tua../ 8ui.t/ o0 0raud or ne8.i8en1e#
Further*ore, the 0a1t that the res"ondent dra4ee Ban@ did not dis1over the
irre8u.arit/ 4ith res"e1t to the a11e"tan1e o0 1he1@s 4ith se1ond indorse*ent 0or
de"osit even 4ithout the a""rova. o0 the +ran1h *ana8er des"ite "eriodi1
ins"e1tion 1ondu1ted +/ a tea* o0 auditors 0ro* the *ain o31e 1onstitutes
ne8.i8en1e on the "art o0 the +an@ in 1arr/in8 out its o+.i8ations to its de"ositors#
Arti1.e %%6( "rovides W
The 0au.t or ne8.i8en1e o0 the o+.i8or 1onsists in the o*ission o0 that di.i8en1e
4hi1h is reIuired +/ the nature o0 the o+.i8ation and 1orres"onds 4ith the
1ir1u*stan1e o0 the "ersons, o0 the ti*e and o0 the ".a1e# # # #
?e ho.d that +an@in8 +usiness is so i*"ressed 4ith "u+.i1 interest 4here the trust
and 1on5den1e o0 the "u+.i1 in 8enera. is o0 "ara*ount i*"ortan1e su1h that the
a""ro"riate standard o0 di.i8en1e *ust +e a hi8h de8ree o0 di.i8en1e, i0 not the
ut*ost di.i8en1e# Sure./, res"ondent dra4ee Ban@ 1annot 1.ai* it eBer1ised su1h a
de8ree o0 di.i8en1e that is reIuired o0 it# There is no 4a/ ?e 1an a..o4 it no4 to
es1a"e .ia+i.it/ 0or su1h ne8.i8en1e# Its .ia+i.it/ as o+.i8or is not *ere./ vi1arious +ut
"ri*ar/ 4herein the de0ense o0 eBer1ise o0 due di.i8en1e in the se.e1tion and
su"ervision o0 its e*".o/ees is o0 no *o*ent#
Pre*ises 1onsidered, res"ondent dra4ee Ban@ is adGud8ed .ia+.e to share the .oss
4ith the "etitioner on a 50t/-50t/ ratio in a11ordan1e 4ith Arti1.e %6) 4hi1h
"rovides>
Res"onsi+i.it/ arisin8 0ro* ne8.i8en1e in the "er0or*an1e o0 ever/ @ind o0 o+.i8ation
is a.so de*anda+.e, +ut su1h .ia+i.it/ *a/ +e re8u.ated +/ the 1ourts a11ordin8 to
the 1ir1u*stan1es#
?ith the 0ore8oin8 "rovisions o0 the ivi. ode +ein8 re.ied u"on, it is +ein8 *ade
1.ear that the de1ision to ho.d the dra4ee +an@ .ia+.e is +ased on .a4 and
su+stantia. Gusti1e and not on *ere eIuit/# And a.thou8h the 1ase 4as +rou8ht
+e0ore the 1ourt not on +rea1h o0 1ontra1tua. o+.i8ations, the 1ourts are not
"re1.uded 0ro* a""./in8 to the 1ir1u*stan1es o0 the 1ase the .a4s "ertinent
thereto# Thus, the 0a1t that "etitionerSs ne8.i8en1e 4as 0ound to +e the "roBi*ate
1ause o0 her .oss does not "re1.ude her 0ro* re1overin8 da*a8es# The reason 4h/
the de1ision dea.t on a dis1ussion on "roBi*ate 1ause is due to the error "ointed
out +/ "etitioner as a..e8ed./ 1o**itted +/ the res"ondent 1ourt# And in +rea1hes
o0 1ontra1t under Arti1.e %%6(, due di.i8en1e on the "art o0 the de0endant is not a
de0ense#
PRE2ISES ONSIDERED, the 1ase is here+/ ordered RE2ANDED to the tria. 1ourt 0or
the re1e"tion o0 eviden1e to deter*ine the eBa1t a*ount o0 .oss suFered +/ the
"etitioner, 1onsiderin8 that she "art./ +ene5ted 0ro* the issuan1e o0 the Iuestioned
1he1@s sin1e the o+.i8ation 0or 4hi1h she issued the* 4ere a""arent./
eBtin8uished, su1h that on./ the eB1ess a*ount over and a+ove the tota. o0 these
a1tua. o+.i8ations *ust +e 1onsidered as .oss o0 4hi1h one ha.0 *ust +e "aid +/
res"ondent dra4ee +an@ to herein "etitioner#
SO ORDERED#
DIGEST
!ACTS:
Natividad $e*"esa4 issued 1he1@s, "re"ared +/ her +oo@@ee"er, a tota. o0 ')
1he1@s in 0avor o0 severa. su"".ies# 2ost o0 the 1he1@s 0or a*ounts in eB1ess o0
a1tua. o+.i8ations as sho4n in their 1orres"ondin8 invoi1es# It 4as on./ a0ter the
.a"se o0 *ore than ) /ears did she dis1overed the 0raudu.ent *ani"u.ations o0 her
+oo@@ee"er# It 4as a.so .earned that the indorse*ents o0 the "a/ee 4ere 0or8ed,
and the 1he1@s 4ere +rou8ht to the 1hie0 a11ountant o0 Phi.i""ine Ban@ o0
o**er1e 9the Dra4ee Ban@, Buendia Bran1h: 4ho de"osited the* in the a11ounts
o0 A.0redo Ro*ero and Benito La*# $e*"esa4 *ade de*and u"on the +an@ to
