G.R. No.

L-15126
November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Vicente Formoso, Jr. for plaintiff-appellee.
Reyes and Pangalagan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of
Manila, Hon. Conrado M. Velasquez, presiding, sentencing the
defendants to pay the plaintiff the sum of P600, with legal
interest from September 10, 1953 until paid, and to pay the
costs.
The action is for the recovery of the value of a check for P600
payable to the plaintiff and drawn by defendant Anita C.
Gatchalian. The complaint sets forth the check and alleges
that plaintiff received it in payment of the indebtedness of one
Matilde Gonzales; that upon receipt of said check, plaintiff
gave Matilde Gonzales P158.25, the difference between the
face value of the check and Matilde Gonzales' indebtedness.
The defendants admit the execution of the check but they
allege in their answer, as affirmative defense, that it was
issued subject to a condition, which was not fulfilled, and that
plaintiff was guilty of gross negligence in not taking steps to
protect itself.
At the time of the trial, the parties submitted a stipulation of
facts, which reads as follows:
Plaintiff and defendants through their respective
undersigned attorney's respectfully submit the
following Agreed Stipulation of Facts;
First. That on or about 8 September 1953, in the
evening, defendant Anita C. Gatchalian who was then
interested in looking for a car for the use of her
husband and the family, was shown and offered a car
by Manuel Gonzales who was accompanied by Emil
Fajardo, the latter being personally known to
defendant Anita C. Gatchalian;
Second. That Manuel Gonzales represented to
defend Anita C. Gatchalian that he was duly
authorized by the owner of the car, Ocampo Clinic, to
look for a buyer of said car and to negotiate for and
accomplish said sale, but which facts were not known
to plaintiff;
Third. That defendant Anita C. Gatchalian, finding
the price of the car quoted by Manuel Gonzales to
her satisfaction, requested Manuel Gonzales to bring
the car the day following together with the certificate
of registration of the car, so that her husband would
be able to see same; that on this request of
defendant Anita C. Gatchalian, Manuel Gonzales
advised her that the owner of the car will not be
willing to give the certificate of registration unless
there is a showing that the party interested in the
purchase of said car is ready and willing to make
such purchase and that for this purpose Manuel
Gonzales requested defendant Anita C. Gatchalian to
give him (Manuel Gonzales) a check which will be
shown to the owner as evidence of buyer's good faith
in the intention to purchase the said car, the said
check to be for safekeeping only of Manuel Gonzales
and to be returned to defendant Anita C. Gatchalian
the following day when Manuel Gonzales brings the
car and the certificate of registration, but which facts
were not known to plaintiff;
Fourth. That relying on these representations of
Manuel Gonzales and with his assurance that said
check will be only for safekeeping and which will be

returned to said defendant the following day when

the car and its certificate of registration will be
brought by Manuel Gonzales to defendants, but
which facts were not known to plaintiff, defendant
Anita C. Gatchalian drew and issued a check, Exh.
"B"; that Manuel Gonzales executed and issued a
receipt for said check, Exh. "1";
Fifth. That on the failure of Manuel Gonzales to
appear the day following and on his failure to bring
the car and its certificate of registration and to return
the check, Exh. "B", on the following day as
previously agreed upon, defendant Anita C.
Gatchalian issued a "Stop Payment Order" on the
check, Exh. "3", with the drawee bank. Said "Stop
Payment Order" was issued without previous notice
on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to
know check was given to plaintiff;
Sixth. That defendants, both or either of them, did
not know personally Manuel Gonzales or any member
of his family at any time prior to September 1953,
but that defendant Hipolito Gatchalian is personally
acquainted with V. R. de Ocampo;
Seventh. That defendants, both or either of them,
had no arrangements or agreement with the Ocampo
Clinic at any time prior to, on or after 9 September
1953 for the hospitalization of the wife of Manuel
Gonzales and neither or both of said defendants had
assumed, expressly or impliedly, with the Ocampo
Clinic, the obligation of Manuel Gonzales or his wife
for the hospitalization of the latter;
Eight. That defendants, both or either of them, had
no obligation or liability, directly or indirectly with the
Ocampo Clinic before, or on 9 September 1953;
Ninth. That Manuel Gonzales having received the
check Exh. "B" from defendant Anita C. Gatchalian
under the representations and conditions herein
above specified, delivered the same to the Ocampo
Clinic, in payment of the fees and expenses arising
from the hospitalization of his wife;
Tenth. That plaintiff for and in consideration of fees
and expenses of hospitalization and the release of
the wife of Manuel Gonzales from its hospital,
accepted said check, applying P441.75 (Exhibit "A")
thereof to payment of said fees and expenses and
delivering to Manuel Gonzales the amount of P158.25
(as per receipt, Exhibit "D") representing the balance
on the amount of the said check, Exh. "B";
Eleventh. That the acts of acceptance of the check
and application of its proceeds in the manner
specified above were made without previous inquiry
by plaintiff from defendants:
Twelfth. That plaintiff filed or caused to be filed
with the Office of the City Fiscal of Manila, a
complaint for estafa against Manuel Gonzales based
on and arising from the acts of said Manuel Gonzales
in paying his obligations with plaintiff and receiving
the cash balance of the check, Exh. "B" and that said
complaint was subsequently dropped;
Thirteenth. That the exhibits mentioned in this
stipulation and the other exhibits submitted
previously, be considered as parts of this stipulation,
without necessity of formally offering them in
evidence;
WHEREFORE, it is most respectfully prayed that this
agreed stipulation of facts be admitted and that the
parties hereto be given fifteen days from today

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within which to submit simultaneously their

memorandum to discuss the issues of law arising
from the facts, reserving to either party the right to
submit reply memorandum, if necessary, within ten
days from receipt of their main memoranda. (pp. 2125, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation
the court rendered the judgment already alluded above.
In their appeal defendants-appellants contend that the check
is not a negotiable instrument, under the facts and
circumstances stated in the stipulation of facts, and that
plaintiff is not a holder in due course. In support of the first
contention, it is argued that defendant Gatchalian had no
intention to transfer her property in the instrument as it was
for safekeeping merely and, therefore, there was no delivery
required by law (Section 16, Negotiable Instruments Law);
that assuming for the sake of argument that delivery was not
for safekeeping merely, delivery was conditional and the
condition was not fulfilled.
In support of the contention that plaintiff-appellee is not a
holder in due course, the appellant argues that plaintiffappellee cannot be a holder in due course because there was
no negotiation prior to plaintiff-appellee's acquiring the
possession of the check; that a holder in due course
presupposes a prior party from whose hands negotiation
proceeded, and in the case at bar, plaintiff-appellee is the
payee, the maker and the payee being original parties. It is
also claimed that the plaintiff-appellee is not a holder in due
course because it acquired the check with notice of defect in
the title of the holder, Manuel Gonzales, and because under
the circumstances stated in the stipulation of facts there were
circumstances that brought suspicion about Gonzales'
possession and negotiation, which circumstances should have
placed the plaintiff-appellee under the duty, to inquire into the
title of the holder. The circumstances are as follows:
The check is not a personal check of Manuel
Gonzales. (Paragraph Ninth, Stipulation of Facts).
Plaintiff could have inquired why a person would use
the check of another to pay his own debt.
Furthermore, plaintiff had the "means of knowledge"
inasmuch as defendant Hipolito Gatchalian is
personally acquainted with V. R. de Ocampo
(Paragraph Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger
to Manuel Gonzales and Dr. V. R. de Ocampo
(Paragraph Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo
Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of
Facts.)
The check could not have been intended to pay the
hospital fees which amounted only to P441.75. The
check is in the amount of P600.00, which is in excess
of the amount due plaintiff. (Par. 10, Stipulation of
Facts).
It was necessary for plaintiff to give Manuel Gonzales
change in the sum P158.25 (Par. 10, Stipulation of
Facts). Since Manuel Gonzales is the party obliged to
pay, plaintiff should have been more cautious and
wary in accepting a piece of paper and disbursing
cold cash.
The check is payable to bearer. Hence, any person
who holds it should have been subjected to inquiries.
EVEN IN A BANK, CHECKS ARE NOT CASHED
WITHOUT INQUIRY FROM THE BEARER. The same
inquiries should have been made by plaintiff.
(Defendants-appellants' brief, pp. 52-53)

Answering the first contention of appellant, counsel for

plaintiff-appellee argues that in accordance with the best
authority on the Negotiable Instruments Law, plaintiffappellee may be considered as a holder in due course, citing
Brannan's Negotiable Instruments Law, 6th edition, page 252.
On this issue Brannan holds that a payee may be a holder in
due course and says that to this effect is the greater weight of
authority, thus:
Whether the payee may be a holder in due course
under the N. I. L., as he was at common law, is a
question upon which the courts are in serious
conflict. There can be no doubt that a proper
interpretation of the act read as a whole leads to the
conclusion that a payee may be a holder in due
course under any circumstance in which he meets
the requirements of Sec. 52.
The argument of Professor Brannan in an earlier
edition of this work has never been successfully
answered and is here repeated.
Section 191 defines "holder" as the payee or
indorsee of a bill or note, who is in possession of it, or
the bearer thereof. Sec. 52 defendants defines a
holder in due course as "a holder who has taken the
instrument under the following conditions: 1. That it
is complete and regular on its face. 2. That he
became the holder of it before it was overdue, and
without notice that it had been previously
dishonored, if such was the fact. 3. That he took it in
good faith and for value. 4. That at the time it was
negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person
negotiating it."
Since "holder", as defined in sec. 191, includes a
payee who is in possession the word holder in the
first clause of sec. 52 and in the second subsection
may be replaced by the definition in sec. 191 so as to
read "a holder in due course is a payee or indorsee
who is in possession," etc. (Brannan's on Negotiable
Instruments Law, 6th ed., p. 543).
The first argument of the defendants-appellants, therefore,
depends upon whether or not the plaintiff-appellee is a holder
in due course. If it is such a holder in due course, it is
immaterial that it was the payee and an immediate party to
the instrument.
The other contention of the plaintiff is that there has been no
negotiation of the instrument, because the drawer did not
deliver the instrument to Manuel Gonzales with the intention
of negotiating the same, or for the purpose of giving effect
thereto, for as the stipulation of facts declares the check was
to remain in the possession Manuel Gonzales, and was not to
be negotiated, but was to serve merely as evidence of good
faith of defendants in their desire to purchase the car being
sold to them. Admitting that such was the intention of the
drawer of the check when she delivered it to Manuel
Gonzales, it was no fault of the plaintiff-appellee drawee if
Manuel Gonzales delivered the check or negotiated it. As the
check was payable to the plaintiff-appellee, and was entrusted
to Manuel Gonzales by Gatchalian, the delivery to Manuel
Gonzales was a delivery by the drawer to his own agent; in
other words, Manuel Gonzales was the agent of the drawer
Anita Gatchalian insofar as the possession of the check is
concerned. So, when the agent of drawer Manuel Gonzales
negotiated the check with the intention of getting its value
from plaintiff-appellee, negotiation took place through no fault
of the plaintiff-appellee, unless it can be shown that the
plaintiff-appellee should be considered as having notice of the
defect in the possession of the holder Manuel Gonzales. Our

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resolution of this issue leads us to a consideration of the last

question presented by the appellants, i.e., whether the
plaintiff-appellee may be considered as a holder in due
course.
Section 52, Negotiable Instruments Law, defines holder in due
course, thus:
A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee
was not aware of the circumstances under which the check
was delivered to Manuel Gonzales, but we agree with the
defendants-appellants that the circumstances indicated by
them in their briefs, such as the fact that appellants had no
obligation or liability to the Ocampo Clinic; that the amount of
the check did not correspond exactly with the obligation of
Matilde Gonzales to Dr. V. R. de Ocampo; and that the check
had two parallel lines in the upper left hand corner, which
practice means that the check could only be deposited but
may not be converted into cash all these circumstances
should have put the plaintiff-appellee to inquiry as to the why
and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was
payee's duty to ascertain from the holder Manuel Gonzales
what the nature of the latter's title to the check was or the
nature of his possession. Having failed in this respect, we
must declare that plaintiff-appellee was guilty of gross neglect
in not finding out the nature of the title and possession of
Manuel Gonzales, amounting to legal absence of good faith,
and it may not be considered as a holder of the check in good
faith. To such effect is the consensus of authority.
In order to show that the defendant had "knowledge
of such facts that his action in taking the instrument
amounted to bad faith," it is not necessary to prove
that the defendant knew the exact fraud that was
practiced upon the plaintiff by the defendant's
assignor, it being sufficient to show that the
defendant had notice that there was something
wrong about his assignor's acquisition of title,
although he did not have notice of the particular
wrong that was committed. Paika v. Perry, 225 Mass.
563, 114 N.E. 830.
It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted
with fraud. It is not necessary that he should know
the particulars or even the nature of the fraud, since
all that is required is knowledge of such facts that his
action in taking the note amounted bad faith. Ozark
Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord.
Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought
by the thief, a boy fifteen years old, less than five
feet tall, immature in appearance and bearing on his
face the stamp a degenerate, to the defendants'
clerk for sale. The boy stated that they belonged to
his mother. The defendants paid the boy for the
bonds without any further inquiry. Held, the plaintiff
could recover the value of the bonds. The term 'bad
faith' does not necessarily involve furtive motives,
but means bad faith in a commercial sense. The

manner in which the defendants conducted their

Liberty Loan department provided an easy way for
thieves to dispose of their plunder. It was a case of
"no questions asked." Although gross negligence
does not of itself constitute bad faith, it is evidence
from which bad faith may be inferred. The
circumstances thrust the duty upon the defendants
to make further inquiries and they had no right to
shut their eyes deliberately to obvious facts. Morris v.
Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in
memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp.
640-642, Brannan's Negotiable Instruments Law, 6th
ed.).
The above considerations would seem sufficient to justify our
ruling that plaintiff-appellee should not be allowed to recover
the value of the check. Let us now examine the express
provisions of the Negotiable Instruments Law pertinent to the
matter to find if our ruling conforms thereto. Section 52 (c)
provides that a holder in due course is one who takes the
instrument "in good faith and for value;" Section 59, "that
every holder is deemed prima facie to be a holder in due
course;" and Section 52 (d), that in order that one may be a
holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of
any . . . defect in the title of the person negotiating it;" and
lastly Section 59, that every holder is deemed prima facieto
be a holder in due course.
In the case at bar the rule that a possessor of the instrument
is prima faciea holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales),
because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no
account with the payee; that the holder did not show or tell
the payee why he had the check in his possession and why he
was using it for the payment of his own personal account
show that holder's title was defective or suspicious, to say the
least. As holder's title was defective or suspicious, it cannot
be stated that the payee acquired the check without
knowledge of said defect in holder's title, and for this reason
the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And
having presented no evidence that it acquired the check in
good faith, it (payee) cannot be considered as a holder in due
course. In other words, under the circumstances of the case,
instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to
the title of the holder who negotiated the check to it. The
burden was, therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the
check in actual good faith.
The rule applicable to the case at bar is that described in the
case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120
At. 889, 894, where the Supreme Court of Vermont made the
following disquisition:
Prior to the Negotiable Instruments Act, two distinct
lines of cases had developed in this country. The first
had its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L.
215, where the rule was distinctly laid down by the
court of King's Bench that the purchaser of
negotiable paper must exercise reasonable prudence
and caution, and that, if the circumstances were such
as ought to have excited the suspicion of a prudent
and careful man, and he made no inquiry, he did not
stand in the legal position of a bona fide holder. The
rule was adopted by the courts of this country

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generally and seem to have become a fixed rule in

the law of negotiable paper. Later in Goodman v.
Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English
court abandoned its former position and adopted the
rule that nothing short of actual bad faith or fraud in
the purchaser would deprive him of the character of
a bona fide purchaser and let in defenses existing
between prior parties, that no circumstances of
suspicion merely, or want of proper caution in the
purchaser, would have this effect, and that even
gross negligence would have no effect, except as
evidence tending to establish bad faith or fraud.
Some of the American courts adhered to the earlier
rule, while others followed the change inaugurated in
Goodman v. Harvey. The question was before this
court in Roth v. Colvin, 32 Vt. 125, and, on full
consideration of the question, a rule was adopted in
harmony with that announced in Gill v. Cubitt, which
has been adhered to in subsequent cases, including
those cited above. Stated briefly, one line of cases
including our own had adopted the test of the
reasonably prudent man and the other that of actual
good faith. It would seem that it was the intent of the
Negotiable Instruments Act to harmonize this
disagreement by adopting the latter test. That such
is the view generally accepted by the courts appears
from a recent review of the cases concerning what
constitutes notice of defect. Brannan on Neg. Ins.
Law, 187-201. To effectuate the general purpose of
the act to make uniform the Negotiable Instruments
Law of those states which should enact it, we are
constrained to hold (contrary to the rule adopted in
our former decisions) that negligence on the part of
the plaintiff, or suspicious circumstances sufficient to
put a prudent man on inquiry, will not of themselves
prevent a recovery, but are to be considered merely
as evidence bearing on the question of bad faith. See
G. L. 3113, 3172, where such a course is required in
construing other uniform acts.
It comes to this then: When the case has taken such
shape that the plaintiff is called upon to prove
himself a holder in due course to be entitled to
recover, he is required to establish the conditions
entitling him to standing as such, including good
faith in taking the instrument. It devolves upon him
to disclose the facts and circumstances attending the
transfer, from which good or bad faith in the
transaction may be inferred.
In the case at bar as the payee acquired the check under
circumstances which should have put it to inquiry, why the
holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove
that it actually acquired said check in good faith. The
stipulation of facts contains no statement of such good faith,
hence we are forced to the conclusion that plaintiff payee has
not proved that it acquired the check in good faith and may
not be deemed a holder in due course thereof.
For the foregoing considerations, the decision appealed from
should be, as it is hereby, reversed, and the defendants are
absolved from the complaint. With costs against plaintiffappellee.
Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon and De Leon, JJ., concur.

CELY YANG, petitioner, vs. HON. COURT OF APPEALS,

PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, FAR EAST BANK & TRUST CO., EQUITABLE
BANKING CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, respondents.

DECISION
QUISUMBING, J.:
For review on certiorari is the decision[1] of the Court of
Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398,
which affirmed with modification the joint decision of the
Regional Trial Court (RTC) of Pasay City, Branch 117, dated
July 4, 1995, in Civil Cases Nos. 5479[2] and 5492.[3] The trial
court dismissed the complaint against herein respondents Far
East Bank & Trust Company (FEBTC), Equitable Banking
Corporation
(Equitable),
and
Philippine
Commercial
International Bank (PCIB) and ruled in favor of respondent
Fernando David as to the proceeds of the two cashiers checks,
including the earnings thereof pendente lite. Petitioner Cely
Yang was ordered to pay David moral damages
of P100,000.00 and attorneys fees also in the amount
of P100,000.00.
The facts of this case are not disputed, to wit:
On or before December 22, 1987, petitioner Cely Yang
and private respondent Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB
managers check in the amount of P4.2 million in exchange for
two (2) of Yangs managers checks, each in the amount
of P2.087 million, both payable to the order of private
respondent Fernando David. Yang and Chandiramani agreed
that the difference of P26,000.00 in the exchange would be
their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the
former would secure from FEBTC a dollar draft in the amount
of US$200,000.00, payable to PCIB FCDU Account No. 419501165-2, which Chandiramani would exchange for another
dollar draft in the same amount to be issued by Hang Seng
Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the
following:
a) Equitable Cashiers Check No. CCPS 14-009467 in
the sum of P2,087,000.00, dated December
22, 1987, payable to the order of Fernando
David;
b) FEBTC Cashiers Check No. 287078, in the
amount of P2,087,000.00, dated December
22, 1987, likewise payable to the order of
Fernando David; and

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c) FEBTC Dollar Draft No. 4771, drawn on Chemical

Bank, New York, in the amount of
US$200,000.00, dated December 22, 1987,
payable to PCIB FCDU Account No. 419501165-2.
At about one oclock in the afternoon of the same day,
Yang gave the aforementioned cashiers checks and dollar
drafts to her business associate, Albert Liong, to be delivered
to Chandiramani by Liongs messenger, Danilo Ranigo. Ranigo
was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over
Yangs cashiers checks and dollar draft to Chandiramani who,
in turn, would deliver to Ranigo a PCIB managers check in the
sum of P4.2 million and a Hang Seng Bank dollar draft for
US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and
Ranigo allegedly lost the two cashiers checks and the dollar
draft bought by petitioner. Ranigo reported the alleged loss of
the checks and the dollar draft to Liong at half past four in the
afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.
It transpired, however, that the checks and the dollar
draft were not lost, for Chandiramani was able to get hold of
said
instruments,
without
delivering
the
exchange
consideration consisting of the PCIB managers check and the
Hang Seng Bank dollar draft.
At three oclock in the afternoon or some two (2) hours
after Chandiramani and Ranigo were to meet in Makati City,
Chandiramani delivered to respondent Fernando David at
China Banking Corporation branch in San Fernando City,
Pampanga, the following: (a) FEBTC Cashiers Check No.
287078, dated December 22, 1987, in the sum of P2.087
million; and (b) Equitable Cashiers Check No. CCPS 14009467, dated December 22, 1987, also in the amount
of P2.087
million.
In
exchange,
Chandiramani
got
US$360,000.00 from David, which Chandiramani deposited in
the savings account of his wife, Pushpa Chandiramani; and his
mother, Rani Reynandas, who held FCDU Account No. 124
with the United Coconut Planters Bank branch in Greenhills,
San Juan, Metro Manila. Chandiramani also deposited FEBTC
Dollar Draft No. 4771, dated December 22, 1987, drawn upon
the Chemical Bank, New York for US$200,000.00 in PCIB FCDU
Account No. 4195-01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop
payment on the instruments she believed to be lost. Both
banks complied with her request, but upon the representation
of PCIB, FEBTC subsequently lifted the stop payment order on
FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB
FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a
Complaint[4] for injunction and damages against Equitable,
Chandiramani, and David, with prayer for a temporary
restraining order, with the Regional Trial Court of Pasay City.
The Complaint was docketed as Civil Case No. 5479. The
Complaint was subsequently amended to include a prayer for
Equitable to return to Yang the amount of P2.087 million, with
interest thereon until fully paid.[5]

On January 12, 1988, Yang filed a separate case for

injunction and damages, with prayer for a writ of preliminary
injunction against FEBTC, PCIB, Chandiramani and David, with
the RTC of Pasay City, docketed as Civil Case No. 5492. This
complaint was later amended to include a prayer that
defendants therein return to Yang the amount of P2.087
million, the value of FEBTC Dollar Draft No. 4771, with interest
at 18% annually until fully paid.[6]
On February 9, 1988, upon the filing of a bond by Yang,
the trial court issued a writ of preliminary injunction in Civil
Case No. 5479. A writ of preliminary injunction was
subsequently issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal
of the cases against him and for reconsideration of the Orders
granting the writ of preliminary injunction, but these motions
were denied. David then elevated the matter to the Court of
Appeals in a special civil action for certiorari docketed as CAG.R. SP No. 14843, which was dismissed by the appellate
court.
As Civil Cases Nos. 5479 and 5492 arose from the same
set of facts, the two cases were consolidated. The trial court
then conducted pre-trial and trial of the two cases, but the
proceedings had to be suspended after a fire gutted the Pasay
City Hall and destroyed the records of the courts.
After the records were reconstituted, the proceedings
resumed and the parties agreed that the money in dispute be
invested in Treasury Bills to be awarded in favor of the
prevailing side. It was also agreed by the parties to limit the
issues at the trial to the following:
1. Who, between David and Yang, is legally entitled
to the proceeds of Equitable Banking
Corporation (EBC) Cashiers Check No. CCPS 14009467 in the sum of P2,087,000.00 dated
December 22, 1987, and Far East Bank and
Trust Company (FEBTC) Cashiers Check No.
287078 in the sum of P2,087,000.00 dated
December 22, 1987, together with the earnings
derived therefrom pendente lite?
2. Are the defendants FEBTC and PCIB solidarily
liable to Yang for having allowed the
encashment of FEBTC Dollar Draft No. 4771, in
the sum of US$200,000.00 plus interest thereon
despite the stop payment order of Cely Yang?[7]
On July 4, 1995, the trial court handed down its decision
in Civil Cases Nos. 5479 and 5492, to wit:
WHEREFORE, the Court renders judgment in favor of
defendant Fernando David against the plaintiff Cely Yang and
declaring the former entitled to the proceeds of the two (2)
cashiers checks, together with the earnings derived
therefrom pendente lite; ordering the plaintiff to pay the
defendant Fernando David moral damages in the amount
of P100,000.00; attorneys fees in the amount of P100,000.00
and to pay the costs. The complaint against Far East Bank and
Trust Company (FEBTC), Philippine Commercial International
Bank (PCIB) and Equitable Banking Corporation (EBC) is
dismissed. The decision is without prejudice to whatever

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action plaintiff Cely Yang will file against defendant Prem

Chandiramani for reimbursement of the amounts received by
him from defendant Fernando David.
SO ORDERED.[8]
In finding for David, the trial court ratiocinated:
The evidence shows that defendant David was a holder in due
course for the reason that the cashiers checks were complete
on their face when they were negotiated to him. They were
not yet overdue when he became the holder thereof and he
had no notice that said checks were previously dishonored; he
took the cashiers checks in good faith and for value. He
parted some $200,000.00 for the two (2) cashiers checks
which were given to defendant Chandiramani; he had also no
notice of any infirmity in the cashiers checks or defect in the
title of the drawer. As a matter of fact, he asked the manager
of the China Banking Corporation to inquire as to the
genuineness of the cashiers checks (tsn, February 5, 1988, p.
21, September 20, 1991, pp. 13-14). Another proof that
defendant David is a holder in due course is the fact that the
stop payment order on [the] FEBTC cashiers check was lifted
upon his inquiry at the head office (tsn, September 20, 1991,
pp. 24-25). The apparent reason for lifting the stop payment
order was because of the fact that FEBTC realized that the
checks were not actually lost but indeed reached the payee
defendant David.[9]

David had no notice, real or constructive, cogent for him to

make further inquiry as to any infirmity in the instrument(s)
and defect of title of the holder. To mandate that each holder
inquire about every aspect on how the instrument came about
will
unduly
impede
commercial
transactions,
Although negotiable instruments do not constitute legal
tender, they often take the place of money as a means
of payment.
The mere fact that David and Chandiramani knew one another
for a long time is not sufficient to establish that they connived
with each other to defraud Yang. There was no concrete proof
presented by Yang to support her theory. [11]
The appellate court awarded P25,000.00 in attorneys
fees to PCIB as it found the action filed by Yang against said
bank to be clearly unfounded and baseless. Since PCIB was
compelled to litigate to protect itself, then it was entitled
under Article 2208[12] of the Civil Code to attorneys fees and
litigation expenses.
Hence, the instant recourse wherein petitioner submits
the following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM
CHANDIRAMANI BY PETITIONER;
b

- WHETHER THE ALLEGED TRANSACTION

BETWEEN
PREM
CHANDIRAMANI
AND
FERNANDO DAVID IS LEGITIMATE OR A
SCHEME BY BOTH PRIVATE RESPONDENTS
TO SWINDLE PETITIONER;

In the belief that the trial court misunderstood the

concept of a holder in due course and misapprehended the
factual milieu, Yang seasonably filed an appeal with the Court
of Appeals, docketed as CA-G.R. CV No. 52398.

- WHETHER FERNANDO DAVID GAVE PREM

CHANDIRAMANI US$360,000.00 OR JUST A
FRACTION OF THE AMOUNT REPRESENTING
HIS SHARE OF THE LOOT;

On March 25, 1999, the appellate court decided CA-G.R.

CV No. 52398 in this wise:

d - WHETHER PRIVATE RESPONDENTS FERNANDO

DAVID AND PCIB ARE ENTITLED TO
DAMAGES AND ATTORNEYS FEES.[13]

Yang then moved for reconsideration of the RTC

judgment, but the trial court denied her motion in its Order of
September 20, 1995.

WHEREFORE, this court AFFIRMS the judgment of the lower

court with modification and hereby orders the plaintiffappellant to pay defendant-appellant PCIB the amount
of Twenty-Five Thousand Pesos (P25,000.00).
SO ORDERED.[10]
In affirming the trial courts judgment with respect to
herein respondent David, the appellate court found that:
In this case, defendant-appellee had taken the necessary
precautions to verify, through his bank, China Banking
Corporation, the genuineness of whether (sic) the cashiers
checks he received from Chandiramani. As no stop payment
order was made yet (at) the time of the inquiry, defendantappellee had no notice of what had transpired earlier between
the plaintiff-appellant and Chandiramani. All he knew was that
the checks were issued to Chandiramani with whom he was
he had (sic) a transaction. Further on, David received the
checks in question in due course because Chandiramani, who
at the time the checks were delivered to David, was acting as
Yangs agent.

At the outset, we must stress that this is a petition for

review under Rule 45 of the 1997 Rules of Civil Procedure. It is
basic that in petitions for review under Rule 45, the
jurisdiction of this Court is limited to reviewing questions of
law, questions of fact are not entertained absent a showing
that the factual findings complained of are totally devoid of
support in the record or are glaringly erroneous. [14] Given the
facts in the instant case, despite petitioners formulation, we
find that the following are the pertinent issues to be resolved:
a) Whether the Court of Appeals erred in holding
herein respondent Fernando David to be a
holder in due course; and
b) Whether the appellate court committed a
reversible error in awarding damages and
attorneys fees to David and PCIB.
On the first issue, petitioner Yang contends that private
respondent Fernando David is not a holder in due course of
the checks in question. While it is true that he was named the

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payee thereof, David failed to inquire from Chandiramani

about how the latter acquired possession of said checks.
Given his failure to do so, it cannot be said that David was
unaware of any defect or infirmity in the title of Chandiramani
to the checks at the time of their negotiation. Moreover,
inasmuch as the checks were crossed, then David should
have, pursuant to our ruling in Bataan Cigar & Cigarette
Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3,
1994, 230 SCRA 643, been put on guard that the checks were
issued for a definite purpose and accordingly, made inquiries
to determine if he received the checks pursuant to that
purpose. His failure to do so negates the finding in the
proceedings below that he was a holder in due course.
Finally, the petitioner argues that there is no showing
whatsoever that David gave Chandiramani any consideration
of value in exchange for the aforementioned checks.
Private respondent Fernando David counters that the
evidence on record shows that when he received the checks,
he verified their genuineness with his bank, and only after
said verification did he deposit them. David stresses that he
had no notice of previous dishonor or any infirmity that would
have aroused his suspicions, the instruments being complete
and regular upon their face. David stresses that the checks in
question were cashiers checks. From the very nature of
cashiers checks, it is highly unlikely that he would have
suspected that something was amiss. David also stresses
negotiable instruments are presumed to have been issued for
valuable consideration, and he who alleges otherwise must
controvert the presumption with sufficient evidence. The
petitioner failed to discharge this burden, according to
David. He points out that the checks were delivered to him as
the payee, and he took them as holder and payee thereof.
Clearly, he concludes, he should be deemed to be their holder
in due course.
We shall now resolve the first issue.
Every
holder
of
a
negotiable
instrument
is
deemed prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a holder as
defined in Section 191 of the Negotiable Instruments Law,
[15]
meaning a payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.
In the present case, it is not disputed that David was the
payee of the checks in question. The weight of authority
sustains the view that a payee may be a holder in due course.
[16]
Hence, the presumption that he is a prima facie holder in
due course applies in his favor. However, said presumption
may be rebutted. Hence, what is vital to the resolution of this
issue is whether David took possession of the checks under
the conditions provided for in Section 52 [17] of the Negotiable
Instruments Law. All the requisites provided for in Section 52
must concur in Davids case, otherwise he cannot be deemed
a holder in due course.
We find that the petitioners challenge to Davids status
as a holder in due course hinges on two arguments: (1) the
lack of proof to show that David tendered any valuable
consideration for the disputed checks; and (2) Davids failure
to inquire from Chandiramani as to how the latter acquired
possession of the checks, thus resulting in Davids intentional
ignorance tantamount to bad faith. In sum, petitioner posits

that the last two requisites of Section 52 are missing, thereby

preventing David from being considered a holder in due
course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.
First, with respect to consideration, Section 24 [18] of the
Negotiable Instruments Law creates a presumption that every
party to an instrument acquired the same for a
consideration[19] or for value.[20] Thus, the law itself creates a
presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise,
the petitioner has the onus to prove that David got hold of the
checks absent said consideration. In other words, the
petitioner must present convincing evidence to overthrow the
presumption. Our scrutiny of the records, however, shows that
the petitioner failed to discharge her burden of proof. The
petitioners averment that David did not give valuable
consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it. Note
that both the trial court and the appellate court found that
David did not receive the checks gratis, but instead gave
Chandiramani US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court;
they carry great weight when the factual findings of the trial
court are affirmed by the appellate court.[21]
Second, petitioner fails to point any circumstance which
should have put David on inquiry as to the why and wherefore
of the possession of the checks by Chandiramani. David was
not privy to the transaction between petitioner and
Chandiramani. Instead, Chandiramani and David had a
separate dealing in which it was precisely Chandiramanis duty
to deliver the checks to David as payee. The evidence shows
that Chandiramani performed said task to the letter. Petitioner
admits that David took the step of asking the manager of his
bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after
being assured that there was nothing wrong with said checks.
At that time, David was not aware of any stop payment order.
Under these circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the latters
title to the checks was, if any, or the nature of his possession.
Thus, we cannot hold him guilty of gross neglect amounting to
legal absence of good faith, absent any showing that there
was something amiss about Chandiramanis acquisition or
possession of the checks. David did not close his eyes
deliberately to the nature or the particulars of a fraud
allegedly committed by Chandiramani upon the petitioner,
absent any knowledge on his part that the action in taking the
instruments amounted to bad faith.[22]
Belatedly, and we say belatedly since petitioner did not
raise this matter in the proceedings below, petitioner now
claims that David should have been put on alert as the
instruments in question were crossed checks. Pursuant
to Bataan Cigar & Cigarette Factory, Inc. v. Court of
Appeals, David should at least have inquired as to whether he
was acquiring said checks for the purpose for which they were
issued, according to petitioners submission.
Petitioners reliance on the Bataan Cigar case, however,
is misplaced. The facts in the present case are not on all fours
with Bataan Cigar. In the latter case, the crossed checks were
negotiated and sold at a discount by the payee, while in the

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instant case, the payee did not negotiate further the checks in
question but promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect to
crossed checks, although the Code of Commerce [23] makes
reference to such instruments. Nonetheless, this Court has
taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could
only be deposited and not converted into cash.[24] The effects
of crossing a check, thus, relates to the mode of payment,
meaning that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein.
In Bataan Cigar, the rediscounting of the check by the payee
knowingly violated the avowed intention of crossing the
check. Thus, in accepting the cross checks and paying cash
for them, despite the warning of the crossing, the subsequent
holder could not be considered in good faith and thus, not a
holder in due course. Our ruling in Bataan Cigar reiterates that
in De Ocampo & Co. v. Gatchalian.[25]

A careful reading of the findings of facts made by both

the trial court and appellate court clearly shows that the
petitioner, in including David as a party in these proceedings,
is barking up the wrong tree. It is apparent from the factual
findings that David had no dealings with the petitioner and
was not privy to the agreement of the latter with
Chandiramani. Moreover, any loss which the petitioner
incurred was apparently due to the acts or omissions of
Chandiramani, and hence, her recourse should have been
against him and not against David. By needlessly dragging
David into this case all because he and Chandiramani knew
each other, the petitioner not only unduly delayed David from
obtaining the value of the checks, but also caused him anxiety
and injured his business reputation while waiting for its
outcome. Recall that under Article 2217[27] of the Civil Code,
moral damages include mental anguish, serious anxiety,
besmirched reputation, wounded feelings, social humiliation,
and similar injury. Hence, we find the award of moral damages
to be in order.

The factual circumstances in De Ocampo and in Bataan

Cigar are not present in this case. For here, there is no dispute
that the crossed checks were delivered and duly deposited by
David, the payee named therein, in his bank account. In other
words, the purpose behind the crossing of the checks was
satisfied by the payee.

The appellate court likewise found that like David, PCIB

was dragged into this case on unfounded and baseless
grounds. Both were thus compelled to litigate to protect their
interests, which makes an award of attorneys fees justified
under Article 2208 (2)[28] of the Civil Code. Hence, we rule that
the award of attorneys fees to David and PCIB was proper.

Proceeding to the issue of damages, petitioner merely

argues that respondents David and PCIB are not entitled to
damages, attorneys fees, and costs of suit as both acted in
bad faith towards her, as shown by her version of the facts
which gave rise to the instant case.

WHEREFORE, the instant petition is DENIED. The

assailed decision of the Court of Appeals, dated March 25,
1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the
petitioner.
SO ORDERED.

Respondent David counters that he was maliciously and

unceremoniously dragged into this suit for reasons which have
nothing to do with him at all, but which arose from petitioners
failure to receive her share of the profit promised her by
Chandiramani. Moreover, in filing this suit which has lasted for
over a decade now, the petitioner deprived David of the
rightful enjoyment of the two checks, to which he is entitled,
under the law, compelled him to hire the services of counsel
to vindicate his rights, and subjected him to social humiliation
and besmirched reputation, thus harming his standing as a
person of good repute in the business community of
Pampanga. David thus contends that it is but proper that
moral damages, attorneys fees, and costs of suit be awarded
him.
For its part, respondent PCIB stresses that it was
established by both the trial court and the appellate court that
it was needlessly dragged into this case. Hence, no error was
committed by the appellate court in declaring PCIB entitled to
attorneys fees as it was compelled to litigate to protect itself.
We have thoroughly perused the records of this case and
find no reason to disagree with the finding of the trial court, as
affirmed by the appellate court, that:
[D]efendant David is entitled to [the] award of moral damages
as he has been needlessly and unceremoniously dragged into
this case which should have been brought only between the
plaintiff and defendant Chandiramani.[26]

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT,
HON. ARSENIO M. GONONG, in his capacity as Judge of
Regional Trial Court Manila (Branch VIII), JOSE GO,
and ALBERT UY, respondents.

PARAS, J.:
This is an appeal by certiorari from the decision of the then
Intermediate Appellate Court (IAC for short), now the Court of
Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which
dismissed the petition for certiorari and prohibition filed by
Marcelo A. Mesina against the trial court in Civil Case No. 8422515. Said case (an Interpleader) was filed by Associated
Bank against Jose Go and Marcelo A. Mesina regarding their
conflicting claims over Associated Bank Cashier's Check No.
011302 for P800,000.00, dated December 29, 1983.
Briefly, the facts and statement of the case are as follows:

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Respondent Jose Go, on December 29, 1983, purchased from

Associated Bank Cashier's Check No. 011302 for P800,000.00.
Unfortunately, Jose Go left said check on the top of the desk of
the bank manager when he left the bank. The bank manager
entrusted the check for safekeeping to a bank official, a
certain Albert Uy, who had then a visitor in the person of
Alexander Lim. Uy had to answer a phone call on a nearby
telephone after which he proceeded to the men's room. When
he returned to his desk, his visitor Lim was already gone.
When Jose Go inquired for his cashier's check from Albert Uy,
the check was not in his folder and nowhere to be found. The
latter advised Jose Go to go to the bank to accomplish a
"STOP PAYMENT" order, which suggestion Jose Go immediately
followed. He also executed an affidavit of loss. Albert Uy went
to the police to report the loss of the check, pointing to the
person of Alexander Lim as the one who could shed light on it.
The records of the police show that Associated Bank received
the lost check for clearing on December 31, 1983, coming
from Prudential Bank, Escolta Branch. The check was
immediately dishonored by Associated Bank by sending it
back to Prudential Bank, with the words "Payment Stopped"
stamped on it. However, the same was again returned to
Associated Bank on January 4, 1984 and for the second time it
was dishonored. Several days later, respondent Associated
Bank received a letter, dated January 9, 1984, from a certain
Atty. Lorenzo Navarro demanding payment on the cashier's
check in question, which was being held by his client. He
however refused to reveal the name of his client and
threatened to sue, if payment is not made. Respondent bank,
in its letter, dated January 20, 1984, replied saying the check
belonged to Jose Go who lost it in the bank and is laying claim
to it.
On February 1, 1984, police sent a letter to the Manager of
the Prudential Bank, Escolta Branch, requesting assistance in
Identifying the person who tried to encash the check but said
bank refused saying that it had to protect its client's interest
and the Identity could only be revealed with the client's
conformity. Unsure of what to do on the matter, respondent
Associated Bank on February 2, 1984 filed an action for
Interpleader naming as respondent, Jose Go and one John
Doe, Atty. Navarro's then unnamed client. On even date,
respondent bank received summons and copy of the
complaint for damages of a certain Marcelo A. Mesina from
the Regional Trial Court (RTC) of Caloocan City filed on January
23, 1984 bearing the number C-11139. Respondent bank
moved to amend its complaint, having been notified for the
first time of the name of Atty. Navarro's client and substituted
Marcelo A. Mesina for John Doe. Simultaneously, respondent
bank, thru representative Albert Uy, informed Cpl. Gimao of
the Western Police District that the lost check of Jose Go is in
the possession of Marcelo Mesina, herein petitioner. When Cpl.
Gimao went to Marcelo Mesina to ask how he came to possess
the check, he said it was paid to him by Alexander Lim in a
"certain transaction" but refused to elucidate further. An
information for theft (Annex J) was instituted against
Alexander Lim and the corresponding warrant for his arrest
was issued (Annex 6-A) which up to the date of the filing of
this instant petition remains unserved because of Alexander
Lim's successful evation thereof.
Meanwhile, Jose Go filed his answer on February 24, 1984 in
the Interpleader Case and moved to participate as intervenor
in the complain for damages. Albert Uy filed a motion of
intervention and answer in the complaint for Interpleader. On

the Scheduled date of pretrial conference inthe interpleader

case, it was disclosed that the "John Doe" impleaded as one of
the defendants is actually petitioner Marcelo A. Mesina.
Petitioner instead of filing his answer to the complaint in the
interpleader filed on May 17, 1984 an Omnibus Motion to
Dismiss Ex Abudante Cautela alleging lack of jurisdiction in
view of the absence of an order to litigate, failure to state a
cause of action and lack of personality to sue. Respondent
bank in the other civil case (CC-11139) for damages moved to
dismiss suit in view of the existence already of the
Interpleader case.
The trial court in the interpleader case issued an order dated
July 13, 1984, denying the motion to dismiss of petitioner
Mesina and ruling that respondent bank's complaint
sufficiently pleaded a cause of action for itnerpleader.
Petitioner filed his motion for reconsideration which was
denied by the trial court on September 26, 1984. Upon motion
for respondent Jose Go dated October 31, 1984, respondent
judge issued an order on November 6, 1984, declaring
petitioner in default since his period to answer has already
expirecd and set the ex-parte presentation of respondent
bank's evidence on November 7, 1984.
Petitioner Mesina filed a petition for certioari with preliminary
injunction with IAC to set aside 1) order of respondent court
denying his omnibus Motion to Dismiss 2) order of 3) the order
of default against him.
On January 22, 1985, IAC rendered its decision dimissing the
petition for certiorari. Petitioner Mesina filed his Motion for
Reconsideration which was also denied by the same court in
its resolution dated February 18, 1985.
Meanwhile, on same date (February 18, 1985), the trial court
in Civil Case #84-22515 (Interpleader) rendered a decisio, the
dispositive portion reading as follows:
WHEREFORE, in view of the foregoing,
judgment is hereby rendered ordering
plaintiff Associate Bank to replace Cashier's
Check No. 011302 in favor of Jose Go or its
cas equivalent with legal rate of itnerest
from date of complaint, and with costs of
suit against the latter.
SO ORDERED.
On March 29, 1985, the trial court in Civil
Case No. C-11139, for damages, issued an
order, the pertinent portion of which states:
The records of this case show that on
August 20, 1984 proceedings in this case
was (were) ordered suspended because the
main issue in Civil Case No. 84-22515 and in
this instant case are the same which is: who
between Marcelo Mesina and Jose Go is
entitled to payment of Associated Bank's
Cashier's Check No. CC-011302? Said issue
having been resolved already in Civil casde
No. 84-22515, really this instant case has
become moot and academic.

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WHEREFORE, in view of the foregoing, the

motion sholud be as it is hereby granted and
this case is ordered dismissed.
In view of the foregoing ruling no more
action should be taken on the "Motion For
Reconsideration (of the order admitting the
Intervention)" dated June 21, 1984 as well
as the Motion For Reconsideration dated
September 10, 1984.
SO ORDERED.
Petitioner now comes to Us, alleging that:
1. IAC erred in ruling that a cashier's check can be
countermanded even in the hands of a holder in due course.
2. IAC erred in countenancing the filing and maintenance of an
interpleader suit by a party who had earlier been sued on the
same claim.
3. IAC erred in upholding the trial court's order declaring
petitioner as in default when there was no proper order for
him to plead in the interpleader complaint.
4. IAC went beyond the scope of its certiorari jurisdiction by
making findings of facts in advance of trial.
Petitioner now interposes the following prayer:
1. Reverse the decision of the IAC, dated January 22, 1985
and set aside the February 18, 1985 resolution denying the
Motion for Reconsideration.
2. Annul the orders of respondent Judge of RTC Manila giving
due course to the interpleader suit and declaring petitioner in
default.
Petitioner's allegations hold no water. Theories and examples
advanced by petitioner on causes and effects of a cashier's
check such as 1) it cannot be countermanded in the hands of
a holder in due course and 2) a cashier's check is a bill of
exchange drawn by the bank against itself-are general
principles which cannot be aptly applied to the case at bar,
without considering other things. Petitioner failed to
substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of
the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the
check. He refused to say how and why it was passed to him.
He had therefore notice of the defect of his title over the
check from the start. The holder of a cashier's check who is
not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. If a payee of a
cashier's check obtained it from the issuing bank by fraud, or
if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have
the right to refuse payment of the check when presented by
the payee, since respondent bank was aware of the facts
surrounding the loss of the check in question. Moreover, there
is no similarity in the cases cited by petitioner since
respondent bank did not issue the cashier's check in payment

of its obligation. Jose Go bought it from respondent bank for

purposes of transferring his funds from respondent bank to
another bank near his establishment realizing that carrying
money in this form is safer than if it were in cash. The check
was Jose Go's property when it was misplaced or stolen, hence
he stopped its payment. At the outset, respondent bank knew
it was Jose Go's check and no one else since Go had not paid
or indorsed it to anyone. The bank was therefore liable to
nobody on the check but Jose Go. The bank had no intention
to issue it to petitioner but only to buyer Jose Go. When
payment on it was therefore stopped, respondent bank was
not the one who did it but Jose Go, the owner of the check.
Respondent bank could not be drawer and drawee for clearly,
Jose Go owns the money it represents and he is therefore the
drawer and the drawee in the same manner as if he has a
current account and he issued a check against it; and from the
moment said cashier's check was lost and/or stolen no one
outside of Jose Go can be termed a holder in due course
because Jose Go had not indorsed it in due course. The check
in question suffers from the infirmity of not having been
properly negotiated and for value by respondent Jose Go who
as already been said is the real owner of said instrument.
In his second assignment of error, petitioner stubbornly insists
that there is no showing of conflicting claims and interpleader
is out of the question. There is enough evidence to establish
the contrary. Considering the aforementioned facts and
circumstances, respondent bank merely took the necessary
precaution not to make a mistake as to whom to pay and
therefore interpleader was its proper remedy. It has been
shown that the interpleader suit was filed by respondent bank
because petitioner and Jose Go were both laying their claims
on the check, petitioner asking payment thereon and Jose Go
as the purchaser or owner. The allegation of petitioner that
respondent bank had effectively relieved itself of its primary
liability under the check by simply filing a complaint for
interpleader is belied by the willingness of respondent bank to
issue a certificate of time deposit in the amount of P800,000
representing the cashier's check in question in the name of
the Clerk of Court of Manila to be awarded to whoever wig be
found by the court as validly entitled to it. Said validity will
depend on the strength of the parties' respective rights and
titles thereto. Bank filed the interpleader suit not because
petitioner sued it but because petitioner is laying claim to the
same check that Go is claiming. On the very day that the bank
instituted the case in interpleader, it was not aware of any suit
for damages filed by petitioner against it as supported by the
fact that the interpleader case was first entitled Associated
Bank vs. Jose Go and John Doe, but later on changed to
Marcelo A. Mesina for John Doe when his name became known
to respondent bank.
In his third assignment of error, petitioner assails the then
respondent IAC in upholding the trial court's order declaring
petitioner in default when there was no proper order for him
to plead in the interpleader case. Again, such contention is
untenable. The trial court issued an order, compelling
petitioner and respondent Jose Go to file their Answers setting
forth their respective claims. Subsequently, a Pre-Trial
Conference was set with notice to parties to submit position
papers. Petitioner argues in his memorandum that this order
requiring petitioner to file his answer was issued without
jurisdiction alleging that since he is presumably a holder in
due course and for value, how can he be compelled to litigate
against Jose Go who is not even a party to the check? Such
argument is trite and ridiculous if we have to consider that

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neither his name or Jose Go's name appears on the check.

Following such line of argument, petitioner is not a party to
the check either and therefore has no valid claim to the
Check. Furthermore, the Order of the trial court requiring the
parties to file their answers is to all intents and purposes an
order to interplead, substantially and essentially and therefore
in compliance with the provisions of Rule 63 of the Rules of
Court. What else is the purpose of a law suit but to litigate?
The records of the case show that respondent bank had to
resort to details in support of its action for Interpleader. Before
it resorted to Interpleader, respondent bank took an
precautionary and necessary measures to bring out the truth.
On the other hand, petitioner concealed the circumstances
known to him and now that private respondent bank brought
these circumstances out in court (which eventually rendered
its decision in the light of these facts), petitioner charges it
with
"gratuitous
excursions
into
these
non-issues."
Respondent IAC cannot rule on whether respondent RTC
committed an abuse of discretion or not, without being
apprised of the facts and reasons why respondent Associated
Bank instituted the Interpleader case. Both parties were given
an opportunity to present their sides. Petitioner chose to
withhold substantial facts. Respondents were not forbidden to
present their side-this is the purpose of the Comment of
respondent to the petition. IAC decided the question by
considering both the facts submitted by petitioner and those
given by respondents. IAC did not act therefore beyond the
scope of the remedy sought in the petition.

WHEREFORE, finding that the instant petition is merely

dilatory, the same is hereby denied and the assailed orders of
the respondent court are hereby AFFIRMED in toto.
SO ORDERED.

G.R. No. 187769

June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN
III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari 1 under Rule 45
of the Revised Rules of Court is the decision2 dated September
24, 2008 and the resolution 3 dated April 30, 2009 of the Court
of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court
affirmed the decision of the Regional Trial Court (RTC) of
Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio
Marasigan III (Marasigan) the sum of P200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly
summarized below.
The petitioner and the respondent Napoleon Gutierrez
(Gutierrez) entered into a business venture under the name of
Slam Dunk Corporation (Slum Dunk), a production outfit that
produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional
basketball player while Gutierrez was a well-known sports
columnist.
In the course of their business, the petitioner pre-signed
several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payees name, date or
amount. The blank checks were entrusted to Gutierrez with
the specific instruction not to fill them out without previous
notification to and approval by the petitioner. According to
petitioner, the arrangement was made so that he could verify
the validity of the payment and make the proper
arrangements to fund the account.
In the middle of 1993, without the petitioners knowledge and
consent, Gutierrez went to Marasigan (the petitioners former
teammate), to secure a loan in the amount of P200,000.00 on
the excuse that the petitioner needed the money for the
construction of his house. In addition to the payment of the
principal, Gutierrez assured Marasigan that he would be paid
an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his
relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez request and gave him P200,000.00
sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner
pre-signed with Pilipinas Bank, Greenhills Branch, Check No.
21001764 with the blank portions filled out with the words
"Cash" "Two Hundred Thousand Pesos Only", and the amount
of "P200,000.00". The upper right portion of the check
corresponding to the date was also filled out with the words
"May 23, 1994" but the petitioner contended that the same
was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was
dishonored for the reason "ACCOUNT CLOSED." It was later
revealed that petitioners account with the bank had been
closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He
thereafter sent several demand letters to the petitioner asking
for the payment of P200,000.00, but his demands likewise
went unheeded. Consequently, he filed a criminal case for
violation of B.P. 22 against the petitioner, docketed as
Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the
Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez
and co-respondent Marasigan. He completely denied
authorizing the loan or the checks negotiation, and asserted
that he was not privy to the parties loan agreement.

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Only Marasigan filed his answer to the complaint. In the RTCs

order dated December 22, 1997,Gutierrez was declared in
default.

was not a holder in due course; and (6) by reason of the bad
faith in the dealings between the respondents, he is entitled
to claim for damages.

The Ruling of the RTC

The Issues

The RTC ruled on February 3,2003 in favor of Marasigan. 4 It

found that the petitioner, in issuing the pre-signed blank
checks, had the intention of issuing a negotiable instrument,
albeit with specific instructions to Gutierrez not to negotiate or
issue the check without his approval. While under Section 14
of the Negotiable Instruments Law Gutierrez had the prima
facie authority to complete the checks by filling up the blanks
therein, the RTC ruled that he deliberately violated petitioners
specific instructions and took advantage of the trust reposed
in him by the latter.

Reduced to its basics, the case presents to us the following

issues:

Nonetheless, the RTC declared Marasigan as a holder in due

course and accordingly dismissed the petitioners complaint
for declaration of nullity of the loan. It ordered the petitioner
to pay Marasigan the face value of the check with a right to
claim reimbursement from Gutierrez.

1. Whether the contract of loan in the amount

of P200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be
nullified for being void;
2. Whether there is basis to hold the petitioner liable
for the payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely
filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.

The petitioner elevated the case to the Court of Appeals (CA),

insisting that Marasigan is not a holder in due course. He
contended that when Marasigan received the check, he knew
that the same was without a date, and hence, incomplete. He
also alleged that the loan was actually between Marasigan
and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling,
although premised on different factual findings. After careful
analysis, the CA agreed with the petitioner that Marasigan is
not a holder in due course as he did not receive the check in
good faith.
The CA also concluded that the check had been strictly filled
out by Gutierrez in accordance with the petitioners authority.
It held that the loan may not be nullified since it is grounded
on an obligation arising from law and ruled that the petitioner
is still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for
reconsideration that followed, the petitioner filed the present
petition for review on certiorari under Rule 45 of the Revised
Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him
and Marasigan since he never authorized the borrowing of
money nor the checks negotiation to the latter; (2) under
Article 1878 of the Civil Code, a special power of attorney is
necessary for an individual to make a loan or borrow money in
behalf of another; (3) the loan transaction was between
Gutierrez and Marasigan, with his check being used only as a
security; (4) the check had not been completely and strictly
filled out in accordance with his authority since the condition
that the subject check can only be used provided there is prior
approval from him, was not complied with; (5) even if the
check was strictly filled up as instructed by the petitioner,
Marasigan is still not entitled to claim the checks value as he

The Courts Ruling

The petition is impressed with merit.
We note at the outset that the issues raised in this petition are
essentially factual in nature. The main point of inquiry of
whether the contract of loan may be nullified, hinges on the
very existence of the contract of loan a question that, as
presented, is essentially, one of fact. Whether the petitioner
authorized the borrowing; whether Gutierrez completely filled
out the subject check strictly under the petitioners authority;
and whether Marasigan is a holder in due course are also
questions of fact, that, as a general rule, are beyond the
scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an
appeal by certiorari, as a petition for review under Rule 45 is
limited only to questions of law, is not an absolute rule that
admits of no exceptions. One notable exception is when the
findings off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present
case, the tribunals below arrived at two conflicting factual
findings, albeit with the same conclusion, i.e., dismissal of the
complaint for nullity of the loan. Accordingly, we will examine
the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the
ground that he never authorized the borrowing of money. He
points to Article 1878, paragraph 7 of the Civil Code, which
explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that
absent such authority in writing, he should not be held liable
for the face value of the check because he was not a party or
privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a
Specific Form

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Article 1868 of the Civil Code defines a contract of agency as

a contract whereby a person "binds himself to render some
service or to do something in representation or on behalf of
another, with the consent or authority of the latter." Agency
may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf
without authority.

A review of the records reveals that Gutierrez did not have

any authority to borrow money in behalf of the
petitioner.1wphi1 Records do not show that the petitioner
executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed that he
never authorized Gutierrez (or anyone for that matter),
whether verbally or in writing, to borrow money in his behalf,
nor was he aware of any such transaction:

As a general rule, a contract of agency may be oral. 6 However,

it must be written when the law requires a specific form, for
example, in a sale of a piece of land or any interest therein
through an agent.

ALVIN PATRIMONIO (witness)

Article 1878 paragraph 7 of the Civil Code expressly requires a

special power of authority before an agent can loan or borrow
money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the
following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent
and indispensable for the preservation of the things which are
under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As
long as the mandate is express, such authority may be either
oral or written. We unequivocably declared in Lim Pin v. Liao
Tian, et al.,7 that the requirement under Article 1878 of the
Civil Code refers to the nature of the authorization and not to
its form. Be that as it may, the authority must be duly
established by competent and convincing evidence other than
the self serving assertion of the party claiming that such
authority was verbally given, thus:
The requirements of a special power of attorney in Article
1878 of the Civil Code and of a special authority in Rule 138 of
the Rules of Court refer to the nature of the authorization and
not its form. The requirements are met if there is a clear
mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong
v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate
may be either oral or written, the one vital thing being that it
shall be express. And more recently, We stated that, if the
special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the
litigation of their clients, a special authority. And while the
same does not state that the special authority be in writing
the Court has every reason to expect that, if not in writing, the
same be duly established by evidence other than the selfserving assertion of counsel himself that such authority was
verbally given him.(Home Insurance Company vs. United
States lines Company, et al., 21 SCRA 863; 866: Vicente vs.
Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the
Petitioner Should be Nullified for Being Void; Petitioner is Not
Bound by the Contract of Loan.

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power
of Attorney in writing authorizing him to borrow using your
money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p.
105)8
xxxx
Marasigan however submits that the petitioners acts of presigning the blank checks and releasing them to Gutierrez
suffice to establish that the petitioner had authorized
Gutierrez to fill them out and contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter
into a contract of loan in behalf of the petitioner. As held in
Yasuma v. Heirs of De Villa, 9 involving a loan contracted by de
Villa secured by real estate mortgages in the name of East
Cordillera Mining Corporation, in the absence of an SPA
conferring authority on de Villa, there is no basis to hold the
corporation liable, to wit:
The power to borrow money is one of those cases where
corporate officers as agents of the corporation need a special
power of attorney. In the case at bar, no special power of
attorney conferring authority on de Villa was ever presented.
x x x There was no showing that respondent corporation ever
authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa.
There was no basis to hold the corporation liable since there
was no authority, express, implied or apparent, given to de
Villa to borrow money from petitioner. Neither was there any
subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of
de Villa (or of his estate after his death). (citations omitted;
emphasis supplied).
This principle was also reiterated in the case of Gozun v.
Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to
establish that respondent had authorized Lilian to obtain a
loan from him.

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xxxx
Petitioners testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of his
wife. While petitioner claims that Lilian was authorized by
respondent, the statement of account marked as Exhibit "A"
states that the amount was received by Lilian "in behalf of
Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name
alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone for that
matter.

had authorized the borrowing of money or release of the

check. He was thus bound by the risk accompanying his trust
on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And
Petitioner, as The Latters Consent Was Not Obtained.
Another significant point that the lower courts failed to
consider is that a contract of loan, like any other contract, is
subject to the rules governing the requisites and validity of
contracts
in
general.13 Article
1318
of
the
Civil
14
Code enumerates the essential requisites for a valid contract,
namely:
1. consent of the contracting parties;

It is a general rule in the law of agency that, in order to bind

the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the
agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the
name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or
special authority to act for and in behalf of the petitioner, the
loan agreement Gutierrez entered into with Marasigan is null
and void. Thus, the petitioner is not bound by the parties loan
agreement.
Furthermore, that the petitioner entrusted the blank presigned checks to Gutierrez is not legally sufficient because the
authority to enter into a loan can never be presumed. The
contract of agency and the special fiduciary relationship
inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only
the fact of agency, but also its nature and extent. 11 As we held
in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que
Yabut or Geminiano Yabut, Jr., in Caloocan City cannot,
contrary to the holding of the respondent Judges, be licitly
taken as delivery of the checks to the complainant Alicia P.
Andan at Caloocan City to fix the venue there. He did not take
delivery of the checks as holder, i.e., as "payee" or "indorsee."
And there appears to beno contract of agency between
Yambao and Andan so as to bind the latter for the acts of the
former. Alicia P. Andan declared in that sworn testimony
before the investigating fiscal that Yambao is but her
"messenger" or "part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is
essential, the principal consents that the other party, the
agent, shall act on his behalf, and the agent consents so to
act. It must exist as a fact. The law makes no presumption
thereof. The person alleging it has the burden of proof to
show, not only the fact of its existence, but also its nature and
extent. This is more imperative when it is considered that the
transaction dealt with involves checks, which are not legal
tender, and the creditor may validly refuse the same as
payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words
of Gutierrez without securing a copy of the SPA in favor of the
latter and without verifying from the petitioner whether he

2. object certain which is the subject matter of the

contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that
the contract lacked the essential element of consent. We
agree with the petitioner. As we explained above, Gutierrez
did not have the petitioners written/verbal authority to enter
into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such agreement
cannot bind the petitioner whose consent was not obtained
and who was not privy to the loan agreement. Hence, only
Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to
Gutierrez, one of which fell into the hands of Marasigan. This
act, however, does not constitute sufficient authority to
borrow money in his behalf and neither should it be construed
as petitioners grant of consent to the parties loan
agreement. Without any evidence to prove Gutierrez
authority, the petitioners signature in the check cannot be
taken, even remotely, as sufficient authorization, much less,
consent to the contract of loan. Without the consent given by
one party in a purported contract, such contract could not
have been perfected; there simply was no contract to speak
of.15
With the loan issue out of the way, we now proceed to
determine whether the petitioner can be made liable under
the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision
found in Section 14 of the Negotiable Instruments Law (NIL)
which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is
wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up
the blanks therein. And a signature on a blank paper delivered
by the person making the signature in order that the paper
may be converted into a negotiable instrument operates as a
prima facie authority to fill it up as such for any amount. In
order, however, that any such instrument when completed
may be enforced against any person who became a party

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thereto prior to its completion, it must be filled up strictly in

accordance with the authority given and within a reasonable
time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given
and within a reasonable time.
This provision applies to an incomplete but delivered
instrument. Under this rule, if the maker or drawer delivers a
pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person
other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the
blanks.16
In order however that one who is not a holder in due course
can enforce the instrument against a party prior to the
instruments completion, two requisites must exist: (1) that
the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had not
been filled up strictly in accordance with the authority given
and within a reasonable time, the maker can set this up as a
personal defense and avoid liability. However, if the holder is a
holder in due course, there is a conclusive presumption that
authority to fill it up had been given and that the same was
not in excess of authority.17
In the present case, the petitioner contends that there is no
legal basis to hold him liable both under the contract and loan
and under the check because: first, the subject check was not
completely filled out strictly under the authority he has given
and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due
course, thus:
Sec. 52 A holder in due course is a holder who has taken
the instrument under the following conditions:

negotiated to him he had no notice of any infirmity in the

instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or
notice of equities of any sort which could beset up against a
prior holder of the instrument.18 It means that he does not
have any knowledge of fact which would render it dishonest
for him to take a negotiable paper. The absence of the
defense, when the instrument was taken, is the essential
element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such
facts that his action in taking the instrument amounted to bad
faith," it is not necessary to prove that the defendant knew
the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about
his assignor's acquisition of title, although he did not have
notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted with fraud.
It is not necessary that he should know the particulars or even
the nature of the fraud, since all that is required is knowledge
of such facts that his action in taking the note amounted bad
faith.
The term bad faith does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of
their plunder. It was a case of "no questions asked." Although
gross negligence does not of itself constitute bad faith, it is
evidence from which bad faith may be inferred. The
circumstances thrust the duty upon the defendants to make
further inquiries and they had no right to shut their eyes
deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner
is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders
him dishonest, hence, in bad faith. The following exchange is
significant on this point:

(a) That it is complete and regular upon its face;

WITNESS: AMBET NABUS

(b) That he became the holder of it before it was

overdue, and without notice that it had been
previously dishonored, if such was the fact;

Q: Now, I refer to the second call after your birthday. Tell us

what you talked about?