1redit the a*ount 1har8ed due the 1he1@s# The +an@ re0used# Hen1e, the "resent
a1tion#
ISSUE:
?ho sha.. +ear the .oss resu.tin8 0ro* the 0or8ed indorse*ents#
HE=D:
As a ru.e, a dra4ee +an@ 4ho has "aid a 1he1@ on 4hi1h an indorse*ent has +een
0or8ed 1annot 1har8e the dra4erAs a11ount 0or the a*ount o0 said 1he1@# An
eB1e"tion to the ru.e is 4here the dra4er is 8ui.t/ o0 su1h ne8.i8en1e 4hi1h 1auses
the +an@ to honor su1h 1he1@s# $e*"esa4 did not eBer1ise "ruden1e in ta@in8
ste"s that a 1are0u. and "rudent +usiness*an 4ou.d ta@e in 1ir1u*stan1es to
dis1over dis1re"an1ies in her a11ount# Her ne8.i8en1e 4as the "roBi*ate 1ause o0
her .oss, and under Se1tion )( o0 the Ne8otia+.e Instru*ents La4, is "re1.uded 0ro*
usin8 0or8er/ as a de0ense#
On the other hand, the +an@in8 ru.e +annin8 a11e"tan1e o0 1he1@s 0or de"osit or
1ash "a/*ent 4ith *ore than one indorse*ent un.ess 1.eared +/ so*e +an@
o31ia.s does not inva.idate the instru*entN neither does it inva.idate the
ne8otiation or trans0er o0 said 1he1@s# The on./ @ind o0 indorse*ent 4hi1h sto"s the
0urther ne8otiation o0 an instru*ent is a restri1tive indorse*ent 4hi1h "rohi+its the
0urther ne8otiation thereo0, "ursuant to Se1tion (= o0 the Ne8otia+.e Instru*ents
La4#
In .i8ht o0 an/ 1ase not "rovided 0or in the A1t that is to +e 8overned +/ the
"rovisions o0 eBistin8 .e8is.ation, "ursuant to Se1tion %7= o0 the Ne8otia+.e
Instru*ents La4, the +an@ *a/ +e he.d .ia+.e 0or da*a8es in a11ordan1e 4ith
Arti1.e %%6- o0 the ivi. ode# The dra4ee +an@, in its 0ai.ure to dis1over the 0raud
1o**itted +/ its e*".o/ee and in 1ontravention +an@in8 ru.es in a..o4in8 a 1hie0
a11ountant to de"osit the 1he1@s +earin8 se1ond indorse*ents, 4as adGud8ed .ia+.e
to share the .oss 4ith $e*"esa4 on a &->&- ratio#
G.R. N-. =.3641 !,8&5)&6 28, 183
METROPO= /BACO=OD1 !INANCING H IN@ESTMENT CORPORATION, ".aintiF-
a""e..ee,
vs#
SAMBOD MOTORS COMPAN> )(A NG SAMBOD SONS MOTORS CO.,
=TD., de0endants-a""e..ants#
'i(al +uimpo 6 #ornelio P. 'eena for plainti1=appellee.
Diosdado /aringalao for defendants=appellants.

DE CASTRO, J.:
The 0or*er ourt o0 A""ea.s, +/ its reso.ution dated O1to+er %=, %76, 1erti5ed this
1ase to this ourt the issue issued therein +ein8 one "ure./ o0 .a4#
On A"ri. %&, %7=7 Dr# Javier Li..arue. eBe1uted a "ro*issor/ note in 0avor o0 N8
Sa*+o@ Sons 2otors o#, Ltd#, in the a*ount o0 P%&,7(7#-- "a/a+.e in t4e.ve 9%):
eIua. *onth./ insta..*ents, +e8innin8 2a/ %', %7=7, 4ith interest at the rate o0 one
"er1ent "er *onth# It is 0urther "rovided that in 1ase on non-"a/*ent o0 an/ o0 the
insta..*ents, the tota. "rin1i"a. su* then re*ainin8 un"aid sha.. +e1o*e due and
"a/a+.e 4ith an additiona. interest eIua. to t4ent/-5ve "er1ent o0 the tota. a*ount
due#
On the sa*e date, Sa*+o@ 2otors o*"an/ 9hereina0ter re0erred to as Sa*+o@:, a
sister 1o*"an/ o0 N8 Sa*+o@ Sons 2otors o#, Ltd#, and under the sa*e
*ana8e*ent as the 0or*er, ne8otiated and indorsed the note in 0avor o0 ".aintiF
2etro"o. Finan1in8 \ Invest*ent or"oration 4ith the 0o..o4in8 indorse*ent>
Pa/ to the order o0 2etro"o. Ba1o.od Finan1in8 \ Invest*ent or"oration 4ith
re1ourse# Noti1e o0 De*andN DishonorN ProtestN and Present*ent are here+/ 4aived#
SA2BOX 2OTORS O# 9BAOLOD:
B/>
RODOLFO $# NONILLO Asst# $enera. 2ana8er
The *a@er, Dr# Li..arue. de0au.ted in the "a/*ent o0 his insta..*ents 4hen the/
+e1a*e due, so on O1to+er (-, %7=7 ".aintiF 0or*a../ "resented the "ro*issor/
note 0or "a/*ent to the *a@er# Dr# Li..arue. 0ai.ed to "a/ the "ro*issor/ note as
de*anded, hen1e ".aintiF noti5ed Sa*+o@ as indorsee o0 said note o0 the 0a1t that
the sa*e has +een dishonored and de*anded "a/*ent#