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.(emphasis
supplied)
Section 52(c) of the NIL states that a holder in due course is
one who takes the instrument "in good faith and for value." It
also provides in Section 52(d) that in order that one may be a
holder in due course, it is necessary that at the time it was

A: Since I celebrated my birthday in that place where Nap and

I live together with the other crew, there were several visitors
that included Danny Espiritu. So a week after my birthday,
Bong Marasigan called me up again and he was fuming mad.
Nagmumura na siya. Hinahanap niya si hinahanap niya si
Nap, dahil pinagtataguan na siya at sinabi na niya na
kailangan I-settle na niya yung utang ni Nap, dahil
xxxx

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WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na

bago pa mauwi sa kung saan ang tsekeng tumalbog (He told
me that we have to fix it up before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who
borrowed money from you or what you want to appear

the checks for the operation of their business, and on the

condition that the petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to
complete the check, such prima facie authority does not
extend
to
its
use
(i.e.,
subsequent
transfer
or
negotiation)once the check is completed. In other words, only
the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that
the authority which the law accords to a holder is a
presumption juris tantumonly; hence, subject to subject to
contrary proof. Thus, evidence that there was no authority or
that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the
instrument.
In the present case, no evidence is on record that Gutierrez
ever secured prior approval from the petitioner to fill up the
blank or to use the check. In his testimony, petitioner asserted
that he never authorized nor approved the filling up of the
blank checks, thus:

xxxx

ATTY. DE VERA: Did you authorize anyone including Nap

Gutierrez to write the date, May 23, 1994?

Q: What was his reply?

WITNESS: No, sir.

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at

si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000;
pp.65-71; emphasis supplied)21

Q: Did you authorize anyone including Nap Gutierrez to put

the word cash? In the check?

Since he knew that the underlying obligation was not actually

for the petitioner, the rule that a possessor of the instrument
is prima facie a holder in due course is inapplicable. As
correctly noted by the CA, his inaction and failure to verify,
despite knowledge of that the petitioner was not a party to
the loan, may be construed as gross negligence amounting to
bad faith.
Yet, it does not follow that simply because he is not a holder in
due course, Marasigan is already totally barred from recovery.
The NIL does not provide that a holder who is not a holder in
due course may not in any case recover on the
instrument.22 The only disadvantage of a holder who is not in
due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. 23 Among such defenses
is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was
not filled up strictly on the basis of the authority he gave. He
points to his instruction not to use the check without his prior
approval and argues that the check was filled up in violation
of said instruction.
Check Was Not Completed Strictly Under The Authority Given
by The Petitioner
Our own examination of the records tells us that Gutierrez has
exceeded the authority to fill up the blanks and use the
check.1wphi1 To repeat, petitioner gave Gutierrez pre-signed
checks to be used in their business provided that he could
only use them upon his approval. His instruction could not be
any clearer as Gutierrez authority was limited to the use of

A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write
the figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap
Gutierrez to write the words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999). 24
Notably, Gutierrez was only authorized to use the check for
business expenses; thus, he exceeded the authority when he
used the check to pay the loan he supposedly contracted for
the construction of petitioner's house. This is a clear violation
of the petitioner's instruction to use the checks for the
expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in
accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the
petitioner can validly set up the personal defense that the
blanks were not filled up in accordance with the authority he
gave. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be
obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby
rendered GRANTING the petitioner Alvin Patrimonio's petition
for review on certiorari. The appealed Decision dated
September 24, 2008 and the Resolution dated April 30, 2009

Nego Fulltext Set 4

Page 16 of 55

of the Court of Appeals are consequently ANNULLED AND SET

ASIDE. Costs against the respondents.
SO ORDERED.

G.R. No. 158312

JOHN DY, Petitioner,
- versus PEOPLE OF THE PHILIPPINESand The
HONORABLE COURT OF APPEALS,
Respondents.
November 14, 2008

DECISION
QUISUMBING, Acting C.J.:
This appeal prays for the reversal of the
Decision[1] dated January 23, 2003 and the Resolution[2] dated
May 14, 2003 of the Court of Appeals in CA-G.R. CR No.
23802.The appellate court affirmed with modification the
Decision[3] dated November 17, 1999 of the Regional Trial
Court (RTC), Branch 82 of Quezon City, which had convicted
petitioner John Dy of two counts of estafa in Criminal Cases
Nos. Q-93-46711 and Q-93-46713, and two counts of violation
of Batas Pambansa Bilang 22[4] (B.P. Blg. 22) in Criminal Cases
Nos. Q-93-46712 and Q-93-46714.
The facts are undisputed:
Since 1990, John Dy has been the distributor of W.L.
Food Products (W.L. Foods) in Naga City, Bicol, under the
business name Dyna Marketing. Dy would pay W.L. Foods in
either cash or check upon pick up of stocks of snack foods at
the latters branch or main office in Quezon City. At times, he
would entrust the payment to one of his drivers.
On June 24, 1992, Dys driver went to the branch
office of W.L. Foods to pick up stocks of snack foods. He
introduced himself to the checker, Mary Jane D. Maraca, who
upon confirming Dys credit with the main office, gave him
merchandise worth P106,579.60. In return, the driver handed
her a blank Far East Bank and Trust Company (FEBTC) Check
with Check No. 553602 postdated July 22, 1992. The check
was signed by Dy though it did not indicate a specific amount.
Yet again, on July 1, 1992, the same driver obtained
snack foods from Maraca in the amount of P226,794.36 in
exchange for a blank FEBTC Check with Check No. 553615
postdated July 31, 1992.
In both instances, the driver was issued an unsigned
delivery receipt. The amounts for the purchases were filled in
later by Evelyn Ong, accountant of W.L. Foods, based on the
value of the goods delivered.
When presented for payment, FEBTC dishonored the
checks for insufficiency of funds. Raul D. Gonzales, manager
of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno,
counsel of W.L. Foods, of the dishonor. Apparently, Dy only
had an available balance of P2,000 as of July 22, 1992 and
July 31, 1992.
Later,
Gonzales
sent
Atty.
Jimeno
another
letter[5] advising her that FEBTC Check No. 553602
for P106,579.60 was returned to the drawee bank for the
reasons stop payment order and drawn against uncollected
deposit (DAUD), and not because it was drawn against

insufficient funds as stated in the first letter. Dys savings

deposit account ledger reflected a balance of P160,659.39 as
of July 22, 1992. This, however, included a regional clearing
check for P55,000 which he deposited on July 20, 1992, and
which took five (5) banking days to clear. Hence, the inward
check was drawn against the yet uncollected deposit.
When William Lim, owner of W.L. Foods, phoned Dy
about the matter, the latter explained that he could not pay
since he had no funds yet. This prompted the former to send
petitioner a demand letter, which the latter ignored.
On July 16, 1993, Lim charged Dy with two counts
of estafa under Article 315, paragraph 2(d) [6] of the Revised
Penal Code in two Informations, which except for the dates
and amounts involved, similarly read as follows:
That on or about the 24 th day of
June, 1992, in Quezon City, Philippines, the
said accused, did then and there [willfully]
and feloniously defraud W.L. PRODUCTS, a
corporation duly organized and existing
under the laws of the Republic of the
Philippines with business address at No. 531
Gen. Luis St., Novaliches, this City, in the
following manner, to wit: the said accused,
by means of false manifestations and
fraudulent representation which he made to
complainant to the effect that Far East Bank
and Trust Co. check No. 553602 dated July
22, 1992 in the amount of P106,579.60,
payable to W.L. Products is a good check and
will be honored by the bank on its maturity
date, and by means of other deceit of similar
import, induced and succeeded in inducing
the said complainant to receive and accept
the aforesaid check in payment of snack
foods, the said accused knowing fully well
that
all
his
manifestations
and
representations were false and untrue and
were made solely for the purpose of
obtaining, as in fact he did obtain the
aforesaid snack foods valued at P106,579.60
from said complainant as upon presentation
of said check to the bank for payment, the
same was dishonored and payment thereof
refused for the reason stop payment and the
said accused, once in possession of the
aforesaid snack foods, with intent to defraud,
[willfully],
unlawfully
and
feloniously
misapplied, misappropriated and converted
the same or the value thereof to his own
personal use and benefit, to the damage and
prejudice of said W.L. Products, herein
represented by RODOLFO BORJAL, in the
aforementioned
amount
of P106,579.60,
Philippine Currency.
Contrary to law.[7]
On even date, Lim also charged Dy with two counts of
violation of B.P. Blg. 22 in two Informations which likewise
save for the dates and amounts involved similarly read as
follows:
That on or about the 24th day of
June, 1992, the said accused, did then and
there [willfully], unlawfully and feloniously
make or draw and issue to W.L. FOOD
PRODUCTS to apply on account or for value
a Far East Bank and Trust Co. Check no.
553602 dated July 22, 1992 payable to W.L.
FOOD
PRODUCTS
in
the
amount

Nego Fulltext Set 4

Page 17 of 55

of P106,579.60 Philippine Currency, said

accused knowing fully well that at the time
of issue he/she/they did not have sufficient
funds in or credit with the drawee bank for
payment of such check in full upon its
presentment, which check when presented
90 days from the date thereof was
subsequently dishonored by the drawee
bank for the reason Payment stopped but
the same would have been dishonored for
insufficient funds had not the accused
without any valid reason, ordered the bank
to stop payment, the said accused despite
receipt of notice of such dishonor, failed to
pay said W.L. Food Products the amount of
said check or to make arrangement for
payment in full of the same within five (5)
banking days after receiving said notice.
CONTRARY TO LAW.[8]
On November 23, 1994, Dy was arrested in Naga
City. On arraignment, he pleaded not guilty to all
charges. Thereafter, the cases against him were tried jointly.
On November 17, 1999 the RTC convicted Dy on two
counts each of estafa and violation of B.P. Blg. 22. The trial
court disposed of the case as follows:
WHEREFORE, accused JOHN JERRY
DY ALDEN (JOHN DY) is hereby found GUILTY
beyond reasonable doubt of swindling
(ESTAFA) as charged in the Informations in
Criminal Case No. 93-46711 and in Criminal
Case
No.
Q-93-46713,
respectively. Accordingly, after applying the
provisions of the Indeterminate Sentence
Law and P.D. No. 818, said accused is
hereby
sentenced
to
suffer
the
indeterminate penalty of ten (10) years and
one (1) day to twelve (12) years of prision
mayor, as minimum, to twenty (20) years
of reclusion temporal, as maximum, in
Criminal Case No. Q-93-46711 and of ten
(10) years and one (1) day to twelve (12)
years of prision mayor, as minimum, to
thirty (30) years of reclusion perpetua, as
maximum, in Criminal Case No. Q-93-46713.
Likewise, said accused is hereby
found GUILTY beyond reasonable doubt of
Violation of B.P. 22 as charged in the
Informations in Criminal Case No. Q-9346712 and in Criminal Case No. Q-93-46714
and
is
accordingly
sentenced
to
imprisonment of one (1) year for each of the
said offense and to pay a fine in the total
amount of P333,373.96, with subsidiary
imprisonment in case of insolvency.
FINALLY,
judgment
is
hereby
rendered in favor of private complainant, W.
L. Food Products, herein represented by
Rodolfo Borjal, and against herein accused
JOHN JERRY DY ALDEN (JOHN DY), ordering
the latter to pay to the former the total sum
of P333,373.96 plus interest thereon at the
rate of 12% per annum from September 28,
1992 until fully paid; and, (2) the costs of
this suit.
SO ORDERED.[9]

Dy brought the case to the Court of Appeals. In the

assailed Decision of January 23, 2003, the appellate court
affirmed the RTC. It, however, modified the sentence and
deleted the payment of interests in this wise:
WHEREFORE, in view of the
foregoing, the decision appealed from is
hereby AFFIRMED
with
MODIFICATION. In Criminal Case No. Q93-46711 (for estafa), the accusedappellant JOHN JERRY DY ALDEN (JOHN DY) is
hereby sentenced to suffer an indeterminate
penalty of imprisonment ranging from six (6)
years and one (1) day of prision mayor as
minimum to twenty (20) years of reclusion
temporal as maximum plus eight (8) years in
excess of [P]22,000.00. In Criminal Case
No. Q-93-46712 (for violation of BP 22),
accused-appellant is sentenced to suffer an
imprisonment of one (1) year and to
indemnify W.L. Food Products, represented by
Rodolfo Borjal, the amount of ONE HUNDRED
SIX THOUSAND FIVE HUNDRED SEVENTY
NINE PESOS and 60/100 ([P]106,579.60).
In Criminal Case No. Q-93-46713 (for
estafa), accused-appellant
is
hereby
sentenced to suffer an indeterminate penalty
of imprisonment ranging from eight (8) years
and one (1) day of prision mayor as minimum
to thirty (30) years as maximum. Finally,
in Criminal Case No. Q-93-46714 (for
violation of BP 22), accused-appellant is
sentenced to suffer an imprisonment of one
(1) year and to indemnify W.L. Food Products,
represented by Rodolfo Borjal, the amount of
TWO HUNDRED TWENTY SIX THOUSAND
SEVEN HUNDRED NINETY FOUR PESOS AND
36/100 ([P]226,794.36).
SO ORDERED.[10]
Dy moved for reconsideration, but his motion was
denied in the Resolution dated May 14, 2003.
Hence, this petition which raises the
following issues:
I.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS GRAVELY ERRED IN FINDING
THAT THE PROSECUTION HAS PROVEN THE
GUILT OF ACCUSED BEYOND REASONABLE
DOUBT OF ESTAFA ON TWO (2) COUNTS?
II.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS GRAVELY ERRED IN FINDING
THAT THE PROSECUTION HAS PROVEN THE
GUILT OF ACCUSED BEYOND REASONABLE
DOUBT OF VIOLATION OF BP 22 ON TWO (2)
COUNTS?
III.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS GRAVELY ERRED IN AWARDING
DAMAGES TO PRIVATE COMPLAINANT, W.L.
FOOD PRODUCTS, THE TOTAL SUM OF
[P]333,373.96?[11]
Essentially, the issue is whether John Dy is liable
for estafa and for violation of B.P. Blg. 22.

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Page 18 of 55

First, is petitioner guilty of estafa?

Mainly, petitioner contends that the checks were
ineffectively issued. He stresses that not only were the checks
blank, but also that W.L. Foods accountant had no authority to
fill the amounts. Dy also claims failure of consideration to
negate any obligation to W.L. Foods. Ultimately, petitioner
denies having deceived Lim inasmuch as only the two checks
bounced since he began dealing with him. He maintains that it
was his long established business relationship with Lim that
enabled him to obtain the goods, and not the checks issued in
payment for them. Petitioner renounces personal liability on the
checks since he was absent when the goods were delivered.
The Office of the Solicitor General (OSG), for the
State, avers that the delivery of the checks by Dys driver to
Maraca, constituted valid issuance. The OSG sustains
Ongs prima facie authority to fill the checks based on the
value of goods taken. It observes that nothing in the records
showed that W.L. Foods accountant filled up the checks in
violation
of
Dys
instructions
or
their
previous
agreement. Finally, the OSG challenges the present petition as
an inappropriate remedy to review the factual findings of the
trial court.
We find that the petition is partly meritorious.
Before an accused can be held liable for estafa under
Article 315, paragraph 2(d) of the Revised Penal Code, as
amended by Republic Act No. 4885, [12] the following elements
must concur: (1) postdating or issuance of a check in payment
of an obligation contracted at the time the check was issued;
(2) insufficiency of funds to cover the check; and (3) damage
to the payee thereof. [13] These elements are present in the
instant case.
Section 191 of the Negotiable Instruments
Law[14] defines issue as the first delivery of an instrument,
complete in form, to a person who takes it as a
holder. Significantly, delivery is the final act essential to the
negotiability of an instrument. Delivery denotes physical
transfer of the instrument by the maker or drawer coupled
with an intention to convey title to the payee and recognize
him as a holder.[15] It means more than handing over to
another; it imports such transfer of the instrument to another
as to enable the latter to hold it for himself. [16]
In this case, even if the checks were given to W.L.
Foods in blank, this alone did not make its issuance
invalid. When the checks were delivered to Lim, through his
employee, he became a holder with prima facie authority to
fill the blanks. This was, in fact, accomplished by Lims
accountant.
The pertinent provisions of Section 14 of the
Negotiable Instruments Law are instructive:
SEC. 14. Blanks; when may be
filled.Where the instrument is wanting in
any material particular, the person in
possession
thereof
has
a prima
facie authority to complete it by filling
up the blanks therein. And a signature on
a blank paper delivered by the person
making the signature in order that the paper
may be converted into a negotiable
instrument
operates
as
a prima
facie authority to fill it up as such for any
amount. . (Emphasis supplied.)
Hence, the law merely requires that the instrument
be in the possession of a person other than the drawer or

maker. From such possession, together with the fact that the
instrument is wanting in a material particular, the law
presumes agency to fill up the blanks.[17] Because of this, the
burden of proving want of authority or that the authority
granted was exceeded, is placed on the person questioning
such authority.[18] Petitioner failed to fulfill this requirement.
Next,
petitioner
claims
failure
of
consideration. Nevertheless, in a letter[19] dated November 10,
1992, he expressed willingness to pay W.L. Foods, or to
replace
the
dishonored
checks. This
was
a
clear
acknowledgment of receipt of the goods, which gave rise to
his duty to maintain or deposit sufficient funds to cover the
amount of the checks.
More significantly, we are not swayed by petitioners
arguments that the single incident of dishonor and his
absence when the checks were delivered belie fraud. Indeed
damage and deceit are essential elements of the offense and
must be established with satisfactory proof to warrant
conviction.[20] Deceit as an element of estafa is a specie of
fraud. It
is
actual
fraud
which
consists
in
any
misrepresentation or contrivance where a person deludes
another, to his hurt. There is deceit when one is misled -- by
guile, trickery or by other means -- to believe as true what is
really false.[21]
Prima facie evidence of deceit was established
against petitioner with regard to FEBTC Check No. 553615
which was dishonored for insufficiency of funds. The
letter[22]of petitioners counsel dated November 10, 1992
shows beyond reasonable doubt that petitioner received
notice of the dishonor of the said check for insufficiency of
funds. Petitioner, however, failed to deposit the amounts
necessary to cover his check within three banking days from
receipt of the notice of dishonor. Hence, as provided for by
law,[23] the presence of deceit was sufficiently proven.
Petitioner failed to overcome the said proof of
deceit. The trial court found no pre-existing obligation
between the parties. The existence of prior transactions
between Lim and Dy alone did not rule out deceit because
each transaction was separate, and had a different
consideration from the others. Even as petitioner was absent
when the goods were delivered, by the principle of agency,
delivery of the checks by his driver was deemed as his act
as the employer. The evidence shows that as a matter of
course, Dy, or his employee, would pay W.L. Foods in either
cash or check upon pick up of the stocks of snack foods at
the latters branch or main office. Despite their two-year
standing business relations prior to the issuance of the
subject check, W.L Foods employees would not have parted
with the stocks were it not for the simultaneous delivery of
the check issued by petitioner. [24] Aside from the existing
business relations between petitioner and W.L. Foods, the
primary inducement for the latter to part with its stocks of
snack foods was the issuance of the check in payment of the
value of the said stocks.
In a number of cases, [25] the Court has considered
good faith as a defense to a charge of estafa by postdating a
check. This good faith may be manifested by making
arrangements for payment with the creditor and exerting best
efforts to make good the value of the checks. In the instant
case petitioner presented no proof of good faith.Noticeably

Nego Fulltext Set 4

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absent from the records is sufficient proof of sincere and best

efforts on the part of petitioner for the payment of the value
of the check that would constitute good faith and negate
deceit.
With the foregoing circumstances established, we
find petitioner guilty of estafa with regard to FEBTC Check No.
553615 for P226,794.36.
The same, however, does not hold true with respect
to FEBTC Check No. 553602 for P106,579.60. This check was
dishonored for the reason that it was drawn against
uncollected deposit. Petitioner had P160,659.39 in his savings
deposit account ledger as of July 22, 1992. We disagree with
the conclusion of the RTC that since the balance included a
regional clearing check worth P55,000 deposited on July 20,
1992, which cleared only five (5) days later, then petitioner
had inadequate funds in this instance. Since petitioner
technically and retroactively had sufficient funds at the time
Check No. 553602 was presented for payment then the
second element (insufficiency of funds to cover the check) of
the crime is absent. Also there is no prima facie evidence of
deceit in this instance because the check was not dishonored
for lack or insufficiency of funds. Uncollected deposits are not
the same as insufficient funds. The prima facie presumption of
deceit arises only when a check has been dishonored for lack
or insufficiency of funds. Notably, the law speaks of
insufficiency
of
funds
but
not
of
uncollected
deposits. Jurisprudence teaches that criminal laws are strictly
construed against the Government and liberally in favor of the
accused.[26] Hence, in the instant case, the law cannot be
interpreted or applied in such a way as to expand its provision
to encompass the situation of uncollected deposits because it
would make the law more onerous on the part of the accused.
Clearly, the estafa punished under Article 315,
paragraph 2(d) of the Revised Penal Code is committed when
a check is dishonored for being drawn against insufficient
funds or closed account, and not against uncollected deposit.
[27]
Corollarily, the issuer of the check is not liable for estafa if
the remaining balance and the uncollected deposit, which was
duly collected, could satisfy the amount of the check when
presented for payment.
Second, did petitioner violate B.P. Blg. 22?
Petitioner argues that the blank checks were not
valid orders for the bank to pay the holder of such checks. He
reiterates lack of knowledge of the insufficiency of funds and
reasons that the checks could not have been issued to apply
on account or for value as he did not obtain delivery of the
goods.
The OSG maintains that the guilt of petitioner has
been proven beyond reasonable doubt. It cites pieces of
evidence
that
point
to
Dys
culpability:
Maracas
acknowledgment that the checks were issued to W.L. Foods as
consideration for the snacks; Lims testimony proving that Dy
received a copy of the demand letter; the bank managers
confirmation that petitioner had insufficient balance to cover
the checks; and Dys failure to settle his obligation within five
(5) days from dishonor of the checks.
Once again, we find the petition to be meritorious in
part.
The elements of the offense penalized under B.P. Blg.
22 are as follows: (1) the making, drawing and issuance of any
check to apply to account or for value; (2) the knowledge of

the maker, drawer or issuer that at the time of issue he does

not have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment; and
(3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered
the bank to stop payment.[28] The case at bar satisfies all
these elements.
During the joint pre-trial conference of this case, Dy
admitted that he issued the checks, and that the signatures
appearing on them were his. [29] The facts reveal that the
checks were issued in blank because of the uncertainty of the
volume of products to be retrieved, the discount that can be
availed of, and the deduction for bad orders.Nevertheless, we
must stress that what the law punishes is simply the issuance
of a bouncing check and not the purpose for which it was
issued nor the terms and conditions relating thereto. [30] If
inquiry into the reason for which the checks are issued, or the
terms and conditions of their issuance is required, the publics
faith in the stability and commercial value of checks as
currency substitutes will certainly erode. [31]
Moreover, the gravamen of the offense under B.P.
Blg. 22 is the act of making or issuing a worthless check or a
check that is dishonored upon presentment for payment.The
act effectively declares the offense to be one of malum
prohibitum. The only valid query, then, is whether the law has
been breached, i.e., by the mere act of issuing a bad check,
without so much regard as to the criminal intent of the issuer.
[32]
Indeed,
non-fulfillment
of
the
obligation
is
immaterial. Thus,
petitioners
defense
of
failure
of
consideration must likewise fall. This is especially so since as
stated above, Dy has acknowledged receipt of the goods.
On the second element, petitioner disputes notice of
insufficiency of funds on the basis of the check being issued in
blank. He relies on Dingle v. Intermediate Appellate
Court[33] and Lao v. Court of Appeals [34] as his authorities. In
both actions, however, the accused were co-signatories, who
were neither apprised of the particular transactions on which
the blank checks were issued, nor given notice of their
dishonor. In the latter case, Lao signed the checks without
knowledge of the insufficiency of funds, knowledge she was
not expected or obliged to possess under the organizational
structure of the corporation.[35] Lao was only a minor
employee who had nothing to do with the issuance, funding
and delivery of checks. [36] In contrast, petitioner was the
proprietor of Dyna Marketing and the sole signatory of the
checks who received notice of their dishonor.
Significantly, under Section 2[37] of B.P. Blg. 22,
petitioner was prima facie presumed to know of the
inadequacy of his funds with the bank when he did not pay
the value of the goods or make arrangements for their
payment in full within five (5) banking days upon notice. His
letter dated November 10, 1992 to Lim fortified such
presumption.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing
FEBTC Check No. 553615. When said check was dishonored
for insufficient funds and stop payment order, petitioner did
not pay or make arrangements with the bank for its payment
in full within five (5) banking days.

Nego Fulltext Set 4

Page 20 of 55

Petitioner should be exonerated, however, for

issuing FEBTC Check No. 553602, which was dishonored for
the reason DAUD or drawn against uncollected deposit. When
the check was presented for payment, it was dishonored by
the bank because the check deposit made by petitioner,
which would make petitioners bank account balance more
than enough to cover the face value of the subject check, had
not been collected by the bank.
In Tan v. People,[38] this Court acquitted the petitioner
therein who was indicted under B.P. Blg. 22, upon a check
which was dishonored for the reason DAUD, among others. We
observed that:
In the second place, even without
relying on the credit line, petitioners bank
account covered the check she issued
because even though there were some
deposits that were still uncollected the
deposits became good and the bank
certified that the check was funded.[39]
To be liable under Section 1[40] of B.P. Blg. 22, the
check must be dishonored by the drawee bank for
insufficiency of funds or credit or dishonored for the same
reason had not the drawer, without any valid cause, ordered
the bank to stop payment.
In the instant case, even though the check which
petitioner deposited on July 20, 1992 became good only five
(5) days later, he was considered by the bank to retroactively
have had P160,659.39 in his account on July 22, 1992. This
was more than enough to cover the check he issued to
respondent in the amount of P106,579.60. Under the
circumstance obtaining in this case, we find the petitioner had
issued the check, with full ability to abide by his
commitment[41] to pay his purchases.

As to the appropriate penalty, petitioner was charged

with estafa under Article 315, paragraph 2(d) of the Revised
Penal Code, as amended by Presidential Decree No.
818[45] (P.D. No. 818).
Under Section 1[46] of P.D. No. 818, if the amount of the fraud
exceeds P22,000, the penalty of reclusin temporal is imposed
in its maximum period, adding one year for each
additional P10,000 but the total penalty shall not exceed
thirty (30) years, which shall be termed reclusin perpetua.
[47]
Reclusin perpetua is not the prescribed penalty for the
offense, but merely describes the penalty actually imposed on
account of the amount of the fraud involved.
WHEREFORE,
the
petition
is PARTLY
GRANTED. John Dy is hereby ACQUITTED in Criminal Case
No. Q-93-46711 for estafa, and Criminal Case No. Q-93-46712
for violation of B.P. Blg. 22, but he is ORDERED to pay W.L.
Foods the amount of P106,579.60 for goods delivered to his
company.
In Criminal Case No. Q-93-46713 for estafa, the
Decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner is sentenced to suffer an
indeterminate penalty of twelve (12) years of prisin mayor, as
minimum, to thirty (30) years of reclusin perpetua, as
maximum.
In Criminal Case No. Q-93-46714 for violation of B.P.
Blg. 22, the Decision of the Court of Appeals is AFFIRMED,
and John Dy is hereby sentenced to one (1) year
imprisonment and ordered to indemnify W.L. Foods in the
amount of P226,794.36.
SO ORDERED.

Significantly, like Article 315 of the Revised Penal

Code, B.P. Blg. 22 also speaks only of insufficiency of funds
and does not treat of uncollected deposits. To repeat, we
cannot interpret the law in such a way as to expand its
provision to encompass the situation of uncollected deposits
because it would make the law more onerous on the part of
the accused. Again, criminal statutes are strictly construed
against the Government and liberally in favor of the accused.
[42]

As regards petitioners civil liability, this Court has

previously ruled that an accused may be held civilly liable
where the facts established by the evidence so warrant. [43]The
rationale for this is simple. The criminal and civil liabilities of
an accused are separate and distinct from each other. One is
meant to punish the offender while the other is intended to
repair the damage suffered by the aggrieved party. So, for the
purpose of indemnifying the latter, the offense need not be
proved beyond reasonable doubt but only by preponderance
of evidence.[44]
We therefore sustain the appellate courts award of
damages to W.L. Foods in the total amount of P333,373.96,
representing the sum of the checks petitioner issued for goods
admittedly delivered to his company.

[G.R. No. 142047. July 10, 2006]

SPS. SERGIO AND MILAGROS OJEDA versus ANDRELINA
ORBETA
Third Division
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this
Court dated JULY 10, 2006.
G.R. No. 142047 (Sps. Sergio and Milagros Ojeda versus
Andrelina Orbeta)

Nego Fulltext Set 4

Page 21 of 55

Petitioner spouses Sergio Ojeda and Milagros Ojeda seek a

reversal of the February 24, 2000 Decision[1]cralaw rendered
by the Court of Appeals in CA-G.R. CV No. 59985
entitled Andrelina Orbeta v. Sps. Sergio Ojeda and Milagros
Ojeda. The questioned decision affirmed the February 23,
1995 Decision[2]cralaw of the Regional Trial Court, Branch 106
of Quezon City in Civil Case No. Q-91-7794.
The facts of this case are not complicated.
From 1986 to 1989, the spouses Ojeda obtained various loans
they would use as additional capital from Andrelina Orbeta, a
general merchandiser and former market stall holder. Over
time, Orbeta extended a total of 18 loans to the spouses.
[3]
cralaw Although the couple failed to pay their obligations on
time, Orbeta continued to accommodate them, and lent them
more money on the assurance that they would soon pay all
their debts. Every time Orbeta would verbally demand
payment, she was told that payment was forthcoming and
there was nothing to worry about since the spouses' business
was doing well and the couple had a daughter based in Japan
who always sent them money. To their sincerity, they aver,
they even delivered a copy of the registration papers of one of
their vehicles to Orbeta.
Notwithstanding all their promises, however, the spouses'
obligations remained unpaid. Orbeta made numerous
demands but all attempts to collect from the couple proved
futile. Frustrated by their failure to pay, Orbeta through her
lawyer sent a demand letter to the spouses on March 1989.
[4]
cralaw Eventually, on July 1989, after an accounting of all
outstanding loans due, Milagros Ojeda issued Security Bank
and Trust Company Check No. 027836 dated September 1,
1989 for P487,133.87, representing full settlement of all
obligations due in favor of Orbeta. When presented for
payment, however, the check was dishonored for having been
drawn against an account already closed.
Consequently, Orbeta filed Criminal Case No. Q-90-10226 for
violation of Batas Pambansa Bilang 22 against Milagros Ojeda
with the Regional Trial Court of Quezon City. [5]cralaw After a
plea of guilty, judgment was rendered against the accused in
a decision[6]cralaw dated October 11, 1990. The dispositive
portion of the decision read:
WHEREFORE, considering the plea of Guilty entered by
accused Milagros Ojeda this morning, the Court hereby
renders judgment:
1. Finding said accused GUILTY beyond reasonable doubt of
the offense charged;
2. Sentencing her to suffer the penalty of ONE (1) YEAR
imprisonment; and

Consistent with the reservation made by Ojeda in the BP 22

case, Civil Case No. Q-91-7794 was subsequently filed against
the spouses to collect on the civil aspect of the BP 22 case. In
the civil case, the Regional Trial Court ruled as follows:
WHEREFORE, finding no cogent reason to deny the relief
being prayed for, the cause of action of plaintiff having been
fully established and proven by preponderant evidence,
judgment is hereby rendered ordering defendants to pay
plaintiff:
1.
The amount of Four Hundred Eighty Seven Thousand
One Hundred Thirteen and 87/100 (P487,113.87) pesos with
12% interest from filing of the case until fully paid.
2.
25% of the principal obligation as and by way of
attorney's fees.
3.