Sa*+o@ 0ai.ed to "a/, so on Nove*+er )=, %7=7 ".aintiF 5.ed a 1o*".aint 0or
1o..e1tion o0 a su* o0 *one/ +e0ore the ourt o0 First Instan1e o0 I.oi.o, Bran1h I#
Sa*+o@ did not den/ its .ia+i.it/ +ut 1ontended that it 1ou.d not +e o+.i8ed to "a/
unti. a0ter its 1o-de0endant Dr# Li..arue. has +een de1.ared inso.vent#
Durin8 the "enden1/ o0 the 1ase in the tria. 1ourt, de0endant Dr# Li..arue. died,
hen1e, on O1to+er ),, %76) the .o4er 1ourt, on *otion, dis*issed the 1ase a8ainst
Dr# Li..arue. "ursuant to Se1tion )%, Ru.e ( o0 the Ru.es o0 ourt#
1
On ".aintiFSs *otion 0or su**ar/ Gud8*ent, the tria. 1ourt rendered its de1ision
dated Se"te*+er %), %76(, the dis"ositive "ortion o0 4hi1h reads as 0o..o4s>
?HEREFORE, Gud8*ent is rendered>
9a: Orderin8 Sa*+o@ 2otors o*"an/ to "a/ to the ".aintiF the su* o0 P%&,7(7#--
".us the .e8a. rate o0 interest 0ro* O1to+er (-, %7=7N
9+: Orderin8 sa*e de0endant to "a/ to ".aintiF the su* eIuiva.ent to )&M o0
P%&,7(7#-- ".us interest thereon unti. 0u../ "aidN and
91: To "a/ the 1ost o0 suit#
Not satis5ed 4ith the de1ision, the "resent a""ea. 4as instituted, a""e..ant Sa*+o@
raisin8 a .one assi8n*ent o0 error as 0o..o4s>
The tria. 1ourt erred in not dis*issin8 the 1o*".aint +/ 5ndin8 de0endant a""e..ant
Sa*+o@ 2otors o*"an/ as assi8nor and a Iua.i5ed indorsee o0 the su+Ge1t
"ro*issor/ note and in not ho.din8 it as on./ se1ondari./ .ia+.e thereo0#
A""e..ant Sa*+o@ ar8ues that +/ addin8 the 4ords T4ith re1ourseT in the
indorse*ent o0 the note, it +e1o*es a Iua.i5ed indorser that +ein8 a Iua.i5ed
indorser, it does not 4arrant that i0 said note is dishonored +/ the *a@er on
"resent*ent, it 4i.. "a/ the a*ount to the ho.derN that it on./ 4arrants the 0o..o4in8
"ursuant to Se1tion =& o0 the Ne8otia+.e Instru*ents La4> 9a: that the instru*ent is
8enuine and in a.. res"e1ts 4hat it "ur"orts to +eN 9+: that he has a 8ood tit.e to itN
91: that a.. "rior "arties had 1a"a1it/ to 1ontra1tN 9d: that he has no @no4.ed8e o0
an/ 0a1t 4hi1h 4ou.d i*"air the va.idit/ o0 the instru*ent or render it va.ue.ess#
The a""ea. is 4ithout *erit#
A Iua.i5ed indorse*ent 1onstitutes the indorser a *ere assi8nor o0 the tit.e to the
instru*ent# It *a/ +e *ade +/ addin8 to the indorserSs si8nature the 4ords
T4ithout re1ourseT or an/ 4ords o0 si*i.ar i*"ort#
2
Su1h an indorse*ent re.ieves
the indorser o0 the 8enera. o+.i8ation to "a/ i0 the instru*ent is dishonored +ut not
o0 the .ia+i.it/ arisin8 0ro* 4arranties on the instru*ent as "rovided in Se1tion =& o0
the Ne8otia+.e Instru*ents La4 a.read/ *entioned herein# Ho4ever, a""e..ant
Sa*+o@ indorsed the note T4ith re1ourseT and even 4aived the noti1e o0 de*and,
dishonor, "rotest and "resent*ent#
TRe1ourseT *eans resort to a "erson 4ho is se1ondari./ .ia+.e a0ter the de0au.t o0
the "erson 4ho is "ri*ari./ .ia+.e#
3
A""e..ant, +/ indorsin8 the note T4ith re1ourseT
does not *a@e itse.0 a Iua.i5ed indorser +ut a 8enera. indorser 4ho is se1ondari./
.ia+.e, +e1ause +/ su1h indorse*ent, it a8reed that i0 Dr# Li..arue. 0ai.s to "a/ the
note, ".aintiF-a""e..ee 1an 8o a0ter said a""e..ant# The eFe1t o0 su1h indorse*ent is
that the note 4as indorsed 4ithout Iua.i51ation# A "erson 4ho indorses 4ithout
Iua.i51ation en8a8es that on due "resent*ent, the note sha.. +e a11e"ted or "aid,
or +oth as the 1ase *a/ +e, and that i0 it +e dishonored, he 4i.. "a/ the a*ount
thereo0 to the ho.der#
4
A""e..ant Sa*+o@Ss intention o0 indorsin8 the note 4ithout
Iua.i51ation is *ade even *ore a""arent +/ the 0a1t that the noti1e o0 de*and,
dishonor, "rotest and "resent*ent 4ere an 4aived# The 4ords added +/ said
a""e..ant do not .i*it his .ia+i.it/, +ut rather 1on5r* his o+.i8ation as a 8enera.
indorser#
Last./, the .o4er 1ourt did not err in not de1.arin8 a""e..ant as on./ se1ondari./
.ia+.e +e1ause a0ter an instru*ent is dishonored +/ non-"a/*ent, the "erson
se1ondari./ .ia+.e thereon 1eases to +e su1h and +e1o*es a "rin1i"a. de+tor#
5
His
.ia+i.i/ +e1o*es the sa*e as that o0 the ori8ina. o+.i8or#
6
onseIuent./, the ho.der
need not even "ro1eed a8ainst the *a@er +e0ore suin8 the indorser#
?HEREFORE, the de1ision o0 the .o4er 1ourt is here+/ a3r*ed# No 1osts#
SO ORDERED#
DIGEST
!ACTS:
Sa*+o@ 2otors o*"an/ ne8otiated and indorsed the note in 0avor o0 ".aintiF
2etro"o. Finan1in8 \ Invest*ent or"oration 4ith the 0o..o4in8 indorse*ent>
JPa/ to the order o0 2etro"o. Ba1o.od Finan1in8 \ Invest*ent or"oration 4ith
re1ourse# Noti1e o0 De*andN DishonorN ProtestN and Present*ent are here+/ 4aived#
SA2BOX 2OTORS O# 9BAOLOD: B/> RODOLFO $# NONILLO Asst# $enera.
2ana8erK
The *a@er, Dr# Li..arue. de0au.ted in the "a/*ent# P.aintiF noti5ed Sa*+o@ as
indorsee o0 said note o0 the 0a1t that the sa*e has +een dishonored and de*anded
"a/*ent# Sa*+o@ 0ai.ed to "a/# Tria. 1ourt rendered its de1ision in 0avour o0 P.aintiF#
A""e..ant Sa*+o@ ar8ues that +/ addin8 the 4ords J4ith re1ourseK in the
indorse*ent o0 the note, it +e1o*es a Iua.i5ed indorserN that +ein8 a Iua.i5ed
indorser, it does not 4arrant that i0 said note is dishonored +/ the *a@er on
"resent*ent, it 4i.. "a/ the a*ount to the ho.der#
ISSUE:
?hether or not Sa*+o@ is a Iua.i5ed indorser#
HE=D:
A""e..ant, +/ indorsin8 the note J4ith re1ourseK does not *a@e itse.0 a Iua.i5ed
indorser +ut a 8enera. indorser 4ho is se1ondari./ .ia+.e, +e1ause +/ su1h
indorse*ent, it a8reed that i0 Dr# Li..arue. 0ai.s to "a/ the note, ".aintiF-a""e..ee 1an
8o a0ter said a""e..ant# The eFe1t o0 su1h indorse*ent is that the note 4as indorsed
4ithout Iua.i51ation# A "erson 4ho indorses 4ithout Iua.i51ation en8a8es that on
due "resent*ent, the note sha.. +e a11e"ted or "aid, or +oth as the 1ase *a/ +e,
and that i0 it +e dishonored, he 4i.. "a/ the a*ount thereo0 to the ho.der# A""e..ant
Sa*+o@As intention o0 indorsin8 the note 4ithout Iua.i51ation is *ade even *ore
a""arent +/ the 0a1t that the noti1e o0A de*and, dishonor, "rotest and "resent*ent
4ere a.. 4aived# The 4ords added +/ said a""e..ant do not .i*it his .ia+i.it/, +ut
rather 1on5r* his o+.i8ations as a 8enera. indorser#
G.R. N-. 17233 M)&7% 17, 122
?OSE @E=ASCO, ".aintiF-a""e..e,
vs#
TAN =IUAN H CO., TAN =IUAN, U> TENGPIAO, )(A A< >ONG CHIO<
SOO, de0endants#
A< >ONG CHIO< SOO, a""e..ant#
-esus ;. Blanco for appellant.
De -oya and ;spiritu for appellee.