Cost of suit.

SO ORDERED.[7]cralaw
Aggrieved, the spouses brought their case to the Court of
Appeals where the Regional Trial Court's judgment was
affirmed, to wit:
WHEREFORE, with the sole modification that the award for
attorney's fee[s] is hereby eliminated, the Judgment appealed
from is in all other respects AFFIRMED, with the costs of this
instance to be taxed against the defendants-appellants.
SO ORDERED.[8]cralaw
Before us now are the following issues: (1) Are the spouses
liable for issuing Security Bank and Trust Company Check No.
027836? (2) Did the Court of Appeals err in upholding the
propriety of the civil case that was instituted separately from
the BP 22 case?
To justify their prayer for a reversal of the Court of Appeals'
decision, the spouses insist that there are special and
important reasons present in the case which constitute a
question of law and there was a misapprehension of facts
committed by the Court of Appeals which must be rectified.
Petitioners maintain that any obligation arising from Security
Bank and Trust Company Check No. 027836 is invalid and
illegal since the same was issued in blank except for the
signature of Milagros Ojeda. They further claim that they
already paid P55,000 to satisfy their obligation to Orbeta of
P30,000 only. The couple also aver that the motion of Orbeta
to file a separate civil action was merely noted by the
Regional Trial Court in the BP 22 case and there was no order
granting the institution of a separate civil action.

3. To pay costs.
The decision was promulgated in open Court this morning in
the presence of the accused herself, Assistant City Prosecutor
Perpetuo LB Alonzo and Atty. Renerio S. Payumo.
SO ORDERED.

Respondent Orbeta, on the other hand, counters that the

errors raised by the spouses deal with questions of fact which
have already been passed upon and decided by the Regional
Trial Court and the Court of Appeals and cannot now be raised
in this petition for review. Orbeta also contends that, the
couple cannot assert for the first time that the motion to file a
separate civil action was merely noted and no order was
issued by the Regional Trial Court granting the same since a

Nego Fulltext Set 4

Page 22 of 55

full blown trial had been conducted without the said issue
having been raised by the spouses, hence, they are barred
from doing so, since they are considered to have waived any
objection they may have had on the subject. Finally, Orbeta
points out that the judgment in the BP 22 case did not contain
an award for civil liability which is tantamount to the Regional
Trial Court's approval of the motion.[9]cralaw
To resolve the first issue, we must here emphasize that the
jurisdiction of this Court in a petition such as this is limited to
reviewing errors of law that might have been committed by
the lower court. The allegation of the spouses that Security
Bank and Trust Company Check No. 027836 was delivered to
Orbeta in blank except for the signature of Milagros Ojeda and
the amount of P10,000 annotated at the back of the check,
and their contention that they cannot be held liable for the
face value of the check since Milagros Ojeda was not the one
who filled up the date, name of the payee and the amount
appearing on the check, are questions of fact that require us
to re-examine the evidence presented by the contending
parties during trial. This cannot be done in a petition for
review. Under Rule 45, only questions of law may be raised in
a petition for review, except in very few specified
instances, e.g.where there is variance in the factual findings
of the trial and appellate courts. Since both the Regional Trial
Court and the Court of Appeals agree on the cited facts, we
are bound by their factual findings.
In any event, the spouses do not deny that the check was
delivered to Orbeta and that the signature appearing on the
check belongs to Milagros Ojeda. Even if the check was
delivered to Orbeta in blank, we must stress that the
presumption is that the latter had prima facie authority to
complete the check by filling up the same. Here, the provision
of Section 14 of the Negotiable Instruments Law is pertinent:
SEC. 14. Blanks; when may be filled. - Where the instrument is
wanting in any material particular, the person in
possession thereof has a prima facie authority to
complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making
the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facieauthority to
fill it up as such for any amount. In order, however, that any
such instrument, when completed may be enforced against
any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands,
and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable
time. (Emphasis supplied.)

stance that they cannot be held liable for the check because
they were not the ones who wrote the date, the name of the
payee and the amount, is untenable.
On the second issue, it appears that an urgent motion to file a
separate civil action was filed by Orbeta on October 11, 1990,
which motion was correspondingly noted by the Regional Trial
Court in its decision.[12]cralaw Since the civil liability involved
in this case is one that arises from a crime, the rule is that the
same is impliedly instituted with the criminal action unless the
offended party expressly waives the civil action; reserves his
right to institute it separately; or institutes the civil action
prior to the filing of the criminal case. [13]cralaw The purpose of
the rule requiring reservation is to prevent the offended party
from recovering damages twice for the same act or omission.
[14]
cralaw
Orbeta's intention to reserve her right to recover the civil
liability arising from the BP 22 case is clear from the time she
filed the urgent motion.[15]cralaw The fact that the Regional
Trial Court did not provide for an award of damages in its
decision is also a clear recognition of Orbeta's reservation.
Contrary to the spouses' argument, an order by the Regional
Trial Court granting the urgent motion to file a separate civil
action is not necessary since the rules only require that the
offended party make the reservation before the prosecution
starts to present its evidence and under circumstances
affording the offended party a reasonable opportunity to make
such reservation.
Lastly, we agree with respondent that it is now too late for the
spouses to question the institution of the civil case separately
from the BP 22 case. A full blown trial was conducted in the
civil case with the participation of the spouses, but they never
raised any objection thereto, and they cannot be allowed here
and now to raise this issue for the first time.
WHEREFORE, the instant petition is DENIED. The February
24, 2000 Decision of the Court of Appeals sustaining the
February 23, 1995 Decision of the Regional Trial Court
is AFFIRMED.
Costs against petitioners.
SO ORDERED.

SECTION 15
PAVILIS V. LIVESTOCK CO
ROBERTS, J.

The law merely requires that the instrument be in the

possession of a person other than the drawer or maker, and
from such possession, together with the fact that the
instrument is wanting in a material particular, the law
presumes agency to fill up the blanks. [10]cralaw Because of
the presumption of authority, the burden of proving that there
was no authority or that the authority granted was exceeded
is placed on the person questioning such authority.
[11]
cralaw There is nothing on record to show that the prima
facie presumption created by the afore-quoted section was
successfully refuted by the spouses. Therefore, the couple's

This is an action brought to recover upon an instrument

alleged to be a check transferred to plaintiff for value by one
C. Hoard who was named as payee therein. Defendant
interposed an answer alleging, first, that plaintiff was not a
holder of the check in due course, and second, that the
instrument having been signed in blank by the defendant and
having been stolen from its possession prior to delivery had
no legal inception or existence as a check. The court made
findings in favor of the plaintiff and from the judgment
entered thereon defendant has appealed.
The case was submitted upon an agreed statement of facts.
The facts material to a decision are as follows:

Nego Fulltext Set 4

Page 23 of 55

"It was the practice of defendant's office manager, who was

authorized to sign checks, to sign a block of instruments,
printed to be used as checks * * * at the beginning of the
business day and deliver the same to the bookkeeper whose
regular duty it was to complete the instruments as checks and
deliver the same to customers during the business day and it
was likewise the practice of such office manager to procure
the return of such signed instruments not delivered at the
close of the business day for the purpose of safekeeping and
for the purpose of checking or auditing the same, which
instruments were thereafter placed in a safe in defendant's
office; that the office of said office manager adjoined the front
office in which the bookkeepers worked and it was the
practice of the office manager to personally supervise the
work of the bookkeepers during the business day and during
the business day such bookkeepers worked at open desks in
the presence of customers at the counter and in the presence
of each other and in the presence of yardmen employed by
defendant, who used the office occupied by bookkeepers as
their headquarters.
"That upon February 24, 1939, and for some time prior
thereto one C. Hoard was employed by defendant as a
bookkeeper and clerk whose duties were particularly to
prepare an account of sales from the scale tickets presented
by defendant's customers, and that it was the duty of another
bookkeeper in defendant's employ, * * * to prepare or
complete instruments printed to be used as checks upon such
shippers' proceeds account for amounts indicated by such
scale ticket and account of sales which instruments had,
previous to being so completed, been signed by
defendant's manager or office manager, who were the only
employees of defendant expressly authorized by it to sign
checks; that said Hoard was expressly authorized by
defendant in the absence of such other bookkeeper to
complete and deliver checks * * * only during business hours
and only to defendant's customers and only for amounts due
them as shown by such account of sales, but said Hoard was
not expressly authorized by defendant to prepare, complete
or deliver checks on such account, except during business
hours, or for any amount other than as indicated by such
scale tickets and account of sales or to anyone other than
customers for whom livestock had been sold by defendant
and said Hoard was not expressly authorized to sign or
endorse checks in the name of or on behalf of defendant.
"That the said Hoard was not entrusted with a key to the
defendant's office although he did have access to a key kept
in a desk in the office for the purpose of unlocking the padlock
on the inside of the gate across the counter between
defendant's office and the hall, it being his duty to enter the
office after it had been opened by one of the defendant's
employees entrusted with a key to such office, and if the gate
had not been previously opened to unlock the same at the
opening of the business day with the key placed in such desk.
"That on or about the 24th day of February, 1939, after the
close of defendant's office said Hoard gained access thereto
by unlocking the gate across the counter, presumably with the
key to the lock which he had removed from the desk in the
office before leaving the office, and climbed over the counter
into defendant's office and thereafter opened the safe in
defendant's office by using the combination, which he knew,
and without defendant's knowledge and consent took
therefrom certain instruments printed for use as checks upon
such shippers' proceeds account, blank as to amount, date
and payee, which had been signed by defendant's office
manager authorized to sign checks, in one of which
instruments said Hoard thereafter without defendant's
knowledge or express consent inserted the date, amount and
payee in the manner which appears more fully from such
instrument * * *.
"That said Hoard thereafter on said 24th day of February,
1939, placed his name upon the back of said instrument and
delivered the same to plaintiff for a consideration of the value
of One Hundred Two and 85/100 Dollars ($102.85)."

The check is in all respects regular except that the name of

the payee is written after the word "pay" and in the space
intended for statement of the amount in writing. It is
contended that the instrument is not payable to order and is
therefore non-negotiable, but a determination of this question
is not necessary to a decision in this case.
[1-3] The instrument came into possession of plaintiff as an
innocent purchaser for value. It is contended, however, that
the check was an incomplete instrument when stolen and
cannot be enforced by plaintiff whether a holder in due course
or not. The Negotiable Instruments Law expressly provides
that "every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose
of giving effect thereto." SDC 46.0121. This is merely a
legislative enactment of the common law rule. Dimock State
Bank v. Boehnen, 46 S.D. 50, 190 N.W. 485; McCormick
Harvesting Machine Co. v. Faulkner, 7 S.D. 363, 64 N.W. 163,
58 Am. St. Rep. 839. This language that a contract becomes
effectual only by delivery is modified by subsequent language
in the section at least to the extent that if any such
instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands.
Both under the statute and the common law the fact that a
completed instrument is stolen from its drawer prior to its
delivery does not constitute a defense against a holder in due
course. Daniel on Negotiable Instruments, 7th Ed., 983 and
984; Angus v. Downs, 85 Wn. 75, 147 P. 630, L.R.A. 1915E,
351; Farmers' State Bank v. Koffler, 60 N.D. 11, 232 N.W. 307,
70 A.L.R. 1223; Gruntal v. National Surety Co. et al., 254 N.Y.
468, 173 N.E. 682, 73 A.L.R. 1337. The provisions of SDC
46.0121 are confined to completed instruments. SDC
46.0120 referring to incomplete instruments is worded as
follows:
"Where an incomplete instrument has not been delivered it
will not, if completed and negotiated, without authority, be a
valid contract in the hands of any holder, as against any
person whose signature was placed thereon before delivery."
We think it clear that the check in controversy was an
incomplete instrument when stolen and cannot be enforced in
the absence of conduct on the part of the drawer creating an
estoppel. Linick v. A.J. Nutting Co., 140 A.D. 265, 125 N.Y.S.
93; Hockett v. Pacific States Auxiliary Corporation,
Cal.App., 15 P.2d 547; Massachusetts National Bank v.
Snow, 187 Mass. 159, 72 N.E. 959.
It is urged by counsel that defendant is chargeable with
negligence and is estopped to deny liability. In support of his
contention he cites Northern Pacific Ry. Co. v. Spokane Valley
Growers' Union, 132 Wn. 607, 232 P. 691, 43 A.L.R. 194;
Johnson v. Weed Gumaer Mfg. Co., 103 Wis. 291, 79 N.W. 236;
Geddes v. Blackmore, 132 Ind. 551,32 N.E. 567; Leseure v.
Weaver, 89 Ill. App. 628; Boston Steel Iron Co. v. Steuer, 183
Mass. 140, 66 N.E. 646, 97 Am. St. Rep. 426. The cases cited
are those in which the party sought to be charged upon a
negotiable instrument has entrusted an instrument signed in
blank to an agent or some other person who has wrongfully
completed and negotiated the instrument; an agency or trust
was created by means of which the fraud was committed and
the fact that there was no authority for completing the
instrument or that the paper was otherwise wrongfully dealt
with was no defense.
Plaintiff also cites the case of Phillips v. A.W. Joy Co., 114 Me.
403, 96 A. 727, 728, L.R.A. 1916E, 690. The question of the
liability of the signer of a blank check which was stolen,
completed and negotiated to the plaintiff was presented. The
court held that the signer of the check was liable, and
referring to the negligence of the defendant said: "It is
conceded that this check was signed in blank. Was there such
negligence on the part of the defendant company or its
agents as will permit this plaintiff to recover? The case seems
to show quite clearly that the check book was left about the
office in such a way that this check was, in fact, undoubtedly
stolen, and, as we have already seen, according to the

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Page 24 of 55

plaintiff's undisputed testimony, the bookkeeper admitted

that `it would be easy for anybody to come in and abstract
one of the checks.' Under all the circumstances it seems to us,
in view of the character of the paper stolen, its condition as to
signature when stolen, the negligence in leaving the signed
checks in such environment that theft was easy, and the
apparent care of the plaintiff before cashing the check, that
we should apply the rule of estoppel noted in Salley v. Terrill,
supra [ 95 Me. 553, 50 A. 896, 55 L.R.A. 730, 85 Am. St. Rep.
433], as well as the rule that, when one of two innocent
persons must suffer by the act of a third, he who has enabled
such person to occasion the loss must sustain it."

signers of checks in blank assume the risk of liability in all

cases where such instruments are wrongfully taken,
completed and negotiated. To hold that a person is negligent
in having in his possession a check signed in blank would
require something more than the exercise of ordinary care.

This case differs in its facts from the case at bar. Checks
signed in blank by the defendant in that case and left
unguarded in his office to which strangers had access
rendered him liable by reason of negligence.

WEINER V. THE PENNA. CO., ETC

In Baxendale v. Bennett, L.R. 3 Q.B. Div. 525, 33 Am. Rep.

137, 4 Eng. Rul. Cas. 637, the defendant at the request of one
Holmes signed a blank acceptance. Defendant after the paper
had been returned to him by Holmes placed it in an unlocked
desk in his chambers. The bill was stolen from the desk,
completed and negotiated. It was contended that defendant
had so negligently dealt with the acceptance as to have
facilitated the theft. The court held that plaintiff, a bona fide
holder, was not entitled to judgment.
In Linick v. A.J. Nutting Co., supra, a blank check signed by the
plaintiff was stolen by persons who filled in the amount and a
fictitious name as payee and presented it to the drawee bank
to be certified. They endorsed the name of the payee and
transferred the check to the defendant for value who collected
the amount of the check from the bank. The drawer having
taken up the check from the bank instituted action for money
had and received. Defendant sought to defend on the ground
that plaintiff was estopped by reason of negligence to deny
liability on the check. But the court held that the check was an
incomplete instrument and that negligent custody of the
check was not borne out by the facts.
In a recent case, City National Bank of Galveston v. American
Express Co., Tex. Com. App., 16 S.W.2d 278, 280, the court in
answer to the contention that the defendant company should
not be heard to deny the validity of travelers checks stolen
from a selling agency, completed and negotiated to innocent
purchasers for value, there being no negligence on the part of
the selling agency, said: "General knowledge that banks are
robbed sometimes does not charge any man with lack of
prudence in committing incomplete instruments, though duly
signed by him as maker, to the custody of a particular bank.
Nor is it thought that the express company by placing the
incomplete instruments with the bank, assumed the risk of
liability arising against the company on account of the
incomplete instruments being taken by robbery and
subsequently completed and negotiated by the robbers."
See, also, Daniel on Negotiable Instruments, 6th Ed., 986
and 987; Negligence in the Law of Bills and Notes, 24 Col. L.
Rev. 685; 13 Minn. L. Rev. 146; Annotations, L.R.A. 1915E, 351
and 110 A.L.R. 976.
[4-6] While there can be no question that the provisions of the
Negotiable Instruments Law do not prevent an inquiry into the
question of the negligent custody of an incomplete
instrument, and that, if as a result of negligence such
instrument comes into the hands of a holder in due course,
the latter may recover, yet we cannot say under the facts and
circumstances of the instant case that defendant was
negligent. The loss did not result from completion and
negotiation of the check by one entrusted with its possession,
and we are not concerned with a breach of duty as between a
depositor and drawee. It does not appear that defendant
company had reason to mistrust its employee and to
anticipate the wrongful taking by him of a check signed in
blank,
the subsequent completion
and
negotiation.
The drawer owes the duty to use due care in the execution of
checks, but it does not follow as a legal conclusion that

The judgment appealed from is reversed.

All the Judges concur.

KEY PASSAGES FROM THIS CASE (1)

I.

On the other hand, the bank may only pay upon the
signature of the drawer, and if that be not genuine,
i.e., forged, the bank, if it pays such check, is liable
to the depositor, because it has no written order from
the depositor. Even though the forgery of the
drawer's
practically

signature
defy

is

done

detection,

so

skillfully

such

as

an

as

to

exact

simulation, the bank is liable. Since this liability of

the bank is therefore absolute, even though it
exercises the highest possible degree of care, such
liability is purely for breach of contract, i.e., the
absence

of

the

signed

order

of

the

depositor. Quoted 1 time

Argued October 4, 1946.

OPINION BY ARNOLD, J., March 4, 1947:

The plaintiff signed her name to a check drawn upon the
defendant bank of which she had been a depositor for years.
Except for her signature nothing was written on it. The check
was stolen and completed by filling in the amount, $250, the
date and the name of the payee (fictitious). The defendant
bank paid the check to the fictitious payee, who properly
indorsed it. The plaintiff-drawer sued the drawee bank in
assumpsit for the amount thereof, alleging negligence of the
bank, inter alia, in failing to identify the person paid. The court
below entered judgment for the defendant upon an affidavit of
defense raising questions of law.
The duty of a bank toward its depositors rests upon an implied
contract. It is bound to honor, according to tenor, the
depositor's checks bearing genuine signature where the
latter's balance is sufficient. A failure to honor such a check is
a breach of the contract subjecting the bank to damages,
which may be punitive.
Unless the balance is subject to lien or claim.

Nego Fulltext Set 4

Page 25 of 55

MacMillan v. London Joint Stock Bank, 2 K.B. 439 1917.

1
On the other hand, the bank may only pay upon the signature
of the drawer, and if that be not genuine, i.e., forged, the
bank, if it pays such check, is liable to the depositor, because
it has no written order from the depositor. Even though the
forgery of the drawer's signature is done so skillfully as to
practically defy detection, such as an exact simulation, the
bank is liable. Since this liability of the bank is therefore
absolute, even though it exercises the highest possible degree
of care, such liability is purely for breach of contract, i.e., the
absence of the signed order of the depositor. So, too, if the
check bears the genuine signature of the drawer, but is paid
by the bank upon the forged indorsement of the payee, the
bank is liable because it has paid otherwise than as directed
by the written order. In both such cases the bank's liability is
absolute unless an estoppel bars the maker from alleging the
forgery. It is no defense to show investigation, identification,
good judgment or prudential conduct. If the signature and
indorsement are genuine and the payment follows the
depositor's written order, the bank is no less protected by law
where it does nothing to determine the genuineness. The
bank pays at its peril, with or without investigation or
identification, which things are had by the bank solely for its
own safety, for the depositor's rights are unaffected either by
their presence or absence. No duty in these respects is owed
to the depositor, but the liability in such cases flows from the
breach of the contract. There is no room for any doctrine of
negligence, which in turn depends upon improper fulfillment
of a duty of care.
Another type of case is where the check has been "raised",
the signatures of the maker and the payee being genuine, and
delivery being intended. Of such alteration the check carries
its own evidence, and hence the drawee is liable unless the
maker is estopped, and to determine this the law examines
the care used by the respective parties (balancing or
contrasting negligence) as where the check as drawn by the
maker was written in such careless fashion as readily to lend
itself to, or indeed invite, an alteration highly difficult to
detect. We find no raised check cases among our appellate
court decisions, but in Leas et al. v. Walls, 101 Pa. 57, a
"raised" note case, the drawer was held to the duty of
ordinary care in guarding against alterations. Usually it is held
that the depositor may be made to suffer the loss if his
negligence, by facilitating the alteration, contributed to induce
the payment, provided the bank be free from negligence. This
is on the theory that the depositor should take usual and
reasonable precautions. Such defense by the bank has been
held good in New York, California and Tennessee. To the
contrary are the holdings in Texas,Kentucky and Oklahoma. In
England apparently the bank is held liable unless there also
appear in the case elements of entrusting such check (easily
susceptible of alteration) to an employe or other person
acting for the drawer, who himself altered it.
Gutfreund v. East River Nat. Bank, 167 N.E. 171 ( 251 N.Y. 58).
Glassell Development Company v. Citizens' National
Bank, 216 P. 1012; Leather Mfrs.' National Bank v.
Morgan, 117 U.S. 96, 29 L. ed. 811.
Foutch v. Alexandria B. T. Co., 149 S.W.2d 76, a very well
reasoned opinion.
Glasscock v. First National Bank, 266 S.W. 393.
Commercial Bank v. Arden Fraley, 197 S.W. 951.
First National Bank v. Ketchum, 172 P. 81.

Where a check is signed by the maker in blank and taken and

filled in, we find no decisions in Pennsylvania. In this type of
case the signatures are genuine, and the check bears no
evidence on its face that delivery was not intended; and there
is no alteration of the writing or figures. In other jurisdictions
there is a divergence of opinion. Indiana, Missouri, New
York and California hold that the loss falls upon the depositor,
for reasons which will hereafter appear.
In Robb v. Pennsylvania Company, etc., 186 Pa. 456, 40 A.
969, 41 A. 49, the question before the court was whether the
drawer's possession of a rubber stamp facsimile signature
estopped him from asserting that a check paid by the bank
was a forgery, the forgery being accomplished by means of
the stamp. The majority view was that the precautions of the
depositor were for the jury. Justice WILLIAMS and Chief Justice
STERRETT filed a dissenting opinion and wanted the law
applied as in a blank check case. The dissent then stated the
law of blank checks, which the majority of the court did not
controvert, only denying the application of the rule to a rubber
stamp forgery. The law was thus stated at page 458a: "When
an account is opened at a bank by the deposit of money the
depositor leaves his genuine signature with the banker for his
guidance and protection in the payment of checks. When
checks are presented bearing this signature they must not be
refused, but if the signature is a forgery, no matter how
skillfully it is done or how difficult of detection, they must not
be paid. . . . But if the depositor executes a check and for any
reason leaves it on his table where it is found by another, who
fills it up, presents it at bank and receives payment upon it,
this is a good payment by the bank, and the loss is that of the
depositor for the check was signed by him. If intead of leaving
his check upon the table the drawer had deposited it in a
drawer within his safe, locked the safe, and put the key away
in a box in his office . . . nevertheless if a clerk or employee
had taken the key from the box, unlocked the safe, abstracted
the check and used it for his own benefit, its payment by the
bank would have bound the depositor. His loss would have
been due not to the failure of the banker to distinguish his
genuine signature but to the crime of his employee who
obtained it surreptitiously. One of two innocent persons must
suffer because of the payment of the check, and the law
determines that the loss shall fall upon him whose act or
omission made the loss possible. If the depositor had not
signed his check and left it where it was possible for a criminal
to appropriate it, palpably the loss could not have happened."
Citizens' National Bank v. Reynolds, 126 N.E. 234.
S.S. Allen Co. v. Bank of Buchanan County, 182 S.W. 777.
Trust Co. of America v. Conklin, 119 N.Y.S. 367.
Rancho San Carlos, Inc., v. Bank of Italy, etc., 11 P.2d 424,
and Edelen v. Oakland Bank of Savings, 178 P. 737.
It has been said that three divergent theories exist, which will
be discussed seriatim. First, a strict and literal construction of
15 of the Negotiable Instruments Law. This view does not
commend itself, for that section relates to "holders" or any
person whose signature was placed thereon before delivery. A
"holder" takes the instrument prior to presentation for
payment. Since the drawee bank takes the instrument at and
for payment, it is not a holder. Section 15 applies to both
notes and checks, but since checks are required to be paid by
the drawee bank, and since the discount or purchase of notes
is not obligatory, the construction of 15 as it relates to
checks ought to be less literal and strict. Second, that the
right of recovery by the depositor shall be based on
contrasting or balancing the negligence between the drawer
and the bank, the ultimate fact of liability (and hence the

Nego Fulltext Set 4

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estoppel) to be determind by the jury under the particular

facts. This is the law of New Jersey. The difficulty with this
view is that while in theory the jury determines whether there
should be an estoppel under the facts of the case, in practice
it may consider the financial, rather than the legal,
responsibility. In addition the estoppel itself should be for the
court under the facts found, and not for the jury. The third
view, which we adopt, is the application of the maxim that as
between two innocent parties, the bank and the depositor,
liability should be borne by the one, i.e., the depositor, who
made the loss possible. This is estoppel in pais. Apparently
the rule was first applied by our appellate courts in 1833
in President, Merchants' Bank, v. President, Bank of U.S., 4
Rawle 318, although a similar maxim or rule existed from the
early days of the law. It has been as recently enunciated
as Ervin v. City of Pittsburgh, 339 Pa. 241, 14 A.2d 297,
and Kienberger v. Lally,130 Pa. Super. 583, 198 A. 453. The
effect of the rule is to bar the assertion of a given claim or a
defense, by forbidding the same.

required to call upon the depositor to determine whether a

check bearing his signature was actually delivered is to set at
naught all of the modern conveniences accomplished by their
use.
Some idea of the vast increase in check payments in only a
part of Pennsylvania is obtained from the Federal Reserve
Bank of Philadelphia. Debits to individual accounts in
Philadelphia for the past ten years have been as follows:
1937 .......... $16,344,752,000 1942 ......... $21,944,601,000
1938 .......... 14,553,165,000 1943 ......... 26,307,761,000 1939
..........
15,813,654,000
1944
.........
28,287,668,000
1940 .......... 16,629,622,000 1945 ......... 30,074,082,000 1941
.......... 21,460,897,000 1946 ......... 32,139,495,000
Judgment affirmed.

(N.J.) Joseph Heinberg, Inc. v. Lincoln National Bank, 113 N.J.L.

76, 172 A. 528.
Where an incomplete instrument has not been delivered, it
will not, if completed and negotiated without authority, be a
valid contract in the hands of any holder, or against any
person whose signature was placed thereon before delivery:
15 of N.I.L., 56 P.S. 20.
Joseph Heinberg, Inc., v. Lincoln National Bank, 113 N.J.L.
76, 172 A. 528.
The rule is variously stated in Pennsylvania: ". . . the loss
should fall on the one whose act facilitated it": Ervin v. City of
Pittsburgh, 339 Pa. 241, at page 256, 14 A.2d 297. ". . . the
loss must fall on him by whose act the wrongdoer has been
enabled to commit the fraud": Gramigna v. Board of
Ministerial Pensions, etc., 330 Pa. 335, at 336, 199 A. 177.
". . . he who clothed the wrongdoer with the power to injure
must bear the loss": Keller v. N.J. Fidelity Plate Glass Ins.
Co., 306 Pa. 124, at 135, 159 A. 40. ". . . [the loser] must be
the one who places it within the power of the third person to
commit a wrong": Stirling's Petition, 292 Pa. 194, at page
200, 140 A. 869. ". . . the one who makes possible the
commission of the fraud is the loser": Williams v. Cook, 289
Pa. 207, at page 213, 137 A. 232. ". . . he who gave the
aggressor the means of doing the wrong must alone bear the
consequences of the act": Dowd v. Crow, 205 Pa. 214, at
218, 54 A. 780. ". . . he must bear the loss whose act or
neglect has been the occasion of the suffering": Jeffers v.
Gill, 91 Pa. 290, at page 295. ". . . he shall suffer who by his
own acts occasioned the confidence and the loss": Garrard v.
Haddan, 67 Pa. 82 at page 85. ". . . the loss must fall on him
by whose act the wrongdoer has been enabled to commit the
fraud": Kienberger v. Lally, 130 Pa. Super. 583, at page
590, 198 A. 453.
In the instant case the plaintiff signed the check in blank, thus
putting it in the power of an unauthorized person to fill it in
and present it for payment. The depositor's act made the loss
possible and caused it, and enabled the thief to commit the
fraud. The depositor-plaintiff's acts in this respect are a bar
and an estoppel in her suit against the drawee bank, thus
preventing any recovery on her part. To hold otherwise would
require the bank to communicate with the drawer as each
check was presented, in order to find out if delivery was
intended. This is too much to be expected, and to place the
burden of loss or its chance on the depository if it does not
interview the maker, is neither fair nor compatible with public
interest. Checks have come to constitute the normal medium
of exchange. They are highly convenient to the ordinary
business or non-business depositor. They keep books for him.
In a very large proportion business and personal spending is
accomplished by checks. To say that the depository shall be

LINICK V. NUTTING CO
KEY PASSAGES FROM THIS CASE (3)
I.