STATE2ENT
The de0endant Tan Liuan and o# eBe1uted to the de0endant A4 Yon8 hio4 Soo 0our
1ertain "ro*issor/ notes> The 5rst, 0or P%),---, dated Fe+ruar/ %'th, the se1ond,
0or P%=,---, dated Fe+ruar/ )(d, the third, 0or P(',---, dated 2ar1h %6th, and the
0ourth, 0or P)%,---, dated 2ar1h )6th, a.. in the /ear %7%7, and ea1h "a/a+.e siB
*onths a0ter its res"e1tive date#
2ar1h %6, %7%7, the de0endant A4 Yon8 hio4 Soo dre4 a +i.. o0 eB1han8e or si8ht
dra0t, 0or P((,&-- Yen on Jin8 Xee and o#, ) Xaisandori &-hone, Xo+e, in 0avor o0
the Phi.i""ine Nationa. Ban@, 4hi1h at 5rst it re0used to 1ash# The ".aintiF 4as then
indu1ed to, and did, endorse it, and the +an@ 1ashed the dra0t, no "art o0 4hi1h
".aintiF re1eived, and it is 1.ai*ed that a.. o0 the *one/ 4as "aid to Tan Liauan and
o# In the ordinar/ 1ourse o0 +usiness, the dra0t 4as dishonored 4hen "resented,
and .ater the ".aintiF 4as reIuested to, and did, "ersona../ eBe1ute to the Phi.i""ine
Nationa. Ban@ his "ro*issor/ note, 0or the a*ount o0 the dra0t, interest and
eB"enses#
Au8ust %', %77%, Tan Liuan *ade the 0o..o4in8 4ritten state*ent>
In 1onsideration 0or the indorse*ent +/ Jose Le.as1o at */ reIuest o0 a dra0t dra4n
+/ A4 Yon8 hio4 Soo on 2essrs# Jin8 Xee and o#, ) Xaisandori &-hone, Xo+e,
Ja"an, 0or the "a/*ent o0 4hi1h he +e1a*e .ia+.e u"on his indorse*ent 0or the su*
o0 ((,&-- Yen, I "ro*ise to "a/ to Jose Le.as1o, or oder, 4ithin ten da/s a0ter he
sha.. have +een o+.i8ated to "a/ the a*ount o0 said dra0t, or an/ "art thereo0, the
0u.. a*ount 4ith a.. 1osts, eB"enses and attorne/Ss 0ees 4hi1h he sha.. "a/ on
a11ount o0 his indorse*ent o0 said dra0t, 4ith interest on the a*ount "aid +/ hi* at
%- "er 1ent "er annu* thereon 0ro* the ti*e o0 "a/*ent#
On the sa*e da/, the ".aintiF *ade the 0o..o4in8 4ritten state*ent>
A4 Yon8 hio4 Soo havin8 this da/ trans0erred to *e his 1.ai* o0 1redit a8ainst the
5r* o0 Tan Liuan and o# as 1o..atera. se1urit/ in 1onsideration o0 */ havin8
indorsed his dra0t *ade +/ hi* on 2essrs# Jin8 Xee and o# 0or the su* o0 ((,&--
Yen and "resented to the Phi.i""ine Nationa. Ban@ +/ 4hi1h it 4as 1ashed, no4 i0
the dra4er o0 said dra0t or the said A4 Yon8 hio4 Soo sha.. "a/ the said dra0t so
that I a* re.ieved 0ro* a.. res"onsi+i.it/ in 1onne1tion there4ith and the eB"enses
in1urred on a11ount thereo0, then I 4i.. reassi8n the said 1.ai* a8ainst Tan Liuan and
o# to hi*, and i0 I a* o+.i8ed to "a/ said dra0t, an/ a*ount 4hi1h I *a/ re1eive on
a11ount o0 said 1.ai* assi8ned to *e over and a+ove the a*ount "aid +/ *e,
in1.udin8 a.. eB"enses and attorne/Ss 0ees, sha.. +e de.ivered to the said A4 Yon8
hio4 Soo#
Au8ust )), %7%7, the de0endant A4 Yon8 hio4 Soo *ade the 0o..o4in8 4ritten
state*ent>
For va.ue re1eived and to *e in hand "aid, I here+/ assi8n, trans0er and de.iver to
Jose Le.as1o the 4ho.e a*ount o0 */ 1redit a8ainst Tan Liuan and o#, a*ountin8 to
ei8ht/-seven thousand "esos 9P'6,---:, eviden1ed +/ 0our 9,: "ro*issor/ notes,
4hi1h are des1ri+ed as 0o..o4s>
%# Pro*issor/ note dated 2ani.a, Fe+ruar/ %', %7%7, 0or the su* o0 P%),---N 0or siB
9=: *onthsN
)# Pro*issor/ note dated 2ani.a, Fe+ruar/ )(, %7%7, 0or the su* o0 P%=,---N 0or siB
9=: *onthsN
(# Pro*issor/ note dated 2ani.a, 2ar1h %6, %7%7, 0or the su* o0 P(',---N 0or siB 9=:
*onthsN
,# Pro*issor/ note dated 2ani.a, 2ar1h )6, %7%7, 0or the su* o0 P)%,---N 0or siB 9=:
*onthsN
the a+ove-*entioned "ro*issor/ notes +ein8 atta1hed hereto and *ade a "art
hereo0, and 0u../ autnori<e the said Jose Le.as1o to 1o..e1t and re1eive the said
a*ount 0ro* Tan Liuan and o#, or 0ro* the .e8a. re"resentative o0, or .iIuidator o0
said Tan Liuan and o#
on1urrent there4ith, the de0endant unIua.i5ed./ indorsed the 0our "ro*issor/
notes to the ".aintiF, 4ho, on Fe+ruar/ %7, %7)-, 1o**en1ed this a1tion a8ainst
the de0endants#
The 1o*".aints a..e8es the eBe1ution o0 the notes +/ the de0endant Tan Liuan and
o# to the de0endant A4 Yon8 hio4 Soo# That the de0endant A4 Yon8 hio4 Soo
indorsed the notes to the ".aintiFN that at their *aturit/ the/ 4ere du./ "resented to
Tan Liuan and o#N and that "a/*ent 4as re0used, o0 4hi1h re0usa. the de0endant
A4 Yon8 hio4 Soo 4as du./ noti5ed#
For ans4er, A4 Yon8 hio4 Soo *a@es a 8enera. denia., and, as a 0urther and
se"arate de0ense, a..e8es the dra4in8 o0 the si8ht dra0t, and that it 4as an
a11o**odation on./, and that, 1on0or*in8 to the a8ree*ent, it 4as du./ indorsed
+/ the ".aintiF, and A4 Yon8 hio4 So de.ivered the *one/ to the de0endant Tan
Liuan# The de0endant then a..e8es the *a@in8 o0 the 4ritten state*ent +/ Tan Liuan
o0 Au8ust %', %7%7, a+ove Iuoted# On that date, A4 Yon8 hio4 Soo 4as a 1reditor
o0 the de0endant Tan Liuan and o#, eviden1ed +/ the "ro*issor/ notes a+ove
des1ri+ed, and that Tan Liuan and o# 4as inso.vent# That +/ reason thereo0, one o0
the "ro*issor/ notes 4as eBe1uted to 8uarantee A4 Yon8 hio4 Soo a8ainst an/
.ia+i.it/ in 1ase that Tan Liuan or the ".aintiF 4ou.d not "a/ the si8ht dra0t, and
+e1ause the +an@ had reIuested the ".aintiF to "a/ the dra0t, this de0endant and
the ".aintiF a8reed that this de0endant shou.d trans0er to hi* a.. o0 its interest in
the 0our "ro*issor/ notes, under an a8ree*ent that, in 1ase Jin8 Xee and o# shou.d
"a/ the dra0t, the ".aintiF 4ou.d trans0er the note to this de0endant, +ut in the
event that the ".aintiF 4as reIuired to "a/ the dra0t, the he 4ou.d endeavor to
1o..e1t the notes in 0u.., and 0ro* the "ro1eeds 4ou.d 5rst rei*+urse hi*se.0 and
then "a/ an/ re*ainder to the de0endant# It is a.so a..e8ed that the "a.intiF has not
"aid the dra0t or *ade an/ eFort to 1o..e1t it 0ro* Tan Liuan# That this de0endant is
not .ia+.e to the ".aintiF on an/ 1ontra1t, and does not o4e hi* an/thin8, +ut that,
under the a8ree*ent, the ".aintiF shou.d return to this de0endant an/ a*ount
4hi1h he shou.d 1o..e1t over the a*ount o0 his "ersona. 1.ai*# That, +/ reason o0
the 1ontra1t +et4een the ".aintiF and the de0endant, Tan Liuan, this de0endant has
+een re.eased and dis1har8ed o0 a.. .ia+i.it/, and that the a1tion is "re*ature#
!"on su1h issues, the 1ase 4as tried, and the .o4er 1ourt rendered Gud8*ent
a8ainst the de0endants Tan Liuan and o# and Tan Liuan and !/ Ten8"iao, 0or the 0u..
a*ount o0 the notes, 0ro* 4hi1h the ".aintiF shou.d on./ re1eive a su31ient a*ount
to 0u../ 1o*"ensate hi* as an indorser o0 the dra0tN to 4it, P,=,%(&#6-, and that, i0
1o..e1ted, the re*ainder, i0 an/, shou.d +e "aid to A4 Yon8 hio4 Soo a8ainst 4ho*
Gud8*ent 4as rendered 0or the a*ount o0 P,=,%(&#6- shou.d +e de0endant Tan
Liuan and o# 0ai. to "a/ the Gud8*ent# Fro* this, the de0endant A4 Yon8 hio4 Soo
on./ a""ea.ed, 1.ai*in8 that the .o4er 1ourt erred in renderin8 Gud8*ent a8ainst it
u"on the 0our "ro*issor/ notes, or that it 4as .ia+.e 0or the "a/*ent o0 either o0
the*, or that it shou.d "a/ the ".aintiF P,=,%(&#6-, or that he shou.d have an/
Gud8*ent a8ainst this de0endant#
?OHNS, J.:
It 4i.. +e noted that t4o o0 the "ro*issor/ notes are dated in Fe+ruar/N that the third
is dated 2ar1h %6th, and the .ast 2ar1h )6th, a.. in %7%7# That ea1h "ro*issor/ note
is "a/a+.e siB *onths a0ter date, and is eBe1uted +/ Tan Liuan and o# in 0avor o0
A4 Yon8 hio4 Soo#
The si8ht dra0t is dated 2ar1h %6, %7%7, "a/a+.e thirt/ da/s a0ter date, and is dra4n
+/ A4 Yon8 hio4 Soo u"on Jin8 Xee and o# in 0avor o0 the Phi.i""ine Nationa.