This rule of law has now passed into the statute in

these words: "Where an incomplete instrument has
not been delivered it will not, if completed and
negotiated, without authority, be a valid contract in
the hands of any holder, as against any person
whose signature was placed thereon before
delivery." Quoted 2 times
II.
There is a vast difference in the rule of liability upon
negotiable instruments between a case where the
possession has been parted with by the affirmative
act of the maker in an incomplete state, and one
where his parting with such possession is the result
of a crime. Quoted 1 time
III.
"Delivery," as defined by section 2 of the Negotiable
Instruments Law, "means transfer of possession,
actual or constructive, from one person to
another." Quoted 1 time
MORE PASSAGES
BURR, J.:
On July 20, 1909, plaintiff signed his name to a blank check.
Thereafter David Ryckoff and Benjamin Silberman stole the
check, filled in the name of F.A. Mann as payee and the sum of
$147.87 as the amount thereof, and presented it to the State
Bank, where plaintiff kept his account, and procured it to be
certified. Thereafter they indorsed said check with the name
of F.A. Mann and passed it to defendant for value, who
collected the amount thereof from the said bank. Plaintiff,
having taken up said check from the bank now sues defendant
as for money had and received for the amount of the check.
The question submitted, and which we are called upon to
decide, is whether defendant obtained any title to the check
which, as against the plaintiff, was a valid obligation for
$147.87, As a general rule, one can only part with title to
personal property by his voluntary act, or by conduct
sufficient to create an estoppel. In the case of commercial
paper it was long ago held that when by voluntary act a party
intrusts another with such paper with a blank thereon
designed to be filled up with a stipulated amount, such party
is liable to a bona fide holder of the instrument, although the
amount inserted was larger than that agreed upon. So, if the
place of payment is left blank when the maker delivers it, the

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insertion of a different place of payment than that agreed

upon will not avoid such paper in the hands of an innocent
holder
for
value.
(See Van
Duzer v. Howe, 21
N.Y.
531; Redlich v. Doll, 54 id. 234.) The authorities are not
harmonious as to the basis of this liability. Some deem that it
rests upon an implied authority conferred by the maker upon
the person to whom it was delivered to fill in the blanks, and
others upon estoppel by reason of negligence. ( National
Exchange Bank v. Lester, 194 N.Y. 461, 465.) Upon neither of
these grounds can the plaintiff be charged in this case.
Certainly not upon the ground of implied authority, for that
doctrine grows out of the relation of principal and agent, and
there is no such relation between a thief and his victim.
1
There is a vast difference in the rule of liability upon
negotiable instruments between a case where the possession
has been parted with by the affirmative act of the maker in an
incomplete state, and one where his parting with such
possession is the result of a crime. The rule that the bona
fide holder of an incomplete instrument, negotiable but for
some lack capable of being supplied, has an implied authority
to supply the omission, and to hold the maker thereon, only
applies where the latter has by his own act, or the act of
another, authorized, confided in or invested with apparent
authority by him, put the instrument in circulation as
negotiable paper. ( Ledwich v. McKim, 53 N.Y. 307; Davis
Sewing Machine Co. v. Best, 105 id. 59, 67.)
None of the circumstances connected with the theft of this
paper appear, except that it was stolen and that the persons
guilty of the crime have been tried, convicted and sentenced
for the same. Plaintiff, therefore, cannot be charged with
negligence giving rise to an estoppel, unless a man is guilty of
negligence in writing his name upon a piece of paper which by
some possibility may afterwards be stolen from him, which
paper afterwards comes into the hands of a third person who
is an entire stranger to the transaction, with words written
over the signature which are sufficient in form to make it a
check or note. Actionable negligence involves, first, the
existence of a duty; second, the omission to exercise ordinary
and reasonable care in connection therewith, and third, injury
resulting in consequence thereof. In view of the contractual
relation existing between the bank and its depositor, some
duty of care may be owing to it. The bank, by the terms of its
contract with him, is bound to pay on his account to the
holder of paper bearing his genuine signature the amount
called for, if such amount is to his credit. But a third person is
under no obligation to honor his paper. He can take it or not
as he pleases, and as a rule such paper is accepted in reliance
upon the immediate transferrer thereof. ( Trust Co. of
America v. Conklin, 65 Misc. Rep. 1.) What duty, therefore, is
owing to him? Again, at the risk of being charged with lack of
ordinary care and prudence, must one guard against the
possibility of a crime being committed? It has been held that
where the maker of a completed negotiable instrument has
parted with its possession, but it is in such form that it is
possible to make alterations in it, he is not guilty of
negligence in thus delivering it, for the reason that he is not
bound to assume that the person to whom he delivers it will
be likely to commit a crime because it is apparently easy to
do so. ( National Exchange Bank v. Lester, supra.) The drawer
of a check is not bound so to prepare it that nobody else can
successfully tamper with it. ( Critten v. Chemical Nat.
Bank, 171 N.Y. 219, 224.) Much less can a party be held liable
for negligence because it is possible that he may be deprived
of the possession of an incomplete negotiable instrument by a
crime. He is not bound to anticipate nor guard against such an
act. No case has been cited holding a maker liable under such
circumstances. We have found two well-considered cases to
the
contrary.
( Burson v. Huntington, 21
Mich.
415; Baxendale v. Bennett, L.R. 3 Q.B. Div. 525.) In
the Burson case the note was taken by the payee named
therein from a table in the room of the maker, without his
authority or consent, and transferred to an innocent holder for
value. Judge CHRISTIANCY says, in an opinion concurred in by

the entire court (the italics are ours): "When a note payable to
bearer, which has once become operative by delivery, has
been lost or stolen from the owner, and has subsequently
come to the hands of a bona fide holder for value, the latter
may recover against the maker, and all indorsers on the paper
when in the hands of the loser; and the loser must sustain the
loss. In such a case there was a complete legal instrument;
the maker is clearly liable to pay it to some one; and the
question is only to whom. But in the case before us, where the
note had never been delivered and therefore had no legal
inception or existence as a note, the question is whether he is
liable to pay at all, even to an innocent holder for value. The
wrongful act of a thief or a trespasser may deprive the holder
of his property in a note which has once become a note, or
property, by delivery, and may transfer the title to an
innocent purchaser for value. But a note in the hands of the
maker before delivery is not property, nor the subject of
ownership, as such; it is, in law, but a blank piece of paper.
Can the theft or wrongful seizure of this paper create a valid
contract on the part of the maker against his will,
where none existed before? There is no principle of the law of
contracts upon which this can be done, unless the facts of the
case are such that, in justice and fairness, as between the
maker and the innocent holder, the maker ought to be
estopped to deny the making and delivery of the note. * * *
There may be cases where the culpable negligence or
recklessness of the maker in allowing an undelivered note to
get into circulation, might justly estop him from setting up
non-delivery; as if he were knowingly to throw it into the
street, or otherwise leave it accessible to the public, with no
person present to guard against its abduction under
circumstances when he might reasonably apprehend that it
would be likely to be taken. * * * The evidence tends to show
that when he left the room in his own house, the note being
on the table, and his sister remaining there, he did not confide
it to the custody of the payee, but told him not to take it, and
no final agreement between them had yet been made, and no
consideration given. Under such circumstances he can no
more be said to have trusted it to the payee's custody or
confidence, than that he trusted his spoons or other
household goods to his custody or confidence; and there was
no more apparent reason to suppose he would take and carry
off the one, than the other. The maker, therefore, cannot be
held responsible for any negligence; there was nothing to
prove negligence, unless he was bound to suspect, and treat
as a knave, a thief or a criminal, the man who came to his
house apparently on business, because he afterwards proved
himself to be such. This, we think, would be preposterous. We,
therefore, see no ground upon which the defendant could be
held liable on a note thus obtained, even to a bona fide holder
for value."
In the case of Baxendale v. Bennett ( supra), decided by the
English Court of Appeal, the defendant, at the request of one
Holmes, had written his name for Holmes' accommodation as
an acceptor upon a paper which was blank, except that it had
an impressed bill stamp upon it, and had given it to Holmes
with authority to fill it up and sign it as drawer. Afterwards
Holmes, discovering that he did not need the accommodation,
returned the paper to defendant in the same state in which he
received it. It was stolen from defendant's desk, filled up and
signed by one Cartwright as drawer, indorsed by him, and
subsequently transferred to plaintiff as a bona fide holder for
value. The court (BRAMWELL, L.J.) held that the defendant was
not liable. In his opinion he says: "Suppose he had signed a
blank cheque, with no payee, or date, or amount, and it was
stolen, would he be liable or accountable, not merely to his
banker the drawee, but to a holder? * * * I cannot think so. But
what about the authorities? It must be admitted that the
cases
of Young v. Grote (4
Bing.
253)
and Ingham v. Primrose (7 C.B. [N.S.] 82) go a long way to
justify this judgment; but in all those cases, and in all the
others where the alleged maker or acceptor has been held
liable, he has voluntarily parted with the instrument; it had
not been got from him by the commission of a crime. This,
undoubtedly, is a distinction, and a real distinction. The

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defendant here has not voluntarily put into any one's hands
the means, or part of the means, for committing a crime. But
it is said that he has done so through negligence. I confess I
think he has been negligent; that is to say, I think if he had
had this paper from a third person, as a bailee bound to keep
it with ordinary care, he would not have done so. But then this
negligence is not the proximate or effective cause of the
fraud. A crime was necessary for its completion. Then
the Bank of Irelandv. Evans' Trustees (5 H.L.C. 389) shows
under such circumstances there is no estoppel."

2
This rule of law has now passed into the statute in these
words: "Where an incomplete instrument has not been
delivered it will not, if completed and negotiated, without
authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon
before delivery." (Neg. Inst. Law [Consol. Laws, chap. 38; Laws
of 1909, chap. 43], 34.) The provision of the subsequent
section of the same act, to the effect that "where the
instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed," must be read in
connection with said section 34, and this provision does not
apply in the case of an incomplete instrument, completed and
negotiated without authority. (Crawford Neg. Inst. 35, note.)
We conclude, therefore, that the delivery of a promissory note
by the maker is necessary to a valid inception of the contract.
The possession of such a note by the payee or indorsee
is prima facie evidence of delivery, but if it appear that the
note has never been actually delivered and that without any
confidence, or negligence, or fault of the maker, but by force
or fraud, it was put in circulation, there can be no recovery
upon it, even when in the hands of an innocent holder.
Defendant contends that, as against the plaintiff, the bank
was justified in paying out the plaintiff's money on the check,
and cites in support of his contention Trust Co. of
America v. Conklin ( supra). If so, it was not because the
check was a valid check in the hands of a third person, but
because of the peculiar contract relation between the bank
and its depositor. We are not called upon to decide this, since
it seems to be conceded that if the check was not a valid
obligation in the hands of the defendant this action will lie as
for money had and received.
The judgment appealed from must be reversed and a new trial
ordered, costs to abide the event.
JENKS and THOMAS, JJ., concurred; WOODWARD, J., read for
affirmance, with whom CARR, J., concurred.

G.R. No. 150228

BANK OF AMERICA NT & SA,
Petitioner, -versusPHILIPPINE RACING CLUB,
Respondent.
July 30, 2009

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the
Rules of Court from the Decision [1] promulgated on July 16,
2001 by the former Second Division of the Court of Appeals
(CA), in CA-G.R. CV No. 45371 entitled Philippine Racing Club,
Inc. v. Bank of America NT & SA, affirming the
Decision[2] dated March 17, 1994 of the Regional Trial Court
(RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor
of the respondent. Likewise, the present petition assails the
Resolution[3] promulgated on September 28, 2001, denying
the Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA
Decision are as follows:
Plaintiff-appellee PRCI is a domestic
corporation
which
maintains
several
accounts with different banks in the Metro
Manila
area. Among
the
accounts
maintained was Current Account No. 58891012 with defendant-appellant BA (Paseo de
Roxas
Branch). The
authorized
joint
signatories with respect to said Current
Account were plaintiff-appellees President
(Antonia Reyes) and Vice President for
Finance (Gregorio Reyes).
On or about the 2nd week of
December 1988, the President and Vice
President of plaintiff-appellee corporation
were scheduled to go out of the country in
connection
with
the
corporations
business. In order not to disrupt operations
in their absence, they pre-signed several
checks relating to Current Account No.
58891-012. The intention was to insure
continuity of plaintiff-appellees operations
by making available cash/money especially
to settle obligations that might become
due. These checks were entrusted to the
accountant with instruction to make use of
the same as the need arose. The internal
arrangement was, in the event there was
need to make use of the checks, the
accountant
would
prepare
the
corresponding voucher and thereafter
complete the entries on the pre-signed
checks.
It turned out that on December 16,
1988, a John Doe presented to defendantappellant bank for encashment a couple of
plaintiff-appellee corporations checks (Nos.
401116 and 401117) with the indicated
value of P110,000.00 each. It is admitted
that these 2 checks were among those
presigned by plaintiff-appellee corporations
authorized signatories.
The two (2) checks had similar
entries
with
similar
infirmities
and
irregularities. On the space where the name
of the payee should be indicated (Pay To The
Order Of) the following 2-line entries were
instead typewritten: on the upper line was
the word CASH while the lower line had the
following typewritten words, viz: ONE
HUNDRED
TEN
THOUSAND
PESOS
ONLY. Despite the highly irregular entries on
the face of the checks, defendant-appellant
bank, without as much as verifying and/or
confirming the legitimacy of the checks
considering the substantial amount involved
and the obvious infirmity/defect of the
checks on their faces, encashed said
checks. A verification process, even by was

Nego Fulltext Set 4

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of a telephone call to PRCI office, would

have taken less than ten (10) minutes. But
this was not done by BA. Investigation
conducted by plaintiff-appellee corporation
yielded the fact that there was no
transaction involving PRCI that call for the
payment of P220,000.00 to anyone. The
checks appeared to have come into the
hands of an employee of PRCI (one Clarita
Mesina who was subsequently criminally
charged for qualified theft) who eventually
completed without authority the entries on
the pre-signed checks. PRCIs demand for
defendant-appellant to pay fell on deaf
ears. Hence, the complaint.[4]
After due proceedings, the trial court rendered a
Decision in favor of respondent, the dispositive portion of
which reads:
PREMISES CONSIDERED, judgment
is hereby rendered in favor of plaintiff and
against the defendant, and the latter is
ordered to pay plaintiff:
(1)
The sum of Two Hundred Twenty
Thousand (P220,000.00) Pesos, with legal
interest to be computed from date of the
filing of the herein complaint;
(2)
The sum of Twenty Thousand
(P20,000.00) Pesos by way of attorneys
fees;
(3)
The sum of Ten Thousand
(P10,000.00) Pesos for litigation expenses,
and
(4)
To pay the costs of suit.
SO ORDERED.[5]
Petitioner appealed the aforesaid trial court Decision
to the CA which, however, affirmed said decision in toto in its
July 16, 2001 Decision. Petitioners Motion for Reconsideration
of the CA Decision was subsequently denied on September
28, 2001.
Petitioner now comes before this Court arguing that:
I.

The Court of Appeals gravely

erred in holding that the proximate
cause of respondents loss was
petitioners encashment of the
checks.
A.

B.

C.

II.

The Court of Appeals gravely

erred in holding that petitioner
was liable for the amount of
the checks despite the fact
that petitioner was merely
fulfilling its obligation under
law and contract.
The Court of Appeals gravely
erred in holding that petitioner
had a duty to verify the
encashment,
despite
the
absence of any obligation to
do so.
The Court of Appeals gravely
erred in not applying Section
14
of
the
Negotiable
Instruments Law, despite its
clear applicability to this case;

The Court of Appeals gravely

erred in not holding that the
proximate cause of respondents
loss was its own grossly negligent
practice of pre-signing checks
without payees and amounts and

delivering these pre-signed checks

to its employees (other than their
signatories).
III.

The Court of Appeals gravely

erred in affirming the trial courts
award of attorneys fees despite the
absence of any applicable ground
under Article 2208 of the Civil
Code.

IV.

The Court of Appeals gravely

erred in not awarding attorneys
fees,
moral
and
exemplary
damages, and costs of suit in favor
of petitioner, who clearly deserves
them.[6]

From the discussions of both parties in their

pleadings, the key issue to be resolved in the present case is
whether the proximate cause of the wrongful encashment of
the checks in question was due to (a) petitioners failure to
make a verification regarding the said checks with the
respondent in view of the misplacement of entries on the face
of the checks or (b) the practice of the respondent of presigning blank checks and leaving the same with its
employees.
Petitioner insists that it merely fulfilled its obligation
under law and contract when it encashed the aforesaid
checks. Invoking Sections 126[7] and 185[8] of the Negotiable
Instruments Law (NIL), petitioner claims that its duty as a
drawee bank to a drawer-client maintaining a checking
account with it is to pay orders for checks bearing the drawerclients genuine signatures. The genuine signatures of the
clients duly authorized signatories affixed on the checks
signify the order for payment. Thus, pursuant to the said
obligation, the drawee bank has the duty to determine
whether the signatures appearing on the check are the
drawer-clients or its duly authorized signatories. If the
signatures are genuine, the bank has the unavoidable legal
and contractual duty to pay. If the signatures are forged and
falsified, the drawee bank has the corollary, but equally
unavoidable legal and contractual, duty not to pay. [9]
Furthermore, petitioner maintains that there exists a
duty on the drawee bank to inquire from the drawer before
encashing a check only when the check bears a material
alteration. A material alteration is defined in Section 125 of
the NIL to be one which changes the date, the sum payable,
the time or place of payment, the number or relations of the
parties, the currency in which payment is to be made or one
which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the
effect of the instrument in any respect. With respect to the
checks at issue, petitioner points out that they do not contain
any material alteration.[10] This is a fact which was affirmed by
the trial court itself.[11]
There is no dispute that the signatures appearing on
the subject checks were genuine signatures of the
respondents authorized joint signatories; namely, Antonia
Reyes and Gregorio Reyes who were respondents President
and Vice-President for Finance, respectively. Both pre-signed
the said checks since they were both scheduled to go abroad
and it was apparently their practice to leave with the
company accountant checks signed in black to answer for
company obligations that might fall due during the signatories
absence. It is likewise admitted that neither of the subject
checks contains any material alteration or erasure.
However, on the blank space of each check reserved
for the payee, the following typewritten words appear: ONE
HUNDRED TEN THOUSAND PESOS ONLY. Above the same is
the typewritten word, CASH. On the blank reserved for the
amount, the same amount of One Hundred Ten Thousand
Pesos was indicated with the use of a check writer. The
presence of these irregularities in each check should have

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alerted the petitioner to be cautious before proceeding to

encash them which it did not do.
It is well-settled that banks are engaged in a
business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who
transact business with them. They have the obligation to treat
their clients account meticulously and with the highest degree
of care, considering the fiduciary nature of their
relationship.The diligence required of banks, therefore, is
more than that of a good father of a family.[12]
Petitioner asserts that it was not duty-bound to verify
with the respondent since the amount below the typewritten
word CASH, expressed in words, is the very same amount
indicated in figures by means of a check writer on the amount
portion of the check. The amount stated in words is, therefore,
a mere reiteration of the amount stated in figures. Petitioner
emphasizes that a reiteration of the amount in words is
merely a repetition and that a repetition is not an alteration
which if present and material would have enjoined it to
commence verification with respondent.[13]
We do not agree with petitioners myopic view and
carefully crafted defense. Although not in the strict sense
material alterations, the misplacement of the typewritten
entries for the payee and the amount on the same blank and
the repetition of the amount using a check writer were
glaringly obvious irregularities on the face of the
check.Clearly, someone made a mistake in filling up the
checks and the repetition of the entries was possibly an
attempt to rectify the mistake. Also, if the check had been
filled up by the person who customarily accomplishes the
checks of respondent, it should have occurred to petitioners
employees that it would be unlikely such mistakes would be
made. All these circumstances should have alerted the bank
to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to
the checks or did not have authority to fill up and encash the
same. As noted by the CA, petitioner could have made a
simple phone call to its client to clarify the irregularities and
the loss to respondent due to the encashment of the stolen
checks would have been prevented.
In the case at bar, extraordinary diligence demands
that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the
entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the
decidedly
unusual
circumstances
surrounding
their
encashment. Respondents witness testified that for checks in
amounts greater than Twenty Thousand Pesos (P20,000.00) it
is the companys practice to ensure that the payee is indicated
by name in the check.[14] This was not rebutted by petitioner.
Indeed, it is highly uncommon for a corporation to make out
checks payable to CASH for substantial amounts such as in
this case. If each irregular circumstance in this case were
taken singly or isolated, the banks employees might have
been justified in ignoring them. However, the confluence of
the irregularities on the face of the checks and circumstances
that depart from the usual banking practice of respondent
should have put petitioners employees on guard that the
checks were possibly not issued by the respondent in due
course of its business. Petitioners subtle sophistry cannot
exculpate it from behavior that fell extremely short of the
highest degree of care and diligence required of it as a
banking institution.
Indeed, taking this with the testimony of petitioners
operations manager that in case of an irregularity on the face
of the check (such as when blanks were not properly filled
out) the bank may or may not call the client depending on
how busy the bank is on a particular day, [15] we are even more
convinced that petitioners safeguards to protect clients from
check fraud are arbitrary and subjective. Every client should
be treated equally by a banking institution regardless of the
amount of his deposits and each client has the right to expect

that every centavo he entrusts to a bank would be handled

with the same degree of care as the accounts of other
clients. Perforce, we find that petitioner plainly failed to
adhere to the high standard of diligence expected of it as a
banking institution.
In defense of its cashier/tellers questionable action,
petitioner insists that pursuant to Sections 14 [16] and 16[17] of
the NIL, it could validly presume, upon presentation of the
checks, that the party who filled up the blanks had authority
and that a valid and intentional delivery to the party
presenting the checks had taken place. Thus, in petitioners
view, the sole blame for this debacle should be shifted to
respondent for having its signatories pre-sign and deliver the
subject checks.[18] Petitioner argues that there was indeed
delivery in this case because, following American
jurisprudence, the gross negligence of respondents
accountant in safekeeping the subject checks which resulted
in their theft should be treated as a voluntary delivery by the
maker who is estopped from claiming non-delivery of the
instrument.[19]
Petitioners contention would have been correct if the
subject checks were correctly and properly filled out by the
thief and presented to the bank in good order. In that
instance, there would be nothing to give notice to the bank of
any infirmity in the title of the holder of the checks and it
could validly presume that there was proper delivery to the
holder. The bank could not be faulted if it encashed the
checks under those circumstances. However, the undisputed
facts plainly show that there were circumstances that should
have alerted the bank to the likelihood that the checks were
not properly delivered to the person who encashed the
same. In all, we see no reason to depart from the finding in
the assailed CA Decision that the subject checks are properly
characterized as incomplete and undelivered instruments thus
making Section 15[20] of the NIL applicable in this case.
However, we do agree with petitioner that
respondents officers practice of pre-signing of blank checks
should be deemed seriously negligent behavior and a highly
risky means of purportedly ensuring the efficient operation of
businesses. It should have occurred to respondents officers
and managers that the pre-signed blank checks could fall into
the wrong hands as they did in this case where the said
checks were stolen from the company accountant to whom
the checks were entrusted.
Nevertheless, even if we assume that both parties
were guilty of negligent acts that led to the loss, petitioner will
still emerge as the party foremost liable in this case. In
instances where both parties are at fault, this Court has
consistently applied the doctrine of last clear chance in order
to assign liability.
In Westmont Bank v. Ong,[21] we ruled:
[I]t is petitioner [bank] which had the last
clear chance to stop the fraudulent
encashment of the subject checks had it
exercised due diligence and followed the
proper and regular banking procedures in
clearing
checks. As
we
had
earlier
ruled, the one who had a last clear
opportunity to avoid the impending
harm but failed to do so is chargeable
with
the
consequences
thereof.
[22]
(emphasis ours)
In the case at bar, petitioner cannot evade
responsibility for the loss by attributing negligence on the part
of respondent because, even if we concur that the latter was
indeed negligent in pre-signing blank checks, the former had
the last clear chance to avoid the loss. To reiterate, petitioners
own operations manager admitted that they could have called
up the client for verification or confirmation before honoring
the dubious checks. Verily, petitioner had the final opportunity

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to avert the injury that befell the respondent. Failing to make

the necessary verification due to the volume of banking
transactions on that particular day is a flimsy and
unacceptable excuse, considering that the banking business is
so impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that the appropriate standard of diligence
must be a high degree of diligence, if not the utmost
diligence.[23] Petitioners negligence has been undoubtedly
established and, thus, pursuant to Art. 1170 of the NCC, [24] it
must suffer the consequence of said negligence.
In the interest of fairness, however, we believe it is proper to
consider respondents own negligence to mitigate petitioners
liability. Article 2179 of the Civil Code provides:
Art.
2179. When
the
plaintiffs
own
negligence
was
the
immediate
and
proximate cause of his injury, he cannot
recover damages. But if his negligence was
only contributory, the immediate and
proximate cause of the injury being the
defendants lack of due care, the plaintiff
may recover damages, but the courts shall
mitigate the damages to be awarded.
Explaining this provision in Lambert v. Heirs of Ray
Castillon,[25] the Court held:
The underlying precept on contributory
negligence is that a plaintiff who is partly
responsible for his own injury should not be
entitled to recover damages in full but must
bear the consequences of his own
negligence. The defendant must thus be
held liable only for the damages actually
caused by his negligence. xxx xxx xxx
As we previously stated, respondents practice of
signing checks in blank whenever its authorized bank
signatories would travel abroad was a dangerous policy,
especially considering the lack of evidence on record that
respondent had appropriate safeguards or internal controls to
prevent the pre-signed blank checks from falling into the
hands of unscrupulous individuals and being used to commit a
fraud against the company. We cannot believe that there was
no other secure and reasonable way to guarantee the nondisruption of respondents business. As testified to by
petitioners expert witness, other corporations would ordinarily
have another set of authorized bank signatories who would be
able to sign checks in the absence of the preferred
signatories.[26] Indeed, if not for the fortunate happenstance
that the thief failed to properly fill up the subject checks,
respondent would expectedly take the blame for the entire
loss since the defense of forgery of a drawers signature(s)
would be unavailable to it. Considering that respondent
knowingly took the risk that the pre-signed blank checks
might fall into the hands of wrongdoers, it is but just that
respondent shares in the responsibility for the loss.
We also cannot ignore the fact that the person who
stole the pre-signed checks subject of this case from
respondents accountant turned out to be another employee,
purportedly a clerk in respondents accounting department. As
the employer of the thief, respondent supposedly had control
and supervision over its own employee. This gives the Court
more reason to allocate part of the loss to respondent.
Following established jurisprudential precedents,
we believe the allocation of sixty percent (60%) of the
actual damages involved in this case (represented by the
amount of the checks with legal interest) to petitioner is
proper under the premises. Respondent should, in light of its
contributory negligence, bear forty percent (40%) of its own
loss.
[27]

Finally, we find that the awards of attorneys fees and

litigation expenses in favor of respondent are not justified
under the circumstances and, thus, must be deleted. The
power of the court to award attorneys fees and litigation
expenses under Article 2208 of the NCC [28] demands factual,
legal, and equitable justification.
An adverse decision does not ipso facto justify an
award of attorneys fees to the winning party. [29] Even when a
claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still attorneys fees may not be
awarded where no sufficient showing of bad faith could be
reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[30]
WHEREFORE, the Decision of the Court of Appeals
dated July 16, 2001 and its Resolution dated September 28,
2001 are AFFIRMED with the following MODIFICATIONS: (a)
petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two
Hundred Twenty Thousand Pesos (P220,000.00) with legal
interest as awarded by the trial court and (b) the awards of
attorneys fees and litigation expenses in favor of respondent
are deleted.
Proportionate costs.
SO ORDERED.

G.R. No. 141181

April 27, 2007

SAMSON CHING, Petitioner,

vs.
CLARITA NICDAO and HON. COURT OF
APPEALS, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari filed by
Samson Ching of the Decision1 dated November 22, 1999 of
the Court of Appeals (CA) in CA-G.R. CR No. 23055. The
assailed decision acquitted respondent Clarita Nicdao of
eleven (11) counts of violation of Batas Pambansa
Bilang (BP) 22, otherwise known as "The Bouncing Checks
Law." The instant petition pertains and is limited to the civil
aspect of the case as it submits that notwithstanding
respondent Nicdaos acquittal, she should be held liable to
pay petitioner Ching the amounts of the dishonored checks in
the aggregate sum of P20,950,000.00.
Factual and Procedural Antecedents
On October 21, 1997, petitioner Ching, a Chinese national,
instituted criminal complaints for eleven (11) counts of
violation of BP 22 against respondent Nicdao. Consequently,
eleven (11) Informations were filed with the First Municipal
Circuit Trial Court (MCTC) of Dinalupihan-Hermosa, Province of
Bataan, which, except as to the amounts and check numbers,
uniformly read as follows:
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF
BATAS PAMBANSA BILANG 22, committed as follows:
That on or about October 06, 1997, at Dinalupihan, Bataan,
Philippines, and within the jurisdiction of this Honorable Court,
the said accused did then and there willfully and unlawfully
make or draw and issue Hermosa Savings & Loan Bank, Inc.
Check No. [002524] dated October 06, 1997 in the amount of

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[P20,000,000.00] in payment of her obligation with

complainant Samson T.Y. Ching, the said accused knowing
fully well that at the time she issued the said check she did
not have sufficient funds in or credit with the drawee bank for
the payment in full of the said check upon presentment, which
check when presented for payment within ninety (90) days
from the date thereof, was dishonored by the drawee bank for
the reason that it was drawn against insufficient funds and
notwithstanding receipt of notice of such dishonor the said
accused failed and refused and still fails and refuses to pay
the value of the said check in the amount of [P20,000,000.00]
or to make arrangement with the drawee bank for the
payment in full of the same within five (5) banking days after
receiving the said notice, to the damage and prejudice of the
said Samson T.Y. Ching in the aforementioned amount of
[P20,000,000.00], Philippine Currency.
CONTRARY TO LAW.
Dinalupihan, Bataan, October 21, 1997.
(Sgd.) SAMSON T.Y. CHING

Petitioner Ching claimed that he went back to respondent

Nicdao several times more but every time, she would tell him
that she had no money. Then in September 1997, respondent
Nicdao allegedly got mad at him for being insistent and
challenged him about seeing each other in court. Because of
respondent Nicdao's alleged refusal to pay her obligations, on
October 6, 1997, petitioner Ching deposited the checks that
she issued to him. As he earlier stated, the checks were
dishonored by the bank for being "DAIF." Shortly thereafter,
petitioner Ching, together with Emma Nuguid, wrote a
demand letter to respondent Nicdao which, however, went
unheeded. Accordingly, they separately filed the criminal
complaints against the latter.
On cross-examination,14 petitioner Ching claimed that he had
been a salesman of the La Suerte Cigar and Cigarette
Manufacturing for almost ten (10) years already. As such, he
delivered the goods and had a warehouse. He received salary
and commissions. He could not, however, state his exact
gross income. According to him, it increased every year
because of his business. He asserted that aside from being a
salesman, he was also in the business of extending loans to
other people at an interest, which varied depending on the
person he was dealing with.

Complainant
The cases were docketed as Criminal Cases Nos. 9433 up to
9443 involving the following details:
DELETED TABLE
At about the same time, fourteen (14) other criminal
complaints, also for violation of BP 22, were filed against
respondent Nicdao by Emma Nuguid, said to be the common
law spouse of petitioner Ching. Allegedly fourteen (14)
checks, amounting to P1,150,000.00, were issued by
respondent Nicdao to Nuguid but were dishonored for lack of
sufficient funds. The Informations were filed with the same
MCTC and docketed as Criminal Cases Nos. 9458 up to 9471.
At her arraignment, respondent Nicdao entered the plea of
"not guilty" to all the charges. A joint trial was then conducted
for Criminal Cases Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443,
petitioner Ching and Imelda Yandoc, an employee of the
Hermosa Savings & Loan Bank, Inc., were presented to prove
the charges against respondent Nicdao. On directexamination,13 petitioner Ching preliminarily identified each of
the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks
that were allegedly issued to him by respondent Nicdao
amounting to P20,950,000.00. He identified the signatures
appearing on the checks as those of respondent Nicdao. He
recognized her signatures because respondent Nicdao
allegedly signed the checks in his presence. When petitioner
Ching presented these checks for payment, they were
dishonored by the bank, HSLB, for being "DAIF" or "drawn
against insufficient funds."
Petitioner Ching averred that the checks were issued to him
by respondent Nicdao as security for the loans that she
obtained from him. Their transaction began sometime in
October 1995 when respondent Nicdao, proprietor/manager of
Vignette Superstore, together with her husband, approached
him to borrow money in order for them to settle their financial
obligations. They agreed that respondent Nicdao would leave
the checks undated and that she would pay the loans within
one year. However, when petitioner Ching went to see her
after the lapse of one year to ask for payment, respondent
Nicdao allegedly said that she had no cash.