Ban@#
The 4ritten state*ent o0 Tan Liuan is dated Au8ust %', %7%7, and that three o0 the
"ro*issor/ notes 4ere then due and "a/a+.e#
A.thou8h it is 1.ai*ed taht Tan Liuan and o# re1eived the "ro1eeds 0ro* the dra0t,
its na*e does not a""ear in or u"on the dra0t, and it is ver/ a""arent that the
4ritten state*ent o0 Tan Liuan and o#, o0 Au8ust %'th, 4as si8ned, 0or the "ur"ose
o0 sho4in8 the true re.ations o0 that 5r* to the transa1tion, and that 4ithin ten da/s
a0ter the ".aintiF had assu*ed and "aid the a*ount o0 the dra0t, 4ith 1osts and
eB"enses, Tan Liuan and o# 4ou.d "a/ the ".aintiF the 0u.. a*ount 4hi1h ".aintiF
had o+.i8ated hi*se.0 to "a/# In other 4ords, Tan Liuan and o#, +/ that 4ritin8,
assu*es a.. .ia+i.it/ 0or the a*ount o0 the dra0t and "ro*ises to "a/ the ".aintiF and
re.ease hi* 0ro* a.. .ia+i.it/# In .e8a. eFe1t, ".aintiFSs 4ritten state*ent o0 Au8ust
%'th, is an a1@no4.ed8*ent o0 the re1ie"t 0ro* A4 Yon8 hio4 Soo o0 the 0our
"ro*issor/ notes as 1o..atera. se1urit/ 0or his indorse*ent o0 the dra0t, and that, in
the event the ".aintiF is re.eased 0ro* his .ia+i.it/, he 4i.. then reassi8n the notes to
the de0endant, A4 Yon8 hio4 Soo, and that, i0 he is reIuired to "a/ the dra0t, an/
a*ount 4hi1h he *a/ re1eive on a11ount o0 the "ro*issor/ notes over and a+ove
the a*ount 4hi1h he is reIuired to "a/, he 4i.. then "a/ an/ re*ainder to the
de0endant A4 Yon8 hio4 Soo# The indorse*ent o0 A4 Yon8 hio4 Soo o0 the notes
to the ".aintiF 4as unIua.i5ed, and the .a4 5Bes the .ia+i.it/ o0 an unIua.i5ed
indorser, and ora. testi*on/ is not ad*isi+.e to var/ or 1ontradi1t the ter*s o0 a
4ritten instru*ent#
Se1tion (- o0 A1t No# )-(%, o0 the Phi.i""ine Le8is.ature, @no4n as TThe Ne8otia+.e
Instru*ents La4,T sa/s>
SE# (-# 3hat constitutes negotiation# W An instru*ent is ne8otiated 4hen it is
trans0erred 0ro* one "erson to another in su1h *anner as to 1onstitute the
trans0eree the ho.der thereo0# I0 "a/a+.e to +earer, it is ne8otiated +/ de.iver/N i0
"a/a+.e to order, it is ne8otiated +/ the indorse*ent o0 the ho.der 1o*".eted +/
de.iver/#
SE# (%# !ndorsement; how made#W The indorse*ent *ust +e 4ritten on the
instru*ent itse.0 or u"on a "a"er atta1hed thereto# The si8nature o0 the indorser,
4ithout additiona. 4ords, is a su31ient indorse*ent#
SE# ((# ,inds of indorsement#W An indorse*ent *a/ +e either s"e1ia. or in +.an@N
and it *a/ a.so +e either restri1tive or Iua.i5ed, or 1onditiona.#
SE# ('# +ualifed indorsement#W A Iua.i5ed indorse*ent 1onstitutes the indorser a
*ere assi8nor o0 the tit.e to the instru*ent# It *a/ +e *ade +/ addin8 to the
indorserSs si8nature the 4ords T4ithout re1ourseT or an/ 4ords o0 si*i.ar i*"ort#
Su1h an indorse*ent does not i*"air the ne8otia+.e 1hara1ter o0 the instru*ent#
SE# ,&# %ime of indorsement; presumption#W EB1e"t 4here an indorse*ent +ears
date a0ter the *aturit/ o0 the instru*ent, ever/ ne8otiation is dee*ed "ri*a 0a1ie
to have +een eFe1ted +e0ore the instru*ent 4as overdue#
SE# =(# 3hen person deemed indorser#W A "erson ".a1in8 his si8nature u"on an
instru*ent other4ise than as *a@er, dra4er, or a11e"tor is dee*ed to +e an
indorser, un.ess he 1.ear./ indi1ates +/ a""ro"riate 4ords his intention to +e +ound
in so*e other 1a"a1it/#
SE# ==# $iability of general indorser#W Ever/ indorser 4ho indorses 4ithout
Iua.i51ation, 4arrants to a.. su+seIuent ho.ders in due 1ourse W
9a: The *atters and thin8s *entioned in su+divisions 9a:, 9b:, and 9c: o0 the neBt
"re1edin8 se1tionN and
9b: That the instru*ent is at the ti*e o0 his indorse*ent va.id and su+sistin8#
And, in addition, he en8a8es that on due "resent*ent, it sha.. +e a11e"ted or "aid,
or +oth, as the 1ase *a/ +e, a11ordin8 to its tenor, and that i0 it +e dishonored, and
the ne1essar/ "ro1eedin8s on dishonor +e du./ ta@en, he 4i.. "a/ the a*ount
thereo0 to the ho.der, or to an/ su+seIuent indorser 4ho *a/ +e 1o*"e..ed to "a/
it#
SE# %%,# 3hen notice need not be gien to drawer# W Noti1e o0 dishonor is not
reIuired to +e 8iven to the dra4er in either o0 the 0o..o4in8 1ases>
B B B B B B B B B
Ed: ?here the dra4er has no ri8ht to eB"e1t or reIuire that the dra4ee or a11e"tor
4i.. honor the instru*ent#
A4 Yon8 hio4 Soo, +ein8 an unIua.i5ed indorser, the .a4 5Bes its .ia+i.it/#
I0 it 4as not its "ur"ose or intent to assu*e and a8ree to "a/ the notes, it shou.d
have indorsed the* T4ithout re1ourse,T or in su1h a *anner as to dis1.ia* an/
"ersona. .ia+i.it/# ?hen a "erson *a@es an unIua.i5ed indorse*ent o0 a "ro*issor/
note, the Ne8otia+.e Instru*ents La4 s"e1i5es and de5nes his .ia+i.it/, and "aro.