Petitioner Ching confirmed the truthfulness of the allegations

contained in the eleven (11) Informations that he filed against
respondent Nicdao. He reiterated that, upon their agreement,
the checks were all signed by respondent Nicdao but she left
them undated. Petitioner Ching admitted that he was the one
who wrote the date, October 6, 1997, on those checks when
respondent Nicdao refused to pay him.
With respect to the P20,000,000.00 check (Check No.
002524), petitioner Ching explained that he wrote the date
and amount thereon when, upon his estimation, the money
that he regularly lent to respondent Nicdao beginning October
1995 reached the said sum. He likewise intimated that prior to
1995,
they
had
another
transaction
amounting
to P1,200,000.00 and, as security therefor, respondent Nicdao
similarly issued in his favor checks in varying amounts
of P100,000.00 and P50,000.00. When the said amount was
fully paid, petitioner Ching returned the checks to respondent
Nicdao.
Petitioner Ching maintained that the eleven (11) checks
subject of Criminal Cases Nos. 9433-9443 pertained to
respondent Nicdaos loan transactions with him beginning
October 1995. He also mentioned an instance when
respondent Nicdaos husband and daughter approached him
at a casino to borrow money from him. He lent
them P300,000.00. According to petitioner Ching, since this
amount was also unpaid, he included it in the other amounts
that
respondent
Nicdao
owed
to
him
which
totaled P20,000,000.00 and wrote the said amount on one of
respondent Nicdaos blank checks that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997,
he regularly delivered money to respondent Nicdao, in the
amount
of P1,000,000.00
until
the
total
amount
reached P20,000,000.00. He did not ask respondent Nicdao to
acknowledge receiving these amounts. Petitioner Ching
claimed that he was confident that he would be paid by
respondent Nicdao because he had in his possession her blank
checks. On the other hand, the latter allegedly had no cause
to fear that he would fill up the checks with just any amount
because they had trust and confidence in each other. When
asked to produce the piece of paper on which he allegedly
wrote the amounts that he lent to respondent Nicdao,
petitioner Ching could not present it; he reasoned that it was
not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao
confided to him that she told her daughter Janette, who was

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married to a foreigner, that her debt to him was only

between P3,000,000.00 and P5,000,000.00. Petitioner Ching
claimed that he offered to accompany respondent Nicdao to
her daughter in order that they could apprise her of the
amount that she owed him. Respondent Nicdao refused for
fear that it would cause disharmony in the family. She assured
petitioner Ching, however, that he would be paid by her
daughter.
Petitioner Ching reiterated that after the lapse of one (1) year
from the time respondent Nicdao issued the checks to him, he
went to her several times to collect payment. In all these
instances, she said that she had no cash. Finally, in
September 1997, respondent Nicdao allegedly went to his
house and told him that Janette was only willing to pay him
between P3,000,000.00 and P5,000,000.00 because, as far as
her daughter was concerned, that was the only amount
borrowed from petitioner Ching. On hearing this, petitioner
Ching angrily told respondent Nicdao that she should not have
allowed her debt to reach P20,000,000.00 knowing that she
would not be able to pay the full amount.
Petitioner Ching identified the demand letter that he and
Nuguid sent to respondent Nicdao. He explained that he no
longer informed her about depositing her checks on his
account because she already made that statement about
seeing him in court. Again, he admitted writing the date,
October 6, 1997, on all these checks.
Another witness presented by the prosecution was Imelda
Yandoc, an employee of HSLB. On direct-examination, 15 she
testified that she worked as a checking account
bookkeeper/teller of the bank. As such, she received the
checks that were drawn against the bank and verified if they
were funded. On October 6, 1997, she received several
checks issued by respondent Nicdao. She knew respondent
Nicdao because the latter maintained a savings and checking
account with them. Yandoc identified the checks subject of
Criminal Cases Nos. 9433-9443 and affirmed that stamped at
the back of each was the annotation "DAIF". Further, per the
banks records, as of October 8, 1997, only a balance
of P300.00 was left in respondent Nicdaos checking account
and P645.83 in her savings account. On even date, her
account with the bank was considered inactive.
On cross-examination,16 Yandoc stated anew that respondent
Nicdaos checks bounced on October 7, 1997 for being "DAIF"
and her account was closed the following day, on October 8,
1997. She informed the trial court that there were actually
twenty-five (25) checks of respondent Nicdao that were
dishonored at about the same time. The eleven (11) checks
were purportedly issued in favor of petitioner Ching while the
other fourteen (14) were purportedly issued in favor of
Nuguid. Yandoc explained that respondent Nicdao or her
employee would usually call the bank to inquire if there was
an incoming check to be funded.
For its part, the defense proffered the testimonies of
respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao. On
direct-examination,17 respondent Nicdao stated that she only
dealt with Nuguid. She vehemently denied the allegation that
she had borrowed money from both petitioner Ching and
Nuguid in the total amount of P22,950,000.00. Respondent
Nicdao admitted, however, that she had obtained a loan from
Nuguid but only for P2,100,000.00 and the same was already
fully paid. As proof of such payment, she presented a Planters
Bank demand draft dated August 13, 1996 in the amount
of P1,200,000.00. The annotation at the back of the said
demand draft showed that it was endorsed and negotiated to
the account of petitioner Ching.
In addition, respondent Nicdao also presented and identified
several cigarette wrappers18 at the back of which appeared
computations. She explained that Nuguid went to the grocery

store everyday to collect interest payments. The principal loan

was P2,100,000.00 with 12% interest per day. Nuguid
allegedly wrote the payments for the daily interests at the
back of the cigarette wrappers that she gave to respondent
Nicdao.
The principal loan amount of P2,100,000.00 was allegedly
delivered by Nuguid to respondent Nicdao in varying amounts
of P100,000.00 and P150,000.00. Respondent Nicdao refuted
the averment of petitioner Ching that prior to 1995, they had
another transaction.
With respect to the P20,000,000.00 check, respondent Nicdao
admitted that the signature thereon was hers but denied that
she issued the same to petitioner Ching. Anent the other ten
(10) checks, she likewise admitted that the signatures thereon
were hers while the amounts and payee thereon were written
by either Jocelyn Nicdao or Melanie Tolentino, who were
employees of Vignette Superstore and authorized by her to do
so.
Respondent
Nicdao
clarified
that,
except
for
the P20,000,000.00 check, the other ten (10) checks were
handed to Nuguid on different occasions. Nuguid came to the
grocery store everyday to collect the interest payments.
Respondent Nicdao said that she purposely left the checks
undated because she would still have to notify Nuguid if she
already had the money to fund the checks.
Respondent Nicdao denied ever confiding to petitioner Ching
that she was afraid that her daughter would get mad if she
found out about the amount that she owed him. What
allegedly transpired was that when she already had the
money to pay them (presumably referring to petitioner Ching
and Nuguid), she went to them to retrieve her checks.
However, petitioner Ching and Nuguid refused to return the
checks claiming that she (respondent Nicdao) still owed them
money. She demanded that they show her the checks in order
that she would know the exact amount of her debt, but they
refused. It was at this point that she got angry and dared
them to go to court.
After the said incident, respondent Nicdao was surprised to be
notified by HSLB that her check in the amount
of P20,000,000.00 was just presented to the bank for
payment. She claimed that it was only then that she
remembered that sometime in 1995, she was informed by her
employee that one of her checks was missing. At that time,
she did not let it bother her thinking that it would eventually
surface when presented to the bank.
Respondent Nicdao could not explain how the said check
came into petitioner Chings possession. She explained that
she kept her checks in an ordinary cash box together with a
stapler and the cigarette wrappers that contained Nuguids
computations. Her saleslady had access to this box.
Respondent Nicdao averred that it was Nuguid who offered to
give her a loan as she would allegedly need money to manage
Vignette Superstore. Nuguid used to run the said store before
respondent Nicdaos daughter bought it from Nuguids family,
its previous owner. According to respondent Nicdao, it was
Nuguid who regularly delivered the cash to respondent Nicdao
or, if she was not at the grocery store, to her saleslady.
Respondent Nicdao denied any knowledge that the money
loaned to her by Nuguid belonged to petitioner Ching.
At the continuation of her direct-examination, 19 respondent
Nicdao said that she never dealt with petitioner Ching
because it was Nuguid who went to the grocery store
everyday to collect the interest payments. When shown
the P20,000,000.00 check, respondent Nicdao admitted that
the signature thereon was hers but she denied issuing it as a
blank check to petitioner Ching. On the other hand, with

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respect to the other ten (10) checks, she also admitted that
the signatures thereon were hers and that the amounts
thereon were written by either Josie Nicdao or Melanie
Tolentino, her employees whom she authorized to do so. With
respect to the payee, it was purposely left blank allegedly
upon instruction of Nuguid who said that she would use the
checks to pay someone else.
On cross-examination,20 respondent Nicdao explained that
Josie Nicdao and Melanie Tolentino were caretakers of the
grocery store and that they manned it when she was not
there. She likewise confirmed that she authorized them to
write the amounts on the checks after she had affixed her
signature
thereon.
She
stressed,
however,
that
the P20,000,000.00 check was the one that was reported to
her as lost or missing by her saleslady sometime in 1995. She
never reported the matter to the bank because she was
confident that it would just surface when it would be
presented for payment.
Again, respondent Nicdao identified the cigarette wrappers
which indicated the daily payments she had made to Nuguid.
The latter allegedly went to the grocery store everyday to
collect the interest payments. Further, the figures at the back
of the cigarette wrappers were written by Nuguid. Respondent
Nicdao asserted that she recognized her handwriting because
Nuguid sometimes wrote them in her presence. Respondent
Nicdao maintained that she had already paid Nuguid the
amount of P1,200,000.00 as evidenced by the Planters Bank
demand draft which she gave to the latter and which was
subsequently negotiated and deposited in petitioner Chings
account. In connection thereto, respondent Nicdao refuted the
prosecutions allegation that the demand draft was payment
for a previous transaction that she had with petitioner Ching.
She clarified that the payments that Nuguid collected from her
everyday were only for the interests due. She did not ask
Nuguid to make written acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony
of respondent Nicdao. On direct-examination, 21Tolentino
stated that she worked at the Vignette Superstore and she
knew Nuguid because her employer, respondent Nicdao, used
to borrow money from her. She knew petitioner Ching only by
name and that he was the "husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she
acted as its caretaker and was entrusted with the custody of
respondent Nicdaos personal checks. Tolentino identified her
own handwriting on some of the checks especially with
respect to the amounts and figures written thereon. She said
that Nuguid instructed her to leave the space for the payee
blank as she would use the checks to pay someone else.
Tolentino added that she could not recall respondent Nicdao
issuing a check to petitioner Ching in the amount
of P20,000,000.00. She confirmed that they lost a check
sometime in 1995. When informed about it, respondent
Nicdao told her that the check could have been issued to
someone else, and that it would just surface when presented
to the bank.

respondent Nicdaos check booklets, she noticed that a check

was missing. Respondent Nicdao told her that perhaps she
issued it to someone and that it would just turn up in the
bank. Tolentino was certain that the missing check was the
same one that petitioner Ching presented to the bank for
payment in the amount of P20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao
sometime in 1996. After the checks were dishonored in
October 1997, Tolentino got a call from respondent Nicdao.
After she was shown a fax copy thereof, Tolentino confirmed
that the P20,000,000.00 check was the same one that she
reported as missing in 1995.
Jocelyn Nicdao also took the witness stand to corroborate the
testimony of the other defense witnesses. On directexamination,23 she averred that she was a saleslady at the
Vignette Superstore from August 1994 up to April 1998. She
knew Nuguid as well as petitioner Ching.
Jocelyn Nicdao further testified that respondent Nicdao was
indebted to Nuguid. Jocelyn Nicdao used to fill up the checks
of respondent Nicdao that had already been signed by her and
give them to Nuguid. The latter came to the grocery store
everyday to pick up the interest payments. Jocelyn Nicdao
identified the checks on which she wrote the amounts and, in
some instances, the name of Nuguid as payee. However, most
of the time, Nuguid allegedly instructed her to leave as blank
the space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as the
documents on which Nuguid acknowledged receipt of the
interest payments. She explained that she was the one who
wrote the minus entries and they represented the daily
interest payments received by Nuguid.
On cross-examination,24 Jocelyn Nicdao stated that she was a
distant cousin of respondent Nicdao. She stopped working for
her in 1998 because she wanted to take a rest. Jocelyn Nicdao
reiterated that she handed the checks to Nuguid at the
grocery store.
After due trial, on December 8, 1998, the MCTC rendered
judgment in Criminal Cases Nos. 9433-9443 convicting
respondent Nicdao of eleven (11) counts of violation of BP 22.
The MCTC gave credence to petitioner Chings testimony that
respondent Nicdao borrowed money from him in the total
amount
of P20,950,000.00.
Petitioner
Ching
delivered P1,000,000.00 every month to respondent Nicdao
from 1995 up to 1997 until the sum reached P20,000,000.00.
The MCTC also found that subsequent thereto, respondent
Nicdao still borrowed money from petitioner Ching. As security
for these loans, respondent Nicdao issued checks to petitioner
Ching. When the latter deposited the checks (eleven in all) on
October 6, 1997, they were dishonored by the bank for being
"DAIF."

Tolentino recounted that Nuguid came to the grocery store

everyday to collect the interest payments of the loan. In some
instances, upon respondent Nicdaos instruction, Tolentino
handed to Nuguid checks that were already signed by
respondent Nicdao. Sometimes, Tolentino would be the one to
write the amount on the checks. Nuguid, in turn, wrote the
amounts on pieces of paper which were kept by respondent
Nicdao.

The MCTC explained that the crime of violation of BP 22 has

the following elements: (a) the making, drawing and issuance
of any check to apply to account or for value; (b) the
knowledge of the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its
presentment; and (c) subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.25

On cross-examination,22 Tolentino confirmed that she was

authorized by respondent Nicdao to fill up the checks and
hand them to Nuguid. The latter came to the grocery store
everyday to collect the interest payments. Tolentino claimed
that in 1995, in the course of chronologically arranging

According to the MCTC, all the foregoing elements are present

in the case of respondent Nicdaos issuance of the checks
subject of Criminal Cases Nos. 9433-9443. On the first
element, respondent Nicdao was found by the MCTC to have
made, drawn and issued the checks. The fact that she did not

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personally write the payee and date on the checks was not
material considering that under Section 14 of the Negotiable
Instruments Law, "where the instrument is wanting in any
material particular, the person in possession thereof has a
prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount x x x."
Respondent Nicdao admitted that she authorized her
employees to provide the details on the checks after she had
signed them.
The MCTC disbelieved respondent Nicdaos claim that
the P20,000,000.00 check was the same one that she lost in
1995. It observed that ordinary prudence would dictate that a
lost check would at least be immediately reported to the bank
to prevent its unauthorized endorsement or negotiation.
Respondent Nicdao made no such report to the bank. Even if
the said check was indeed lost, the MCTC faulted respondent
Nicdao for being negligent in keeping the checks that she had
already signed in an unsecured box.
The MCTC further ruled that there was no evidence to show
that petitioner Ching was not a holder in due course as to
cause it (the MCTC) to believe that the said check was not
issued to him. Respondent Nicdaos admission of
indebtedness was sufficient to prove that there was
consideration for the issuance of the checks.
The second element was also found by the MCTC to be
present as it held that respondent Nicdao, as maker, drawer
or issuer, had knowledge that at the time of issue she did not
have sufficient funds in or credit with the drawee bank for the
payment in full of the checks upon their presentment.
As to the third element, the MCTC established that the checks
were subsequently dishonored by the drawee bank for being
"DAIF" or drawn against insufficient funds. Stamped at the
back of each check was the annotation "DAIF." The bank
representative likewise testified to the fact of dishonor.
Under the foregoing circumstances, the MCTC declared that
the conviction of respondent Nicdao was warranted. It
stressed that the mere act of issuing a worthless check was
malum prohibitum; hence, even if the checks were issued in
the form of deposit or guarantee, once dishonored, the same
gave rise to the prosecution for and conviction of BP 22. 26 The
decretal portion of the MCTC decision reads:
WHEREFORE, in view of the foregoing, the accused is found
guilty of violating Batas Pambansa Blg. 22 in 11 counts, and is
hereby ordered to pay the private complainant the amount
of P20,950,000.00 plus 12% interest per annum from date of
filing of the complaint until the total amount had been paid.
The prayer for moral damages is denied for lack of evidence
to prove the same. She is likewise ordered to suffer
imprisonment equivalent to 1 year for every check issued and
which penalty shall be served successively.
SO ORDERED.27
Incidentally, on January 11, 1999, the MCTC likewise rendered
its judgment in Criminal Cases Nos. 9458-9471 and convicted
respondent Nicdao of the fourteen (14) counts of violation of
BP 22 filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of Dinalupihan,
Bataan, Branch 5, in separate Decisions both dated May 10,
1999, affirmed in toto the decisions of the MCTC convicting
respondent Nicdao of eleven (11) and fourteen (14) counts of

violation of BP 22 in Criminal Cases Nos. 9433-9443 and 94589471, respectively.

Respondent Nicdao forthwith filed with the CA separate
petitions for review of the two decisions of the RTC. The
petition involving the eleven (11) checks purportedly issued to
petitioner Ching was docketed as CA-G.R. CR No. 23055
(assigned to the 13th Division). On the other hand, the
petition involving the fourteen (14) checks purportedly issued
to Nuguid was docketed as CA-G.R. CR No. 23054 (originally
assigned to the 7th Division but transferred to the 6th
Division). The Office of the Solicitor General (OSG) filed its
respective comments on the said petitions. Subsequently, the
OSG filed in CA-G.R. CR No. 23055 a motion for its
consolidation with CA-G.R. CR No. 23054. The OSG prayed
that CA-G.R. CR No. 23055 pending before the 13th Division
be transferred and consolidated with CA-G.R. CR No. 23054 in
accordance with the Revised Internal Rules of the Court of
Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR
No. 23055 issued a Resolution dated October 19, 1999
advising the OSG to file the motion in CA-G.R. CR No. 23054
as it bore the lowest number. Respondent Nicdao opposed the
consolidation of the two cases. She likewise filed her reply to
the comment of the OSG in CA-G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the
assailed Decision in CA-G.R. CR No. 23055 acquitting
respondent Nicdao of the eleven (11) counts of violation of BP
22 filed against her by petitioner Ching. The decretal portion
of the assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is
hereby GRANTED. Accordingly, the decision dated May 10,
1999, of the Regional Trial Court, 3rd Judicial Region, Branch
5, Bataan, affirming the decision dated December 8, 1998, of
the First Municipal Circuit Trial Court of Dinalupihan-Hermosa,
Bataan, convicting petitioner Clarita S. Nicdao in Criminal
Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is
REVERSED and SET ASIDE and another judgment rendered
ACQUITTING her in all these cases, with costs de oficio.
SO ORDERED.28
On even date, the CA issued an Entry of Judgment declaring
that the above decision has become final and executory and is
recorded in the Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the
CA made the following factual findings:
Petitioner [respondent herein] Clarita S. Nicdao, a middleaged mother and housekeeper who only finished high school,
has a daughter, Janette Boyd, who is married to a wealthy
expatriate.
Complainant [petitioner herein] Samson Ching is a Chinese
national, who claimed he is a salesman of La Suerte Cigar and
Cigarette Factory.
Emma Nuguid, complainants live-in partner, is a CPA and
formerly connected with Sycip, Gorres and Velayo. Nuguid
used to own a grocery store now known as the Vignette
Superstore. She sold this grocery store, which was about to be
foreclosed, to petitioners daughter, Janette Boyd. Since then,
petitioner began managing said store. However, since
petitioner could not always be at the Vignette Superstore to
keep shop, she entrusted to her salesladies, Melanie Tolentino
and Jocelyn Nicdao, pre-signed checks, which were left blank
as to amount and the payee, to cover for any delivery of
merchandise sold at the store. The blank and personal checks

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were placed in a cash box at Vignette Superstore and were

filled up by said salesladies upon instruction of petitioner as to
amount, payee and date.
Soon thereafter, Emma Nuguid befriended petitioner and
offered to lend money to the latter which could be used in
running her newly acquired store. Nuguid represented to
petitioner that as former manager of the Vignette Superstore,
she knew that petitioner would be in need of credit to meet
the daily expenses of running the business, particularly in the
daily purchases of merchandise to be sold at the store. After
Emma Nuguid succeeded in befriending petitioner, Nuguid
was able to gain access to the Vignette Superstore where
petitioners blank and pre-signed checks were kept. 29
In addition, the CA also made the finding that respondent
Nicdao borrowed money from Nuguid in the total amount
of P2,100,000.00 secured by twenty-four (24) checks drawn
against respondent Nicdaos account with HSLB. Upon
Nuguids instruction, the checks given by respondent Nicdao
as security for the loans were left blank as to the payee and
the date. The loans consisted of (a) P950,000.00 covered by
ten (10) checks subject of the criminal complaints filed by
petitioner
Ching
(CA-G.R.
CR
No.
23055);
and
(b) P1,150,000.00 covered by fourteen (14) checks subject of
the criminal complaints filed by Nuguid (CA-G.R. CR No.
23054). The loans totaled P2,100,000.00 and they were
transacted between respondent Nicdao and Nuguid only.
Respondent Nicdao never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that,
based on the evidence, respondent Nicdao had already fully
paid the loans. In particular, the CA referred to the Planters
Bank demand draft in the amount of P1,200,000.00 which, by
his own admission, petitioner Ching had received. The
appellate court debunked petitioner Chings allegation that
the said demand draft was payment for a previous
transaction. According to the CA, petitioner Ching failed to
adduce evidence to prove the existence of a previous
transaction between him and respondent Nicdao.
Apart from the demand draft, the CA also stated that
respondent Nicdao made interest payments on a daily basis to
Nuguid as evidenced by the computations written at the back
of the cigarette wrappers. Based on these computations, as of
July 21, 1997, respondent Nicdao had made a total
of P5,780,000.00 payments to Nuguid for the interests alone.
Adding up this amount and that of the Planters Bank demand
draft, the CA placed the payments made by respondent
Nicdao to Nuguid as already amounting to P6,980,000.00 for
the principal loan amount of only P2,100,000.00.
The CA negated petitioner Chings contention that the
payments as reflected at the back of the cigarette wrappers
could be applied only to the interests due. Since the
transactions were not evidenced by any document or writing,
the CA ratiocinated that no interests could be collected
because, under Article 1956 of the Civil Code, "no interest
shall be due unless it has been expressly stipulated in
writing."
The CA gave credence to the testimony of respondent Nicdao
that when she had fully paid her loans to Nuguid, she tried to
retrieve her checks. Nuguid, however, refused to return the
checks to respondent Nicdao. Instead, Nuguid and petitioner
Ching filled up the said checks to make it appear that: (a)
petitioner Ching was the payee in five checks; (b) the six
checks were payable to cash; (c) Nuguid was the payee in
fourteen (14) checks. Petitioner Ching and Nuguid then put
the date October 6, 1997 on all these checks and deposited
them the following day. On October 8, 1997, through a joint
demand letter, they informed respondent Nicdao that her
checks were dishonored by HSLB and gave her three days to

settle her indebtedness or else face prosecution for violation

of BP 22.
With the finding that respondent Nicdao had fully paid her
loan obligations to Nuguid, the CA declared that she could no
longer be held liable for violation of BP 22. It was explained
that to be held liable under BP 22, it must be established,
inter alia, that the check was made or drawn and issued to
apply on account or for value. According to the CA, the word
"account" refers to a pre-existing obligation, while "for value"
means an obligation incurred simultaneously with the
issuance of the check. In the case of respondent Nicdaos
checks, the pre-existing obligations secured by them were
already extinguished after full payment had been made by
respondent Nicdao to Nuguid. Obligations are extinguished by,
among others, payment.30 The CA believed that when
petitioner Ching and Nuguid refused to return respondent
Nicdaos checks despite her total payment of P6,980,000.00
for the loans secured by the checks, petitioner Ching and
Nuguid were using BP 22 to coerce respondent Nicdao to pay
a debt which she no longer owed them.
With respect to the P20,000,000.00 check, the CA was not
convinced
by
petitioner
Chings
claim
that
he
delivered P1,000,000.00 every month to respondent Nicdao
until the amount reached P20,000,000.00 and, when she
refused to pay the same, he filled up the check, which she
earlier delivered to him as security for the loans, by writing
thereon the said amount. In disbelieving petitioner Ching, the
CA pointed out that, contrary to his assertion, he was never
employed by the La Suerte Cigar and Cigarette Manufacturing
per the letter of Susan Resurreccion, Vice-President and Legal
Counsel of the said company. Moreover, as admitted by
petitioner Ching, he did not own the house where he and
Nuguid lived.
Moreover, the CA characterized as incredible and contrary to
human experience that petitioner Ching would, as he claimed,
deliver a total sum of P20,000,000.00 to respondent Nicdao
without any documentary proof thereof, e.g., written
acknowledgment that she received the same. On the other
hand, it found plausible respondent Nicdaos version of the
story that the P20,000,000.00 check was the same one that
was missing way back in 1995. The CA opined that this
missing check surfaced in the hands of petitioner Ching who,
in cahoots with Nuguid, wrote the amount P20,000,000.00
thereon and deposited it in his account. To the mind of the CA,
the inference that the check was stolen was anchored on
competent circumstantial evidence. Specifically, Nuguid, as
previous manager/owner of the grocery store, had access
thereto. Likewise applicable, according to the CA, was the
presumption that the person in possession of the stolen article
was presumed to be guilty of taking the stolen article.31
The CA emphasized that the P20,000,000.00 check was never
delivered by respondent Nicdao to petitioner Ching. As such,
the said check without the details as to the date, amount and
payee, was an incomplete and undelivered instrument when it
was stolen and ended up in petitioner Chings hands. On this
point, the CA applied Sections 15 and 16 of the Negotiable
Instruments Law:
SEC. 15. Incomplete instrument not delivered. Where an
incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
SEC. 16. Delivery; when effectual; when presumed. Every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as
regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or

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under the authority of the party making, drawing, accepting

or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring
the property. But where the instrument is in the hands of a
holder in due course, a valid delivery thereof by all parties
prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the
possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the
contrary is proved.
The CA held that the P20,000,000.00 check was filled up by
petitioner Ching without respondent Nicdaos authority.
Further, it was incomplete and undelivered. Hence, petitioner
Ching did not acquire any right or interest therein and could
not assert any cause of action founded on the
stolen checks.32 Under these circumstances, the CA concluded
that respondent could not be held liable for violation of BP 22.
The Petitioners Case
As mentioned earlier, the instant petition pertains and is
limited solely to the civil aspect of the case as petitioner
Ching argues that notwithstanding respondent Nicdaos
acquittal of the eleven (11) counts of violation of BP 22, she
should be held liable to pay petitioner Ching the amounts of
the
dishonored
checks
in
the
aggregate
sum
of P20,950,000.00.
He urges the Court to review the findings of facts made by the
CA as they are allegedly based on a misapprehension of facts
and manifestly erroneous and contradicted by the evidence.
Further, the CAs factual findings are in conflict with those of
the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding
respondent Nicdaos acquittal by the CA, the Supreme Court
has the jurisdiction and authority to resolve and rule on her
civil liability. He invokes Section 1, Rule 111 of the Revised
Rules of Court which, prior to its amendment, provided, in
part:
SEC. 1. Institution of criminal and civil actions. When a
criminal action is instituted, the civil action for the recovery of
civil liability is impliedly instituted with the criminal action,
unless the offended party waives the civil action, reserves his
right to institute it separately, or institutes the civil action
prior to the criminal action.
Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, 34
and 2176 of the Civil Code of the Philippines arising from the
same act or omission of the accused. x x x
Supreme Court Circular No. 57-9733 dated September 16, 1997
is also cited as it provides in part:
1. The criminal action for violation of Batas Pambansa Blg. 22
shall be deemed to necessarily include the corresponding civil
action, and no reservation to file such civil action separately
shall be allowed or recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of
the Revised Rules of Court, the civil action for the recovery of
damages under Articles 32, 33, 34, and 2176 arising from the
same act or omission of the accused is impliedly instituted
with the criminal action. Moreover, under the above-quoted
Circular, the criminal action for violation of BP 22 necessarily
includes the corresponding civil action, which is the recovery

of the amount of the dishonored check representing the civil

obligation of the drawer to the payee.
In seeking to enforce the alleged civil liability of respondent
Nicdao, petitioner Ching maintains that she had loan
obligations to him totaling P20,950,000.00. The existence of
the same is allegedly established by his testimony before the
MCTC. Also, he asks the Court to take judicial notice that for a
monetary loan secured by a check, the check itself is the
evidence of indebtedness.
He insists that, contrary to her protestation, respondent
Nicdao also transacted with him, not only with Nuguid.
Petitioner Ching pointed out that during respondent Nicdaos
testimony, she referred to her creditors in plural form, e.g. "[I]
told them, most checks that I issued I will inform them if I
have money." Even respondent Nicdaos employees allegedly
knew him; they testified that Nuguid instructed them at times
to leave as blank the payee on the checks as they would be
paid to someone else, who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no
capacity to lend P20,950,000.00 to respondent Nicdao.
Petitioner Ching clarified that what he meant when he
testified before the MCTC was that he was engaged in
dealership with La Suerte Cigar and Cigarette Manufacturing,
and not merely its sales agent. He stresses that he owns a
warehouse and is also in the business of lending money.
Further, the CAs reasoning that he could not possibly have
lent P20,950,000.00 to respondent Nicdao since petitioner
Ching and Nuguid did not own the house where they live, is
allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CAs finding,
the Planters Bank demand draft for P1,200,000.00 was in
payment for respondent Nicdaos previous loan transaction
with him. Apart from the P20,000,000.00 check, the other ten
(10) checks (totaling P950,000.00) were allegedly issued by
respondent Nicdao to petitioner Ching as security for the
loans that she obtained from him from 1995 to 1997. The
existence of another loan obligation prior to the said period
was allegedly established by the testimony of respondent
Nicdaos own witness, Jocelyn Nicdao, who testified that when
she started working in Vignette Superstore in 1994, she
noticed that respondent Nicdao was already indebted to
Nuguid.
Petitioner Ching also takes exception to the CAs ruling that
the payments made by respondent Nicdao as reflected on the
computations at the back of the cigarette wrappers were for
both the principal loan and interests. He insists that they were
for the interests alone. Even respondent Nicdaos testimony
allegedly showed that they were daily interest payments.
Petitioner Ching further avers that the interest payments
totaling P5,780,000.00 can only mean that, contrary to
respondent Nicdaos claim, her loan obligations amounted to
much more than P2,100,000.00. Further, she is allegedly
estopped from questioning the interests because she willingly
paid the same.
Petitioner Ching also harps on respondent Nicdaos silence
when she received his and Nuguids demand letter to her.
Through the said letter, they notified her that the twenty-five
(25) checks valued at P22,100,000.00 were dishonored by the
HSLB, and that she had three days to settle her ndebtedness
with them, otherwise, face prosecution. Respondent Nicdaos
silence, i.e., her failure to deny or protest the same by way of
reply, vis--vis the demand letter, allegedly constitutes an
admission of the statements contained therein.
On the other hand, the MCTCs decision, as affirmed by the
RTC, is allegedly based on the evidence on record; it has been
established that the checks were respondent Nicdaos

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personal checks, that the signatures thereon were hers and

that she had issued them to petitioner Ching. With respect to
the P20,000,000.00 check, petitioner Ching assails the CAs
ruling that it was stolen and was never delivered or issued by
respondent Nicdao to him. The issue of the said check being
stolen was allegedly not raised during trial. Further, her failure
to report the alleged theft to the bank to stop payment of the
said lost or missing check is allegedly contrary to human
experience. Petitioner Ching describes respondent Nicdaos
defense of stolen or lost check as incredible and, therefore,
false.
Aside from the foregoing substantive issues that he raised,
petitioner Ching also faults the CA for not acting and ordering
the consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No.
23054. He informs the Court that latter case is still pending
with the CA.
In fine, it is petitioner Chings view that the CA gravely erred
in disregarding the findings of the MCTC, as affirmed by the
RTC, and submits that there is more than sufficient
preponderant evidence to hold respondent Nicdao civilly liable
to him in the amount of P20,950,000.00. He thus prays that
the Court direct respondent Nicdao to pay him the said
amount plus 12% interest per annum computed from the date
of written demand until the total amount is fully paid.
The Respondents Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She
posits preliminarily that it is barred under Section 2(b), Rule
111 of the Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the
cases provided for in Section 3 hereof, after the criminal
action has been commenced, the civil action which has been
reserved cannot be instituted until final judgment in the
criminal action.
xxxx
(b) Extinction of the penal action does not carry with it
extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the
civil might arise did not exist.
According to respondent Nicdao, the assailed CA decision has
already made a finding to the effect that the fact upon which
her civil liability might arise did not exist. She refers to the
ruling of the CA that the P20,000,000.00 check was stolen;
hence, petitioner Ching did not acquire any right or interest
over the said check and could not assert any cause of action
founded on the said check. Consequently, the CA held that
respondent Nicdao had no obligation to make good the stolen
check and cannot be held liable for violation of BP 22. She
also refers to the CAs pronouncement relative to the ten (10)
other checks that they were not issued to apply on account or
for value, considering that the loan obligations secured by
these checks had already been extinguished by her full
payment thereof.
To respondent Nicdaos mind, these pronouncements are
equivalent to a finding that the facts upon which her civil
liability may arise do not exist. The instant petition, which
seeks to enforce her civil liability based on the eleven (11)
checks, is thus allegedly already barred by the final and
executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not
commit serious misapprehension of facts when it found that
the P20,000,000.00 check was a stolen check and that she
never made any transaction with petitioner Ching. Moreover,

the other ten (10) checks were not issued to apply on account
or for value. These findings are allegedly supported by the
evidence on record which consisted of the respective
testimonies of the defense witnesses to the effect that:
respondent Nicdao had the practice of leaving pre-signed
checks placed inside an unsecured cash box in the Vignette
Superstore; the salesladies were given the authority to fill up
the said checks as to the amount, payee and date; Nuguid
beguiled respondent Nicdao to obtain loans from her; as
security for the loans, respondent Nicdao issued checks to
Nuguid; when the salesladies gave the checks to Nuguid, she
instructed them to leave blank the payee and date; Nuguid
had access to the grocery store; in 1995, one of the
salesladies reported that a check was missing; in 1997, when
she had fully paid her loans to Nuguid, respondent Nicdao
tried to retrieve her checks but Nuguid and petitioner Ching
falsely told her that she still owed them money; they then
maliciously filled up the checks making it appear that
petitioner Ching was the payee in the five checks and the six
others were payable to "cash"; and knowing fully well that
these checks were not funded because respondent Nicdao
already fully paid her loans, petitioner Ching and Nuguid
deposited the checks and caused them to be dishonored by
HSLB.
It is pointed out by respondent Nicdao that her testimony
(that the P20,000,000.00 check was the same one that she
lost sometime in 1995) was corroborated by the respective
testimonies of her employees. Another indication that it was
stolen was the fact that among all the checks which ended up
in the hands of petitioner Ching and Nuguid, only
the P20,000,000.00 check was fully typewritten; the rest were
invariably handwritten as to the amounts, payee and date.
Respondent Nicdao defends the CAs conclusion that
the P20,000,000.00 check was stolen on the ground that an
appeal in a criminal case throws open the whole case to the
appellate courts scrutiny. In any event, she maintains that
she had been consistent in her theory of defense and merely
relied on the disputable presumption that the person in
possession of a stolen article is presumed to be the author of
the theft.
Considering that it was stolen, respondent Nicdao argues,
the P20,000,000.00 check was an incomplete and undelivered
instrument in the hands of petitioner Ching and he did not
acquire any right or interest therein. Further, he cannot assert
any cause of action founded on the said stolen check.
Accordingly, petitioner Chings attempt to collect payment on
the said check through the instant petition must fail.
Respondent Nicdao describes as downright incredible
petitioner Chings testimony that she owed him a total sum
of P20,950,000.00 without any documentary proof of the loan
transactions. She submits that it is contrary to human
experience for loan transactions involving such huge amounts
of money to be devoid of any documentary proof. In relation
thereto, respondent Nicdao underscores that petitioner Ching
lied about being employed as a salesman of La Suerte Cigar
and Cigarette Manufacturing. It is underscored that he has not
adequately shown that he possessed the financial capacity to
lend such a huge amount to respondent Nicdao as he so
claimed.
Neither could she be held liable for the ten (10) other checks
(in the total amount of P950,000,000.00) because as
respondent Nicdao asseverates, she merely issued them to
Nuguid as security for her loans obtained from the latter
beginning October 1995 up to 1997. As evidenced by the
Planters Bank demand draft in the amount of P1,200,000.00,
she already made payment in 1996. The said demand draft
was negotiated to petitioner Chings account and he admitted
receipt thereof. Respondent Nicdao belies his claim that the
demand draft was payment for a prior existing obligation. She

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asserts that petitioner Ching was unable to present evidence

of such a previous transaction.

right to institute it separately, or institutes the civil action

prior to the criminal action.

In addition to the Planters Bank demand draft, respondent

Nicdao insists that petitioner Ching received, through Nuguid,
cash payments as evidenced by the computations written at
the back of the cigarette wrappers. Nuguid went to the
Vignette Superstore everyday to collect these payments. The
other defense witnesses corroborated this fact. Petitioner
Ching allegedly never disputed the accuracy of the accounts
appearing on these cigarette wrappers; nor did he dispute
their authenticity and accuracy.

Such civil action includes the recovery of indemnity under the

Revised Penal Code, and damages under Articles 32, 33, 34
and 2176 of the Civil Code of the Philippines arising from the
same act or omission of the accused.

Based on the foregoing evidence, the CA allegedly correctly

held that, computing the amount of the Planters Bank demand
draft (P1,200,000.00) and those reflected at the back of the
cigarette wrappers (P5,780,000.00), respondent Nicdao had
already paid petitioner Ching and Nuguid a total sum
of P6,980,000.00
for
her
loan
obligations
totaling
only P950,000.00, as secured by the ten (10) HSLB checks
excluding the stolen P20,000,000.00 check.
Respondent Nicdao rebuts petitioner Chings argument (that
the daily payments were applied to the interests), and claims
that this is illegal. Petitioner Ching cannot insist that the daily
payments she made applied only to the interests on the loan
obligations, considering that there is admittedly no document
evidencing these loans, hence, no written stipulation for the
payment of interests thereon. On this point, she invokes
Article 1956 of the Civil Code, which proscribes the collection
of interest payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks
that she issued to Nuguid as security for her loans had already
been discharged upon her full payment thereof. It is her belief
that these checks can no longer be used to coerce her to pay
a debt that she does not owe.
On the CAs failure to consolidate CA-G.R. CR No. 23055 and
CA-G.R. CR No. 23054, respondent Nicdao proffers the
explanation that under the RIRCA, consolidation of the cases
is not mandatory. In fine, respondent Nicdao urges the Court
to deny the petition as it failed to discharge the burden of
proving her civil liability with the required preponderance of
evidence. Moreover, the CAs acquittal of respondent Nicdao
is premised on the finding that, apart from the stolen check,
the ten (10) other checks were not made to apply to a valid,
due and demandable obligation. This, in effect, is a
categorical ruling that the fact from which the civil liability of
respondent Nicdao may arise does not exist.
The Courts Rulings

xxxx
As a corollary to the above rule, an acquittal does not
necessarily carry with it the extinguishment of the civil liability
of the accused. Section 2(b)36 of the same Rule, also quoted
earlier, provided in part:
(b) Extinction of the penal action does not carry with it
extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the
civil might arise did not exist.
It is also relevant to mention that judgments of acquittal are
required to state "whether the evidence of the prosecution
absolutely failed to prove the guilt of the accused or merely
failed to prove his guilt beyond reasonable doubt. In either
case, the judgment shall determine if the act or omission from
which the civil liability might arise did not exist."37
In Sapiera v. Court of Appeals, 38 the Court enunciated that the
civil liability is not extinguished by acquittal: (a) where the
acquittal is based on reasonable doubt; (b) where the court
expressly declares that the liability of the accused is not
criminal but only civil in nature; and (c) where the civil liability
is not derived from or based on the criminal act of which the
accused is acquitted. Thus, under Article 29 of the Civil Code
ART. 29. When the accused in a criminal prosecution is
acquitted on the ground that his guilt has not been proved
beyond reasonable doubt, a civil action for damages for the
same act or omission may be instituted. Such action requires
only a preponderance of evidence. Upon motion of the
defendant, the court may require the plaintiff to file a bond to
answer for damages in case the complaint should be found to
be malicious.
If in a criminal case the judgment of acquittal is based upon
reasonable doubt, the court shall so declare. In the absence of
any declaration to that effect, it may be inferred from the text
of the decision whether or not the acquittal is due to that
ground.
The Court likewise expounded in Salazar v. People 39 the
consequences of an acquittal on the civil aspect in this wise:

The petition is denied for lack of merit.

Notwithstanding respondent Nicdaos acquittal, petitioner
Ching is entitled to appeal the civil aspect of the case within
the reglementary period
It is axiomatic that "every person criminally liable for a felony
is also civilly liable."34 Under the pertinent provision of the
Revised Rules of Court, the civil action is generally impliedly
instituted with the criminal action. At the time of petitioner
Chings filing of the Informations against respondent Nicdao,
Section 1,35 Rule 111 of the Revised Rules of Court, quoted
earlier, provided in part:
SEC. 1. Institution of criminal and civil actions. When a
criminal action is instituted, the civil action for the recovery of
civil liability is impliedly instituted with the criminal action,
unless the offended party waives the civil action, reserves his

The acquittal of the accused does not prevent a judgment

against him on the civil aspect of the criminal case where: (a)
the acquittal is based on reasonable doubt as only
preponderance of evidence is required; (b) the court declared
that the liability of the accused is only civil; (c) the civil
liability of the accused does not arise from or is not based
upon the crime of which the accused is acquitted. Moreover,
the civil action based on the delict is extinguished if there is a
finding in the final judgment in the criminal action that the act
or omission from which the civil liability may arise did not
exist or where the accused did not commit the act or omission
imputed to him.
If the accused is acquitted on reasonable doubt but the court
renders judgment on the civil aspect of the criminal case, the
prosecution cannot appeal from the judgment of acquittal as it
would place the accused in double jeopardy. However, the
aggrieved party, the offended party or the accused or both

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may appeal from the judgment on the civil aspect of the case
within the period therefor.

under BP 22, i.e., "that the check is made or drawn and issued
to apply on account or for value," is not present.

From the foregoing, petitioner Ching correctly argued that he,

as the offended party, may appeal the civil aspect of the case
notwithstanding respondent Nicdaos acquittal by the CA. The
civil action was impliedly instituted with the criminal action
since he did not reserve his right to institute it separately nor
did he institute the civil action prior to the criminal action.

Second, in acquitting respondent Nicdao, the CA did not

adjudge her to be civilly liable to petitioner Ching. In fact, the
CA explicitly stated that she had already fully paid her
obligations. The CA computed the payments made by
respondent Nicdao vis--vis her loan obligations in this
manner:

Following the long recognized rule that "the appeal period

accorded to the accused should also be available to the
offended party who seeks redress of the civil aspect of the
decision," the period to appeal granted to petitioner Ching is
the same as that granted to the accused. 40 With petitioner
Chings timely filing of the instant petition for review of the
civil aspect of the CAs decision, the Court thus has the
jurisdiction and authority to determine the civil liability of
respondent Nicdao notwithstanding her acquittal.

Clearly, adding the payments recorded at the back of the

cigarette cartons by Emma Nuguid in her own handwriting
totaling P5,780,000.00 and the P1,200,000.00 demand draft
received by Emma Nuguid, it would appear that petitioner
[respondent herein] had already made payments in the total
amount of P6,980,000.00 for her loan obligation of
only P2,100,000.00 (P950,000.00 in the case at bar
and P1,150,000.00 in CA-G.R. CR No. 23054).43

In order for the petition to prosper, however, it must establish

that the judgment of the CA acquitting respondent Nicdao
falls under any of the three categories enumerated in Salazar
and Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt
as only preponderance of evidence is required;
(b) where the court declared that the liability of the
accused is only civil; and
(c) where the civil liability of the accused does not
arise from or is not based upon the crime of which
the accused is acquitted.
Salazar also enunciated that the civil action based on the
delict is extinguished if there is a finding in the final judgment
in the criminal action that the act or omission from which the
civil liability may arise did not exist or where the accused did
not commit the act or omission imputed to him.
For reasons that will be discussed shortly, the Court holds that
respondent Nicdao cannot be held civilly liable to petitioner
Ching.
The acquittal of respondent
extinguished her civil liability

Nicdao

likewise effectively

A painstaking review of the case leads to the conclusion that

respondent Nicdaos acquittal likewise carried with it the
extinction of the action to enforce her civil liability. There is
simply no basis to hold respondent Nicdao civilly liable to
petitioner Ching.
First, the CAs acquittal of respondent Nicdao is not merely
based on reasonable doubt. Rather, it is based on the finding
that she did not commit the act penalized under BP 22. In
particular, the CA found that the P20,000,000.00 check was a
stolen check which was never issued nor delivered by
respondent Nicdao to petitioner Ching. As such, according to
the CA, petitioner Ching "did not acquire any right or interest
over Check No. 002524 and cannot assert any cause of action
founded on said check,"41 and that respondent Nicdao "has no
obligation to make good the stolen check and cannot,
therefore, be held liable for violation of B.P. Blg. 22." 42
With respect to the ten (10) other checks, the CA established
that the loans secured by these checks had already been
extinguished after full payment had been made by respondent
Nicdao. In this connection, the second element for the crime

On the other hand, its finding relative to the P20,000,000.00

check that it was a stolen check necessarily absolved
respondent Nicdao of any civil liability thereon as well.
Third, while petitioner Ching attempts to show that
respondent Nicdaos liability did not arise from or was not
based upon the criminal act of which she was acquitted (ex
delicto) but from her loan obligations to him (ex contractu),
however, petitioner Ching miserably failed to prove by
preponderant evidence the existence of these unpaid loan
obligations. Significantly, it can be inferred from the following
findings of the CA in its decision acquitting respondent Nicdao
that the act or omission from which her civil liability may arise
did not exist. On the P20,000,000.00 check, the CA found as
follows:
True, indeed, the missing pre-signed and undated check no.
002524 surfaced in the possession of complainant Ching who,
in cahoots with his paramour Emma Nuguid, filled up the
blank check with his name as payee and in the fantastic
amount of P20,000,000.00, dated it October 6, 1997, and
presented it to the bank on October 7, 1997, along with the
other checks, for payment. Therefore, the inference that the
check was stolen is anchored on competent circumstantial
evidence. The fact already established is that Emma Nuguid ,
previous owner of the store, had access to said store.
Moreover, the possession of a thing that was stolen , absent a
credible reason, as in this case, gives rise to the presumption
that the person in possession of the stolen article is presumed
to be guilty of taking the stolen article (People v. Zafra, 237
SCRA 664).
As previously shown, at the time check no. 002524 was
stolen, the said check was blank in its material aspect (as to
the name of payee, the amount of the check, and the date of
the check), but was already pre-signed by petitioner. In fact,
complainant Ching himself admitted that check no. 002524 in
his possession was a blank check (TSN, Jan. 7, 1998, pp. 2427, Annex J, Petition).
Moreover, since it has been established that check no. 002524
had been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15,
Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE,
Petition), it is abundantly clear that said check was never
delivered to complainant Ching. Check no. 002524 was an
incomplete and undelivered instrument when it was stolen
and ended up in the hands of complainant Ching. Sections 15
and 16 of the Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by complainant
Ching that said check in his possession was a blank check and

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was subsequently completed by him alone without authority

from petitioner. Inasmuch as check no. 002524 was
incomplete and undelivered in the hands of complainant
Ching, he did not acquire any right or interest therein and
cannot, therefore, assert any cause of action founded on said
stolen check (Development Bank of the Philippines v. Sima
We, 219 SCRA 736, 740).

refused to pay her obligations despite his due demand,

petitioner filled up the checks in his possession with the
corresponding amounts and date and deposited them in his
account. They were subsequently dishonored by the HSLB for
being "DAIF" and petitioner Ching accordingly filed the
criminal complaints against respondent Nicdao for violation of
BP 22.

It goes without saying that since complainant Ching did not

acquire any right or interest over check no. 002524 and
cannot assert any cause of action founded on said check,
petitioner has no obligation to make good the stolen check
and cannot, therefore, be held liable for violation of B.P. Blg.
22.44

It is a basic rule in evidence that the burden of proof lies on

the party who makes the allegations Et incumbit probatio,
qui dicit, non qui negat; cum per rerum naturam factum
negantis probatio nulla sit (The proof lies upon him who
affirms, not upon him who denies; since, by the nature of
things, he who denies a fact cannot produce any proof). 48 In
civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence.
Preponderance of evidence is the weight, credit, and value of
the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight
of evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last
analysis, means probability of the truth. It is evidence which is
more convincing to the court as worthy of belief than that
which is offered in opposition thereto. 49 Section 1, Rule 133 of
the Revised Rules of Court offers the guidelines in determining
preponderance of evidence:

Anent the other ten (10) checks, the CA made the following
findings:
Evidence sufficiently shows that the loans secured by the ten
(10) checks involved in the cases subject of this petition had
already been paid. It is not controverted that petitioner gave
Emma Nuguid a demand draft valued at P1,200,000 to pay for
the loans guaranteed by said checks and other checks issued
to her. Samson Ching admitted having received the demand
draft which he deposited in his bank account. However,
complainant Samson Ching claimed that the said demand
draft represents payment for a previous obligation incurred by
petitioner. However, complainant Ching failed to adduce any
evidence to prove the existence of the alleged obligation of
the petitioner prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said
demand draft, it is also not disputed that petitioner made cash
payments to Emma Nuguid who collected the payments
almost daily at the Vignette Superstore. As of July 21, 1997,
Emma Nuguid collected cash payments amounting to
approximately P5,780,000.00. All of these cash payments
were recorded at the back of cigarette cartons by Emma
Nuguid in her own handwriting, the authenticity and accuracy
of which were never denied by either complainant Ching or
Emma Nuguid.
Clearly, adding the payments recorded at the back of the
cigarette cartons by Emma Nuguid in her own handwriting
totaling P5,780,000.00 and the P1,200,000.00 demand draft
received by Emma Nuguid, it would appear that petitioner had
already made payments in the total amount of P6,980,000.00
for her loan in the total amount of P6,980,000.00 for her loan
obligation of only P2,100,000.00 (P950,000.00 in the case at
bar and P1,150,000.00 in CA-G.R. CR No. 23054).45
Generally
checks
may
constitute
evidence
of
indebtedness.46 However, in view of the CAs findings relating
to the eleven (11) checks - that the P20,000,000.00 was a
stolen check and the obligations secured by the other ten (10)
checks had already been fully paid by respondent Nicdao
they can no longer be given credence to establish respondent
Nicdaos civil liability to petitioner Ching. Such civil liability,
therefore, must be established by preponderant evidence
other than the discredited checks.
After a careful examination of the records of the case, 47 the
Court holds that the existence of respondent Nicdaos civil
liability to petitioner Ching in the amount of P20,950,000.00
representing her unpaid obligations to the latter has not been
sufficiently established by preponderant evidence. Petitioner
Ching mainly relies on his testimony before the MCTC to
establish the existence of these unpaid obligations. In gist, he
testified that from October 1995 up to 1997, respondent
Nicdao obtained loans from him in the total amount
of P20,950,000.00. As security for her obligations, she issued
eleven (11) checks which were invariably blank as to the date,
amounts and payee. When respondent Nicdao allegedly

SEC. 1. Preponderance of evidence, how determined. In civil

cases, the party having the burden of proof must establish his
case by a preponderance of evidence. In determining where
the preponderance or superior weight of evidence on the
issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses manner of
testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of
the facts to which they testify, the probability or improbability
of their testimony, their interest or want of interest, and also
their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the
number of witnesses, though the preponderance is not
necessarily with the greater number.
Unfortunately, petitioner Chings testimony alone does not
constitute preponderant evidence to establish respondent
Nicdaos civil liability to him amounting to P20,950,000.00.
Apart from the discredited checks, he failed to adduce any
other documentary evidence to prove that respondent Nicdao
still has unpaid obligations to him in the said amount. Bare
allegations, unsubstantiated by evidence, are not equivalent
to proof under our Rules.50
In contrast, respondent Nicdaos defense consisted in, among
others, her allegation that she had already paid her
obligations to petitioner Ching through Nuguid. In support
thereof, she presented the Planters Bank demand draft
for P1,200,000.00. The said demand draft was negotiated to
petitioner Chings account and he admitted receipt of the
value thereof. Petitioner Ching tried to controvert this by
claiming that it was payment for a previous transaction
between him and respondent Nicdao. However, other than his
self-serving claim, petitioner Ching did not proffer any
documentary evidence to prove the existence of the said
previous transaction. Considering that the Planters Bank
demand draft was dated August 13, 1996, it is logical to
conclude that, absent any evidence to the contrary, it formed
part of respondent Nicdaos payment to petitioner Ching on
account of the loan obligations that she obtained from him
since October 1995.
Additionally, respondent Nicdao submitted as evidence the
cigarette wrappers at the back of which were written the
computations of the daily payments that she had made to
Nuguid. The fact of the daily payments was corroborated by
the other witnesses for the defense, namely, Jocelyn Nicdao

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and Tolentino. As found by the CA, based on these

computations, respondent Nicdao had made a total payment
of P5,780,000.00 to Nuguid as of July 21, 1997. 51 Again, the
payments made, as reflected at the back of these cigarette
wrappers, were not disputed by petitioner Ching. Hence, these
payments as well as the amount of the Planters Bank demand
draft establish that respondent Nicdao already paid the total
amount of P6,980,000.00 to Nuguid and petitioner Ching.

SO ORDERED.
Section 16

IN RE ESTATE OF MARTENS
KEY PASSAGES FROM THIS CASE (1)

The Court agrees with the CA that the daily payments made
by respondent Nicdao amounting to P5,780,000.00 cannot be
considered as interest payments only. Even respondent
Nicdao testified that the daily payments that she made to
Nuguid were for the interests due. However, as correctly ruled
by the CA, no interests could be properly collected in the loan
transactions between petitioner Ching and respondent Nicdao
because there was no stipulation therefor in writing. To
reiterate, under Article 1956 of the Civil Code, "no interest
shall be due unless it has been expressly stipulated in
writing."
Neither could respondent Nicdao be considered to be
estopped from denying the validity of these interests.
Estoppel cannot give validity to an act that is prohibited by
law or one that is against public policy.52 Clearly, the collection
of interests without any stipulation therefor in writing is
prohibited by law. Consequently, the daily payments made by
respondent Nicdao amounting to P5,780,000.00 were properly
considered by the CA as applying to the principal amount of
her loan obligations.
With respect to the P20,000,000.00 check, the defense of
respondent Nicdao that it was stolen and that she never
issued or delivered the same to petitioner Ching was
corroborated by the other defense witnesses, namely,
Tolentino and Jocelyn Nicdao.
All told, as between petitioner Ching and respondent Nicdao,
the requisite quantum of evidence - preponderance of
evidence - indubitably lies with respondent Nicdao. As earlier
intimated, she cannot be held civilly liable to petitioner Ching
for her acquittal; under the circumstances which have just
been discussed lengthily, such acquittal carried with it the
extinction of her civil liability as well.
The CA committed no reversible error in not consolidating CAG.R. CR No. 23055 and CA-G.R. CR No. 23054
During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR
No. 23054 in the CA, the pertinent provision of the RIRCA on
consolidation of cases provided:
SEC. 7. Consolidation of Cases. Whenever two or more allied
cases are assigned to different Justices, they may be
consolidated for study and report to a single Justice.
(a) At the instance of any party or Justice to whom the case is
assigned for study and report, and with the conformity of all
the Justices concerned, the consolidation may be allowed
when the cases to be consolidated involve the same parties
and/or related questions of fact and/or law.53
The use of the word "may" denotes the permissive, not
mandatory, nature of the above provision, Thus, no grave
error could be imputed to the CA when it proceeded to render
its decision in CA-G.R. CR No. 23055, without consolidating it
with CA-G.R. CR No. 23054.
WHEREFORE, premises considered, the Petition is DENIED for
lack of merit.

I.

On the back of the note was the endorsement: "This

money is coming to her for teaching $1,000, and
$500. is what the rest got also. Mother." Quoted 1
time

MILLER, J.
Appellant, Mabel Martens Bonk, filed a claim, based on a note
for $1,500, against the administrator of this estate. The claim
being denied, a petition was filed to secure the allowance
thereof, to which the administrator filed answer in the form of
a general denial. Various issues were presented by the
evidence. We deem it necessary to consider only one of them,
namely, whether or not the action of the trial court, in denying
appellant's claim, was proper because of the failure to
establish that the note was delivered during the lifetime of the
deceased.
At the trial, appellant testified that she is the daughter of the
deceased. She identified Exhibit A as a note in the
handwriting of her mother, dated March 1, 1930, promising to
pay appellant $1,500 on December 1, 1930, signed by the
decedent.
1
On the back of the note was the endorsement: "This money is
coming to her for teaching $1,000, and $500. is what the rest
got also. Mother."
The decedent died January 2, 1936. The administrator
qualified on March 1, 1936. Appellant testified that, about
March 11, 1936, in examining the contents of her mother's
safe, she discovered an envelope on which, in her mother's
handwriting, was the notation: "Please give this to S. Fisher in
case of death. Mabel Martens from Mother"; she delivered the
envelope to said Simon Fisher at his law office shortly after
she discovered it; Fisher opened the envelope, which was
sealed, in her presence and in the presence of the
administrator; the note, Exhibit A, was found in the envelope;
her mother had told her that, in case of death, there was a
letter for her, but she knew nothing of any note; she found the
envelope after the administrator had made an examination of
the contents of the safe and had not discovered it; she had
loaned her parents $1,000 from time to time out of money
earned teaching school; her brothers and sisters each had
received $500 when they were married; she married
subsequent to March 1, 1930, and did not receive her $500.
Simon Fisher testified that he first saw the envelope and the
note after the death of the decedent; he opened the envelope
in the presence of the appellant and the administrator; in
1930 appellant agreed to accept a note from her mother in
satisfaction of $1,500 owed by her father's estate, which was
not paid because of insufficient funds; the decedent told him
she had executed a note in favor of appellant for $1,500, and
she would bring it to the office and leave it with him; later she
told him she had placed it in a box or safe at home and for
him to get it and give it to appellant any time he heard of her
death; he told her to deliver it to him or leave it with him, and
if she wanted to, to turn it over to appellant.
Apparently the trial court held that the claim should be denied
because the record failed to establish legal delivery of the

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note, which formed the basis of appellant's claim. We hold

that there was no error in this decision.
[1] Section 9476 of the Code provides that every contract on
a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect
thereto. This was the common law rule. In the case of Bell v.
Mahin, 69 Iowa 408, 29 N.W. 331, this court commences its
opinion with the following statement:
"The first defense set up by Petty to the note is that it was
executed upon Sunday. It seems to be undisputed that the
note was signed on Sunday, but it was not intended to be
delivered on that day, and was not in fact delivered until
Monday. A promissory note becomes a contract at the time of
its delivery. This contract, then, was made on Monday, and is
not subject to the objection urged that it is a Sunday
contract."
[2] Obviously, the note here sued upon could not be made the
basis of a valid claim against the estate unless there was a
legal delivery of the same, during the lifetime of the
decedent. Our decisions, relative to analogous situations, are
reviewed in the recent case of Orris v. Whipple, 224 Iowa
1157, 1170, 280 N.W. 617, 623, wherein we state:
"All there is to show delivery in this case is that the deed was
prepared and executed by Miss Aken; that she told others that
she wanted the plaintiffs to have the property, and that she
had prepared papers so providing. She put the deeds in her
safety deposit box and retained the key. We do not think these
admitted facts show a legal delivery of the deed in question."
[3] The position taken by this court in the Orris case is
controlling here. It is not necessary to review the evidence
introduced by appellees. We recognize that this case is not
triable de novo; the determination of the credibility of the
witnesses and the weight of the testimony were matters for
the trial court to decide. In re Smith's Estate, 223 Iowa
172, 271 N.W. 888. Our statement of the facts herein is more
favorable to appellant than the record warrants. However, the
decisive factor is that, even when we so consider the
evidence, the record fails to establish delivery of appellant's
note during the lifetime of the deceased.
[4] Appellant did not present to the trial court and does not
present to this court the question involving what rights, if any,
she might have had had she undertaken to file a claim based
upon the alleged indebtedness of the decedent to her
independent of the note. Her claim and her petition are based
solely upon the note. At page 8 of appellant's argument,
counsel states: "Under this record, as we view it, there is but
one issue to submit to this court, and that is the sufficiency of
the delivery of the note." As above pointed out, the trial
court's decision on that issue was right. The judgment entered
pursuant thereto must be and it is affirmed. Affirmed.
MITCHELL, C.J., and BLISS, SAGER, STIGER, OLIVER, and HALE,
JJ., concur
G.R. No. 111190 June 27, 1995
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue
City and in his personal capacity as
garnishee,petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII,
Cebu City, and RAUL H. SESBREO, respondents.

BELLOSILLO, J.:
RAUL H. SESBREO filed a complaint for damages against
Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D.
Rama, Jr., before the Regional Trial Court of Cebu City. After

trial judgment was rendered ordering the defendants to pay

P11,000.00 to the plaintiff, private respondent herein. The
decision having become final and executory, on motion of the
latter, the trial court ordered its execution. This order was
questioned by the defendants before the Court of Appeals.
However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on
petitioner Loreto D. de la Victoria as City Fiscal of Mandaue
City where defendant Mabanto, Jr., was then detailed. The
notice directed petitioner not to disburse, transfer, release or
convey to any other person except to the deputy sheriff
concerned the salary checks or other checks, monies, or cash
due or belonging to Mabanto, Jr., under penalty of law. 1 On 10
March 1992 private respondent filed a motion before the trial
court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of
Appeals was dismissed. Thus the trial court, finding no more
legal obstacle to act on the motion for examination of the
garnishees, directed petitioner on 4 November 1992 to submit
his report showing the amount of the garnished salaries of
Mabanto, Jr., within fifteen (15) days from receipt 2 taking into
consideration the provisions of Sec. 12, pars. (f) and (i), Rule
39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to
require petitioner to explain why he should not be cited in
contempt of court for failing to comply with the order of 4
November 1992.
On the other hand, on 19 January 1993 petitioner moved to
quash the notice of garnishment claiming that he was not in
possession of any money, funds, credit, property or anything
of value belonging to Mabanto, Jr., except his salary and RATA
checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as
such, they were still public funds which could not be subject to
garnishment.
On 9 March 1993 the trial court denied both motions and
ordered petitioner to immediately comply with its order of 4
November 1992. 3 It opined that the checks of Mabanto, Jr.,
had already been released through petitioner by the
Department of Justice duly signed by the officer concerned.
Upon service of the writ of garnishment, petitioner as
custodian of the checks was under obligation to hold them for
the judgment creditor. Petitioner became a virtual party to, or
a forced intervenor in, the case and the trial court thereby
acquired jurisdiction to bind him to its orders and processes
with a view to the complete satisfaction of the judgment.
Additionally, there was no sufficient reason for petitioner to
hold the checks because they were no longer government
funds and presumably delivered to the payee, conformably
with the last sentence of Sec. 16 of the Negotiable
Instruments Law.
With regard to the contempt charge, the trial court was not
morally convinced of petitioner's guilt. For, while his
explanation suffered from procedural infirmities nevertheless
he took pains in enlightening the court by sending a written
explanation dated 22 July 1992 requesting for the lifting of the
notice of garnishment on the ground that the notice should
have been sent to the Finance Officer of the Department of
Justice. Petitioner insists that he had no authority to segregate
a portion of the salary of Mabanto, Jr. The explanation
however was not submitted to the trial court for action since
the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied.
The trial court explained that it was not the duty of the
garnishee to inquire or judge for himself whether the issuance
of the order of execution, writ of execution and notice of

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garnishment was justified. His only duty was to turn over the
garnished checks to the trial court which issued the order of
execution. 5
Petitioner raises the following relevant issues: (1) whether a
check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery
to the latter: and, (2) whether the salary check of a
government official or employee funded with public funds can
be subject to garnishment.
Petitioner reiterates his position that the salary checks were
not owned by Mabanto, Jr., because they were not yet
delivered to him, and that petitioner as garnishee has no legal
obligation to hold and deliver them to the trial court to be
applied to Mabanto, Jr.'s judgment debt. The thesis of
petitioner is that the salary checks still formed part of public
funds and therefore beyond the reach of garnishment
proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for
reaching credits belonging to the judgment debtor owing to
him from a stranger to the litigation. 6 Emphasis is laid on the
phrase "belonging to the judgment debtor" since it is the focal
point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto,
Jr., is public funds. He receives his compensation in the form
of checks from the Department of Justice through petitioner as
City Fiscal of Mandaue City and head of office. Under Sec. 16
of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect
thereto. As ordinarily understood, delivery means the transfer
of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize
him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were
already released by the Department of Justice duly signed by
the officer concerned through petitioner and upon service of
the writ of garnishment by the sheriff petitioner was under
obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At
the same time however it considered the checks as no longer
government funds and presumed delivered to the payee
based on the last sentence of Sec. 16 of the Negotiable
Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is
presumed." Yet, the presumption is not conclusive because
the last portion of the provision says "until the contrary is
proved." However this phrase was deleted by the trial court
for no apparent reason. Proof to the contrary is its own finding
that the checks were in the custody of petitioner. Inasmuch as
said checks had not yet been delivered to Mabanto, Jr.,
they did not belong to him and still had the character of public
funds. In Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or
employee such as a teacher does not belong
to him before it is physically delivered to
him. Until that time the check belongs to the
government. Accordingly, before there is
actual delivery of the check, the payee has
no power over it; he cannot assign it without
the consent of the Government.
As a necessary consequence of being public fund, the checks
may not be garnished to satisfy the judgment. 9 The rationale
behind this doctrine is obvious consideration of public policy.