testi*on/ is not ad*issi+.e to eB".ain or de0eat su1h .ia+i.it/# Here, the +i.. o0
eB1han8e 4as dra4n +/ the de0endant, A4 Yon8 hio4 Soo, and it 4as the +i.. o0
eB1han8e 4hi1h 4as indorsed +/ the ".aintiF, and the testi*on/ is 1on1.usive taht
".aintiFSs indorse*ent 4as reIuired +/ the +an@ as one o0 the 1onditions u"on
4hi1h it 4ou.d 1ash the dra0t# Three o0 the notes had *atured at the ti*e the/ 4ere
indorsed and the 4ritten instru*ents si8ned# A.thou8h the dra0t 4as dra4n +/ A4
Yon8 hio4 Soo, it 4as dishonored, and the ".aintiF 4as reIuired +/ the +an@ to
eBe1ute his note 0or its a*ount# At the ti*e o0 the eBe1ution o0 the notes, A4 Yon8
hio4 Soo 4as a 1reditor o0 Tan Liuan and o# 0or the a*ount o0 the notes#
The a1tion here is not +ased u"on the dra0t# It is 0ounded u"on the "ro*issor/
notes# The ".aintiF did not re1eive an/ "art o0 the "ro1eeds o0 the dra0t, +ut has
+een reIuired +/ the +an@ to *a@e his "ro*issor/ note 0or the a*ount o0 the dra0t#
As 1o..atera. and to inde*ni0/ and "rote1t ".aintiF 0ro* an/ .ia+i.it/, A4 Yon8 hio4
Soo indorsed the "ro*issor/ notes, 4hi1h it he.d a8ainst Tan Liuan and o# to the
".aintiF and did not in an/ *anner Iua.i0/ its indorse*ent, and the Ne8otia+.e
Instru*ents A1t sa/s that W
Ever/ indorser 4ho indorses 4ithout Iua.i51ation, 4arrants to a.. su+seIuent
ho.ders in due 1ourse, et1#, en8a8es that on due "resent*ent, it sha.. +e a11e"ted
or "aid, or +oth, as the 1ase *a/ +e, a11ordin8 to its tenor, and that i0 it +e
dishonored, and the ne1essar/ "ro1eedin8s on dishonor +e du./ ta@en, he 4i.. "a/
the a*ount thereo0 to the ho.der, or to an/ su+seIuent indorser 4ho *a/ +e
1o*"e..ed to "a/ it#
Se1tion '- o0 the A1t sa/s>
Present*ent 0or "a/*ent is not reIuired in order to 1har8e an indorser 4here the
instru*ent 4as *ade or a11e"ted 0or his a11o**odation and he has no reason to
eB"e1t that the instru*ent 4i.. +e "aid i0 "resented#
And su+division 9d:, o0 se1tion %%,, sa/s>
?here the dra4er has no ri8ht to eB"e1t or reIuire that the dra4ee or a11e"tor 4i..
honor the instru*ent#
The dra0t 4as dra4n on 2ar1h %', %7%7, "a/a+.e thirt/ da/s a0ter si8ht, and it 4as
dishonored# Three o0 the notes 4ere "ast due at the ti*e the 4ritten a8ree*ents
4ere *ade, and the testi*on/ is 1on1.usive that Tan Liuan and o# 4as inso.vent,
and that A4 Yon8 hio4 Soo @ne4 it, and that none o0 the notes 4ou.d +e "aid i0
"resented, and the eviden1e sho4s that, +e0ore the/ 4ere indorsed, the 5rst t4o
had +een du./ "resented and dishonored# In other 4ords, at the ti*e the unIua.i5ed
indorse*ent 4as *ade, t4o o0 the notes had +een "rotested, and A4 Yon8 hio4
Soo @ne4 that Tan Liuan and o# 4as inso.vent, and had no reason to eB"e1t that
the notes 4ou.d +e "aid i0 "resented# There is no 1.ai* or "retense that its 1.ai*
4as "reGudi1ed or that it .ost an/ .e8a. ri8ht, +e1ause the .ast t4o notes 4ere not
"rotested, the 5rst o0 4hi1h 4as "ast due 4hen it 4as indorsed#
The "ur"ose and intent o0 the Au8ust 4ritten state*ents 4as to eB".ain the
transa1tions +et4een the "arties, to 4ho* the "ro1eeds 0ro* the dra0t 4ere "aid,
and that the notes 4ere indorsed +/ A4 Yon8 hio4 Soo to "a.intiF, as 1o..atera., to
"rote1t and ho.d hi* har*.ess in his indorse*ent o0 the dra0t, an to s"e1i0/ that A4
Yon8 hio4 Soo shou.d have an/ "ro1eeds 0ro* the notes a0ter the dra0t had +een
0u../ "aid there0ro* and the ".aintiF re.eased 0ro* his .ia+i.it/ as an indorser# The
state*ents do not *a@e an/ re0eren1e to the .e8a. .ia+i.it/ o0 A4 Yon8 hio4 Soo as
an indorser o0 the notes, do not and 4ere never 1ontended to 0u../ dis1har8e and
re.ease that 5r* 0ro* its .ia+i.it/ as an indorser#
?ith a.. due res"e1t to the a+.e and in8enious +rie0 0or the a""e..ant, there is no
*erit in the de0ense, and the Gud8*ent o0 the .o4er 1ourt is a3r*ed, 4ith 1osts in
0avor o0 the ".aintiF# So ordered#