The Court succinctly stated in Commissioner of Public

Highways v. San Diego 10 that
The functions and public services rendered
by the State cannot be allowed to be
paralyzed or disrupted by the diversion of
public funds from their legitimate and
specific objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial
court expressed the additional ratiocination that it was not the
duty of the garnishee to inquire or judge for himself whether
the issuance of the order of execution, the writ of execution,
and the notice of garnishment was justified, citing our ruling
in Philippine Commercial Industrial Bank v. Court of
Appeals. 11 Our precise ruling in that case was that "[I]t is not
incumbent upon the garnishee to inquire or to judge for itself
whether or not the order for the advance execution of a
judgment is valid." But that is invoking only the general rule.
We have also established therein the compelling reasons, as
exceptions thereto, which were not taken into account by the
trial court, e.g., a defect on the face of the writ or actual
knowledge by the garnishee of lack of entitlement on the part
of the garnisher. It is worth to note that the ruling referred to
the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was
applicable to a notice of garnishment as well. In the case at
bench, it was incumbent upon petitioner to inquire into the
validity of the notice of garnishment as he had actual
knowledge of the non-entitlement of private respondent to the
checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in
issuing the notice of garnishment concerning the salary
checks of Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March
1993 and 20 April 1993 of the Regional Trial Court of Cebu
City, Br. 17, subject of the petition are SET ASIDE. The notice
of garnishment served on petitioner dated 3 February 1992 is
ordered DISCHARGED.
SO ORDERED.
Quiason and Kapunan, JJ., concur.

Separate Opinions

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

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

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

States, as if it had not

been drawn from the
treasury. Until paid over
by the agent of the
government to the person
entitled to it, the fund
cannot, in any legal
sense, be considered a
part of his effects." (See,
further, 12 R.C.L., p. 841;
Keene vs. Smith [1904],
44 Ore., 525; Wild vs.
Ferguson [1871], 23 La.
Ann., 752; Bank of
Tennessee vs. Dibrell
[1855], 3 Sneed [Tenn.],
379). (emphasis supplied)

The ponencia failed to indicate the payroll period covered by

the salary check and the month to which the RATA check
corresponds.
I respectfully submit that if these salary and RATA checks
corresponded, respectively, to a payroll period and to a month
which had already lapsed at the time the notice of
garnishment was served, the garnishment would be valid, as
the checks would then cease to be property of the
Government and would become property of Mabanto. Upon
the expiration of such period and month, the sums indicated
therein were deemed automatically segregated from the
budgetary allocations for the Department of Justice under the
General Appropriations Act.
It must be recalled that the public policy against execution,
attachment, or garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and
Industry vs. Concepcion 1 where the core issue was whether or
not the salary due from the Government to a public officer or
employee can, by garnishment, be seized before being paid to
him and appropriated to the payment of his judgment debts,
this Court held:
A rule, which has never been seriously
questioned, is that money in the hands of
public officers, although it may be due
government employees, is not liable to the
creditors of these employees in the process
of garnishment. One reason is, that the
State, by virtue of its sovereignty, may not
be sued in its own courts except by express
authorization by the Legislature, and to
subject its officers to garnishment would be
to permit indirectly what is prohibited
directly. Another reason is that moneys
sought to be garnished, as long as they
remain in the hands of the disbursing officer
of the Government, belong to the latter,
although the defendant in garnishment may
be entitled to a specific portion thereof. And
still another reason which covers both of the
foregoing is that every consideration of
public policy forbids it.
The United States Supreme Court, in the
leading case of Buchanan vs. Alexander
([1846], 4 How., 19), in speaking of the right
of creditors of seamen, by process of
attachment, to divert the public money from
its legitimate and appropriate object, said:
To state such a principle is
to refute it. No
government can sanction
it. At all times it would be
found embarrassing, and
under some
circumstances it might be
fatal to the public
service. . . . So long as
money remains in the
hands of a disbursing
officer, it is as much the
money of the United

The authorities cited in the ponencia are inapplicable.

Garnished or levied on therein were public funds, to wit: (a)
the pump irrigation trust fund deposited with the Philippine
National Bank (PNB) in the account of the Irrigation Service
Unit in Republic vs. Palacio; 2 (b) the deposits of the National
Media Production Center in Traders Royal Bank vs.
Intermediate Appellate Court; 3 and (c) the deposits of the
Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate
object as authorized by the corresponding legislative
appropriation in Commissioner of Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said
case involved the validity of Circular No. 21, series of 1969,
issued by the Director of Public Schools which directed that
"henceforth no cashier or disbursing officer shall pay to
attorneys-in-fact or other persons who may be authorized
under a power of attorney or other forms of authority to
collect the salary of an employee, except when the persons so
designated and authorized is an immediate member of the
family of the employee concerned, and in all other cases
except upon proper authorization of the Assistant Executive
Secretary for Legal and Administrative Matters, with the
recommendation of the Financial Assistant." Private
respondent Zafra Financing Enterprise, which had extended
loans to public school teachers in Cebu City and obtained from
the latter promissory notes and special powers of attorney
authorizing it to take and collect their salary checks from the
Division Office in Cebu City of the Bureau of Public Schools,
sought, inter alia, to nullify the Circular. It is clear that the
teachers had in fact assigned to or waived in favor of Zafra
their future salaries which were still public funds. That
assignment or waiver was contrary to public policy.
I would therefore vote to grant the petition only if the salary
and RATA checks garnished corresponds to an unexpired
payroll period and RATA month, respectively.
Padilla, J., concurs.
G.R. No. 107898 December 19, 1995
MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.

BELLOSILLO, J.:
MANUEL LIM and ROSITA LIM, spouses, were charged before
the Regional Trial Court of Malabon with estafa on three (3)
counts under Art. 315, par. 2 (d), of The Revised Penal Code,

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docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The

Informations substantially alleged that Manuel and Rosita,
conspiring together, purchased goods from Linton Commercial
Company, Inc. (LINTON), and with deceit issued seven
Consolidated Bank and Trust Company (SOLIDBANK) checks
simultaneously with the delivery as payment therefor. When
presented to the drawee bank for payment the checks were
dishonored as payment on the checks had been stopped
and/or for insufficiency of funds to cover the amounts. Despite
repeated notice and demand the Lim spouses failed and
refused to pay the checks or the value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were
also charged with seven (7) counts of violation of B.P. Blg. 22,
otherwise known as the Bouncing Checks Law, docketed as
Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the
Informations alleged that the Lims issued the checks with
knowledge that they did not have sufficient funds or credit
with the drawee bank for payment in full of such checks upon
presentment. When presented for payment within ninety (90)
days from date thereof the checks were dishonored by the
drawee bank for insufficiency of funds. Despite receipt of
notices of such dishonor the Lims failed to pay the amounts of
the checks or to make arrangements for full payment within
five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer,
respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been
transacting business with LINTON for years, the latter
supplying the former with steel plates, steel bars, flat bars
and purlin sticks which it uses in the fabrication, installation
and building of steel structures. As officers of RIGI the Lim
spouses were allowed 30, 60 and sometimes even up to 90
days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel
plates worth P51,815.00 from LINTON which were delivered on
the same day at their place of business at 666 7th Avenue,
8th Street, Kalookan City. To pay LINTON for the delivery the
Lims issued SOLIDBANK Check No. 027700 postdated 3
September 1983 in the amount of P51,800.00. 1
On 30 May 1983 the Lims ordered another 65 pieces of mild
steel plates worth P63,455.00 from LINTON which were
delivered at their place of business on the same day. They
issued as payment SOLIDBANK Check No. 027699 in the
amount of P63,455.00 postdated 20 August 1983. 2
The Lim spouses also ordered 2,600 "Z" purlins worth
P241,800.00 which were delivered to them on various dates,
to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30
May 1983; and, 2 and 9 June 1983. To pay for the deliveries,
they issued seven SOLIDBANK checks, five of which were
Check No. Date of Issue Amount
027683 16 July 1983
P27,900.00 3
027684 23 July 1983
P27,900.00 4
027719 6 Aug. 1983
P32,550.00 5
027720 13 Aug. 1983
P27,900.00 6
027721 27 Aug. 1983
P37,200.00 7
William Yu Bin, Vice President and Sales Manager of LINTON,
testified that when those seven (7) checks were deposited
with the Rizal Commercial Banking Corporation they were
dishonored for "insufficiency of funds" with the additional
notation "payment stopped" stamped thereon. Despite

demand Manuel and Rosita refused to make good the checks

or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park
Branch, Kalookan City, where the Lim spouses maintained an
account, testified on the following transactions with respect to
the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR
DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF) 9
027699 24 Aug. 1983 PS and DAIF 10
027700 5 Sept. 1983 PS and DAIF 11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF 13
027721 30 Aug. 1983 PS and DAIF 14
Manuel Lim admitted having issued the seven (7) checks in
question to pay for deliveries made by LINTON but denied that
his company's account had insufficient funds to cover the
amounts of the checks. He presented the bank ledger showing
a balance of P65,752.75. Also, he claimed that he ordered
SOLIDBANK to stop payment because the supplies delivered
by LINTON were not in accordance with the specifications in
the purchase orders.
Rosita Lim was not presented to testify because her
statements would only be corroborative.
On the basis of the evidence thus presented the trial court
held both accused guilty of estafa and violation of B.P. Blg. 22
in its decision dated 25 January 1989. In Crim. Case No. 1696MN they were sentenced to an indeterminate penalty of six
(6) years and one (1) day of prision mayor as minimum to
twelve (12) years and one (1) day of reclusion temporal as
maximum plus one (1) year for each additional P10,000.00
with all the accessory penalties provided for by law, and to
pay the costs. They were also ordered to indemnify LINTON in
the amount of P241,800.00. Similarly sentences were imposed
in Crim. Cases Nos. 1697-MN and 1698-MN except as to the
indemnities awarded, which were P63,455.00 and P51,800.00,
respectively.
In Crim. Case No. 1699-MN the trial court sentenced both
accused to a straight penalty of one (1) year imprisonment
with all the accessory penalties provided for by law and to pay
the costs. In addition, they were ordered to indemnify LINTON
in the amount of P27,900.00. Again, similar sentences were
imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for
the indemnities awarded, which were P32,550.00, P27,900.00,
P27,900.00, P63,455.00, P51,800.00 and P37,200.00
respectively. 15
On appeal, the accused assailed the decision as they imputed
error to the trial court as follows: (a) the regional Trial Court of
malabon had no jurisdiction over the cases because the
offenses charged ere committed outside its territory; (b) they
could not be held liable for estafa because the seven (7)
checks were issued by them several weeks after the deliveries
of the goods; and, (c) neither could they be held liable for
violating B.P. Blg. 22 as they ordered payment of the checks
to be stopped because the goods delivered were not those
specified by them, besides they had sufficient funds to pay
the checks.
In the decision of 18 September 1992 16 respondent Court of
Appeals acquitted accused-appellants of estafa on the ground
that indeed the checks were not made in payment of an
obligation contracted at the time of their issuance. However it

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affirmed the finding of the trial court that they were guilty of
having violated B.P. Blg. 22. 17 On 6 November 1992 their
motion for reconsideration was denied. 18
In the case at bench petitioners maintain that the prosecution
failed to prove that any of the essential elements of the crime
punishable under B.P. Blg. 22 was committed within the
jurisdiction of the Regional Trial Court of Malabon. They claim
that what was proved was that all the elements of the offense
were committed in Kalookan City. The checks were issued at
their place of business, received by a collector of LINTON, and
dishonored by the drawee bank, all in Kalookan City.
Furthermore, no evidence whatsoever supports the
proposition that they knew that their checks were
insufficiently funded. In fact, some of the checks were funded
at the time of presentment but dishonored nonetheless upon
their instruction to the bank to stop payment. In fine,
considering that the checks were all issued, delivered, and
dishonored in Kalookan City, the trial court of Malabon
exceeded its jurisdiction when it tried the case and rendered
judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22
punishes "[a]ny person who makes or draws and issues any
check to apply on account or for value, knowing at the time of
issue that he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit or would have
been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment . .
." The gravamen of the offense is knowingly issuing a
worthless check. 19 Thus, a fundamental element
is knowledge on the part of the drawer of the insufficiency of
his funds in 20 or credit with the drawee bank for the payment
of such check in full upon presentment. Another essential
element is subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment. 21
It is settled that venue in criminal cases is a vital ingredient of
jurisdiction. 22 Section 14, par. (a), Rule 110, of the Revised
Rules of Court, which has been carried over in Sec. 15, par.
(a), Rule 110 of the 1985 Rules on Criminal Procedure,
specifically provides:
Sec. 14. Place where action is to be
instituted. (a) In all criminal prosecutions
the action shall be instituted and tried in the
court of the municipality or province
wherein the offense was committed or
anyone of the essential ingredients thereof
took place.
If all the acts material and essential to the crime and requisite
of its consummation occurred in one municipality or territory,
the court therein has the sole jurisdiction to try the
case. 23 There are certain crimes in which some acts material
and essential to the crimes and requisite to their
consummation occur in one municipality or territory and some
in another, in which event, the court of either has jurisdiction
to try the cases, it being understood that the first court taking
cognizance of the case excludes the other. 24 These are the socalled transitory or continuing crimes under which violation of
B.P. Blg. 22 is categorized. In other words, a person charged
with a transitory crime may be validly tried in any municipality
or territory where the offense was in part committed. 25
In determining proper venue in these cases, the following acts
material and essential to each crime and requisite to its
consummation must be considered: (a) the seven (7) checks
were issued to LINTON at its place of business in Balut,
Navotas; b) they were delivered to LINTON at the same place;

(c) they were dishonored in Kalookan City; and, (d) petitioners

had knowledge of the insufficiency of their funds in
SOLIDBANK at the time the checks were issued. Since there is
no dispute that the checks were dishonored in Kalookan City,
it is no longer necessary to discuss where the checks were
dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term
"issue" means the first delivery of the instrument complete in
form to a person who takes it as a holder. On the other hand,
the term "holder" refers to the payee or indorsee of a bill or
note who is in possession of it or the bearer thereof. In People
v. Yabut 26 this Court explained
. . . The place where the bills were written,
signed, or dated does not necessarily fix or
determine the place where they were
executed. What is of decisive importance is
the delivery thereof. The delivery of the
instrument is the final act essential to
its consummation as an obligation. An
undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the
issuance as well as the delivery of the check
must be to a person who takes it as
a holder, which means "(t)he payee or
indorsee of a bill or note, who is in
possession of it, or the bearer thereof."
Delivery of the check signifies transfer of
possession, whether actual or constructive,
from one person to another with intent
to transfer titlethereto . . .
Although LINTON sent a collector who received the checks
from petitioners at their place of business in Kalookan City,
they were actually issued and delivered to LINTON at its place
of business in Balut, Navotas. The receipt of the checks by the
collector of LINTON is not the issuance and delivery to the
payee in contemplation of law. The collector was not the
person who could take the checks as a holder, i.e., as a payee
or indorsee thereof, with the intent to transfer title thereto.
Neither could the collector be deemed an agent of LINTON
with respect to the checks because he was a mere employee.
As this Court further explained in People v. Yabut 27
Modesto Yambao's receipt of the bad checks
from Cecilia Que Yabut or Geminiano Yabut,
Jr., in Caloocan City cannot, contrary to the
holding of the respondent Judges, be licitly
taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City
to fix the venue there. He did not take
delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to
be no contract of agency between Yambao
and Andan so as to bind the latter for the
acts of the former. Alicia P. Andan declared
in that sworn testimony before the
investigating fiscal that Yambao is but her
"messenger" or "part-time employee." There
was no special fiduciary relationship that
permeated their dealings. For a contract of
agency to exist, the consent of both parties
is essential. The principal consents that the
other party, the agent, shall act on his
behalf, and the agent consents so as to act.
It must exist as a fact. The law makes no
presumption thereof. The person alleging it
has the burden of proof to show, not only
the fact of its existence, but also its nature
and extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of
knowledge of insufficient funds as follows

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The making, drawing and issuance of a

check payment of which is refused by the
bank because of insufficient funds in or
credit with such bank, when presented
within ninety (90) days from the date of the
check, shall be prima facie evidence of
knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the
holder thereof the amount due thereon, or
makes arrangement for payment in full by
the drawee of such check within five (5)
banking days after receiving notice that
such check has not been paid by the
drawee.
The prima facie evidence has not been overcome by
petitioners in the cases before us because they did not pay
LINTON the amounts due on the checks; neither did they
make arrangements for payment in full by the drawee bank
within five (5) banking days after receiving notices that the
checks had not been paid by the drawee bank. In People
v. Grospe 28 citing People v. Manzanilla 29 we held that ". . .
knowledge on the part of the maker or drawer of the check of
the insufficiency of his funds is by itself a continuing
eventuality, whether the accused be within one territory or
another."
Consequently, venue or jurisdiction lies either in the Regional
Trial Court of Kalookan City or Malabon. Moreover, we ruled in
the same Grospe and Manzanilla cases as reiterated in Lim
v. Rodrigo 30 that venue or jurisdiction is determined by the
allegations in the Information. The Informations in the cases
under consideration allege that the offenses were committed
in the Municipality of Navotas which is controlling and
sufficient to vest jurisdiction upon the Regional Trial Court of
Malabon. 31
We therefore sustain likewise the conviction of petitioners by
the Regional Trial Court of Malabon for violation of B.P. Blg. 22
thus
Accused-appellants claim that they ordered
payment of the checks to be stopped
because the goods delivered were not those
specified by them. They maintain that they
had sufficient funds to cover the amount of
the checks. The records of the bank,
however, reveal otherwise. The two letters
(Exhs. 21 and 22) dated July 23, and August
10, 1983 which they claim they sent to
Linton Commercial, complaining against the
quality of the goods delivered by the latter,
did not refer to the delivery of mild steel
plates (6mm x 4 x 8) and "Z" purlins (16 x 7
x 2-1/2 mts) for which the checks in
question were issued. Rather, the letters
referred to B.1. Lally columns (Sch. #20),
which were the subject of other purchase
orders.
It is true, as accused-appellants point out,
that in a case brought by them against the
complainant in the Regional Trial Court of
Kalookan City (Civil Case No. C-10921) the
complainant was held liable for actual
damages because of the delivery of goods
of inferior quality (Exh. 23). But the supplies
involved in that case were those of B.I.
pipes, while the purchases made by
accused-appellants, for which they issued
the checks in question, were purchases of
mild steel plates and "Z" purlins.

Indeed, the only question here is whether

accused-appellants maintained funds
sufficient to cover the amounts of their
checks at the time of issuance and
presentment of such checks. Section 3 of
B.P. Blg. 22 provides that "notwithstanding
receipt of an order to stop payment, the
drawee bank shall state in the notice of
dishonor that there were no sufficient funds
in or credit with such bank for the payment
in full of the check, if such be the fact."
The purpose of this provision is precisely to
preclude the maker or drawer of a worthless
check from ordering the payment of the
check to be stopped as a pretext for the lack
of sufficient funds to cover the check.
In the case at bar, the notice of dishonor
issued by the drawee bank, indicates not
only that payment of the check was stopped
but also that the reason for such order was
that the maker or drawer did not have
sufficient funds with which to cover the
checks. . . . Moreover, the bank ledger of
accused-appellants' account in Consolidated
Bank shows that at the time the checks
were presented for encashment, the
balance of accused-appellants' account was
inadequate to cover the amounts of the
checks. 32 . . .
WHEREFORE, the decision of the Court of Appeals dated 18
September 1992 affirming the conviction of petitioners
Manuel Lim and Rosita Lim
In CA-G.R. CR No. 07277 (RTC Crim. Case
No. 1699-MN); CA-G.R. CR No. 07278 (RTC
Crim. Case No. 1700-MN); CA-G.R. CR No.
07279 (RTC Crim. Case No. 1701-MN); CAG.R. CR No. 07280 (RTC Crim. Case No.
1702-MN); CA-G.R. CR No. 07281 (RTC Crim.
Case No. 1703-MN); CA-G.R. CA No. 07282
(RTC Crim. Case No. 1704-MN); and CA-G.R.
CR No. 07283 (RTC Crim Case No. 1705-MN),
the Court finds the accused-appellants
MANUEL LIM and ROSITA LIM guilty beyond
reasonable doubt of violation of Batas
Pambansa Bilang 22 and are hereby
sentenced to suffer a STRAIGHT PENALTY OF
ONE (1) YEAR IMPRISONMENT in each case,
together with all the accessory penalties
provided by law, and to pay the costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case
No. 1699-MN), both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P27,900.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case
No. 1700-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P32,550.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case
No. 1701-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P27,900.00.
In CA-G.R. CR No. 07280 (RTC Crim. Case
No. 1702-MN) both accused-appellants are

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hereby ordered to indemnify the offended

party in the sum of P27,900.00.
In CA-G.R. CR No. 07281 (RTC Crim. Case
No. 1703-MN) both accused are hereby
ordered to indemnify the offended party in
the sum of P63,455.00.
In CA-G.R CR No. 07282 (RTC Crim. Case No.
1704-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P51,800.00, and
In CA-G.R. CR No. 07283 (RTC Crim. Case
No. 1705-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P37,200.00 33
as well as its resolution of 6 November 1992 denying
reconsideration thereof, is AFFIRMED. Costs against
petitioners.
SO ORDERED.

G.R. No. 192413

RIZAL COMMERCIAL BANKING
CORPORATION, Petitioner,
versus
HI-TRI DEVELOPMENT CORPORATION and LUZ R.
BAKUNAWA, Respondents.
June 13, 2012
DECISION

SERENO, J.:
Before the Court is a Rule 45 Petition for Review on
Certiorari filed by petitioner Rizal Commercial Banking
Corporation (RCBC) against respondents Hi-Tri Development
Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa).
Petitioner seeks to appeal from the 26 November 2009
Decision and 27 May 2010 Resolution of the Court of Appeals
(CA),[1] which reversed and set aside the 19 May 2008
Decision and 3 November 2008 Order of the Makati City
Regional Trial Court (RTC) in Civil Case No. 06-244. [2] The case
before the RTC involved the Complaint for Escheat filed by the
Republic of the Philippines (Republic) pursuant to Act No.
3936, as amended by Presidential Decree No. 679 (P.D. 679),
against certain deposits, credits, and unclaimed balances held
by the branches of various banks in the Philippines. The trial
court declared the amounts, subject of the special
proceedings, escheated to the Republic and ordered them
deposited with the Treasurer of the Philippines (Treasurer) and
credited in favor of the Republic.[3] The assailed RTC
judgments included an unclaimed balance in the amount of
1,019,514.29, maintained by RCBC in its Ermita Business
Center branch.
We quote the narration of facts of the CA[4] as follows:
x x x Luz [R.] Bakunawa and her
husband Manuel, now deceased (Spouses
Bakunawa) are registered owners of six (6)
parcels of land covered by TCT Nos. 324985
and 324986 of the Quezon City Register of
Deeds, and TCT Nos. 103724, 98827, 98828
and 98829 of the Marikina Register of
Deeds. These lots were sequestered by the
Presidential
Commission
on
Good
Government [(PCGG)].

Sometime in 1990, a certain

Teresita
Millan
(Millan),
through
her
representative, Jerry Montemayor, offered to
buy said lots for 6,724,085.71, with the
promise that she will take care of clearing
whatever
preliminary
obstacles
there
may[]be to effect a completion of the sale.
The Spouses Bakunawa gave to Millan the
Owners Copies of said TCTs and in turn,
Millan
made
a
down[]payment
of
1,019,514.29 for the intended purchase.
However, for one reason or another, Millan
was not able to clear said obstacles. As a
result, the Spouses Bakunawa rescinded the
sale and offered to return to Millan her
down[]payment of 1,019,514.29. However,
Millan refused to accept back the
1,019,514.29
down[]payment.
Consequently, the Spouses Bakunawa,
through
their
company,
the
Hi-Tri
Development Corporation (Hi-Tri) took out
on October 28, 1991, a Managers Check
from RCBC-Ermita in the amount of
1,019,514.29, payable to Millans company
Rosmil Realty and Development Corporation
(Rosmil) c/o Teresita Millan and used this as
one of their basis for a complaint against
Millan and Montemayor which they filed with
the Regional Trial Court of Quezon City,
Branch 99, docketed as Civil Case No. Q-9110719 [in 1991], praying that:
1.
That the defendants
Teresita Mil[l]an and
Jerry
Montemayor
may be ordered to
return to plaintiffs
spouses the Owners
Copies of Transfer
Certificates of Title
Nos. 324985, 324986,
103724,
98827,
98828 and 98829;
2.
That the defendant
Teresita Mil[l]an be
correspondingly
ordered to receive the
amount of One Million
Nineteen
Thousand
Five
Hundred
Fourteen Pesos and
Twenty Nine Centavos
(1,019,514.29);
3.
That the defendants
be ordered to pay to
plaintiffs
spouses
moral damages in the
amount
of
2,000,000.00; and
4.
That the defendants
be ordered to pay
plaintiffs
attorneys
fees in the amount of
50,000.00.
Being part and parcel of said
complaint, and consistent with their prayer
in Civil Case No. Q-91-10719 that Teresita
Mil[l]an be correspondingly ordered to
receive the amount of One Million Nineteen
Thousand Five Hundred Fourteen Pesos and
Twenty Nine [Centavos] (1,019,514.29)[],
the Spouses Bakunawa, upon advice of their
counsel, retained custody of RCBC Managers
Check No. ER 034469 and refrained from
canceling or negotiating it.
All throughout the proceedings in
Civil Case No. Q-91-10719, especially during
negotiations for a possible settlement of the

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case, Millan was informed that the Managers

Check was available for her withdrawal, she
being the payee.
On January 31, 2003, during the
pendency of the abovementioned case and
without the knowledge of [Hi-Tri and
Spouses Bakunawa], x x x RCBC reported
the 1,019,514.29-credit existing in favor of
Rosmil to the Bureau of Treasury as among
its unclaimed balances as of January 31,
2003. Allegedly, a copy of the Sworn
Statement executed by Florentino N.
Mendoza, Manager and Head of RCBCs
Asset Management, Disbursement & Sundry
Department (AMDSD) was posted within the
premises of RCBC-Ermita.
On December 14, 2006, x x x
Republic, through the [Office of the Solicitor
General (OSG)], filed with the RTC the action
below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses
Bakunawa] settled amicably their dispute
with Rosmil and Millan. Instead of only the
amount
of
1,019,514.29,
[Spouses
Bakunawa] agreed to pay Rosmil and Millan
the amount of 3,000,000.00, [which is]
inclusive
[of]
the
amount
of
[]
1,019,514.29. But during negotiations and
evidently prior to said settlement, [Manuel
Bakunawa, through Hi-Tri] inquired from
RCBC-Ermita
the
availability
of
the
1,019,514.29 under RCBC Managers Check
No. ER 034469. [Hi-Tri and Spouses
Bakunawa] were however dismayed when
they were informed that the amount was
already subject of the escheat proceedings
before the RTC.
On April 17, 2008, [Manuel
Bakunawa, through Hi-Tri] wrote x x x
RCBC, viz:
We understand that the
deposit corresponding to
the
amount
of
Php
1,019,514.29 stated in the
Managers
Check
is
currently the subject of
escheat
proceedings
pending before Branch
150 of the Makati Regional
Trial Court.
Please note that it was our
impression
that
the
deposit would be taken
from [Hi-Tris] RCBC bank
account once an order to
debit is issued upon the
payees presentation of the
Managers Check. Since
the payee rejected the
negotiated
Managers
Check, presentation of the
Managers
Check
was
never made.
Consequently, the deposit
that was supposed to be
allocated for the payment
of the Managers Check
was supposed to remain
part of the Corporation[s]
RCBC
bank
account,
which,
thereafter,
continued to be actively
maintained and operated.
For this reason, We hereby
demand your confirmation
that the amount of Php
1,019,514.29 continues to

form part of the funds in

the Corporations RCBC
bank account, since payout of said amount was
never ordered. We wish to
point out that if there was
any attempt on the part of
RCBC to consider the
amount indicated in the
Managers Check separate
from
the
Corporations
bank account, RCBC would
have issued a statement
to
that
effect,
and
repeatedly reminded the
Corporation
that
the
deposit
would
be
considered
dormant
absent
any
fund
movement.
Since
the
Corporation
never
received any statements
of account from RCBC to
that effect, and more
importantly,
never
received any single letter
from RCBC noting the
absence
of
fund
movement and advising
the Corporation that the
deposit would be treated
as dormant.
On April 28, 2008, [Manuel
Bakunawa] sent another letter to x x x RCBC
reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x
x RCBC replied and informed [Hi-Tri and
Spouses Bakunawa] that:
The Banks Ermita BC
informed Hi-Tri and/or its
principals regarding the
inclusion
of
Managers
Check No. ER034469 in
the escheat proceedings
docketed as Civil Case No.
06-244, as well as the
status thereof, between
28 January 2008 and 1
February 2008.
xxx xxx xxx
Contrary to what Hi-Tri
hopes for, the funds
covered by the Managers
Check No. ER034469 does
not form part of the Banks
own account. By simple
operation of law, the funds
covered by the managers
check in issue became a
deposit/credit susceptible
for
inclusion
in
the
escheat case initiated by
the OSG and/or Bureau of
Treasury.
xxx xxx xxx
Granting arguendo that
the Bank was duty-bound
to make good the check,
the Banks obligation to do
so prescribed as early as
October 2001.
(Emphases, citations, and annotations were
omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC
continued. On 19 May 2008, the trial court rendered its
assailed Decision declaring the deposits, credits, and

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unclaimed balances subject of Civil Case No. 06-244

escheated to the Republic. Among those included in the order
of forfeiture was the amount of 1,019,514.29 held by RCBC
as allocated funds intended for the payment of the Managers
Check issued in favor of Rosmil. The trial court ordered the
deposit of the escheated balances with the Treasurer and
credited in favor of the Republic. Respondents claim that they
were not able to participate in the trial, as they were not
informed of the ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion
dated 11 June 2008, seeking the partial reconsideration of the
RTC Decision insofar as it escheated the fund allocated for the
payment of the Managers Check. They asked that they be
included as party-defendants or, in the alternative, allowed to
intervene in the case and their motion considered as an
answer-in-intervention. Respondents argued that they had
meritorious grounds to ask reconsideration of the Decision or,
alternatively, to seek intervention in the case. They alleged
that the deposit was subject of an ongoing dispute (Civil Case
No. Q-91-10719) between them and Rosmil since 1991, and
that they were interested parties to that case.[5]
On 3 November 2008, the RTC issued an Order
denying the motion of respondents. The trial court explained
that the Republic had proven compliance with the
requirements of publication and notice, which served as
notice to all those who may be affected and prejudiced by the
Complaint for Escheat. The RTC also found that the motion
failed to point out the findings and conclusions that were not
supported by the law or the evidence presented, as required
by Rule 37 of the Rules of Court. Finally, it ruled that the
alternative prayer to intervene was filed out of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed
Decision reversing the 19 May 2008 Decision and 3 November
2008 Order of the RTC. According to the appellate court,
[6]
RCBC failed to prove that the latter had communicated with
the purchaser of the Managers Check (Hi-Tri and/or Spouses
Bakunawa) or the designated payee (Rosmil) immediately
before the bank filed its Sworn Statement on the dormant
accounts held therein. The CA ruled that the banks failure to
notify respondents deprived them of an opportunity to
intervene in the escheat proceedings and to present evidence
to substantiate their claim, in violation of their right to due
process. Furthermore, the CA pronounced that the Makati City
RTC Clerk of Court failed to issue individual notices directed to
all persons claiming interest in the unclaimed balances, as
well as to require them to appear after publication and show
cause why the unclaimed balances should not be deposited
with the Treasurer of the Philippines. It explained that the
jurisdictional requirement of individual notice by personal
service was distinct from the requirement of notice by
publication. Consequently, the CA held that the Decision and
Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the
parties, we cull the main issues as follows:
I.
Whether the Decision and Order of the
RTC were void for failure to send separate
notices to respondents by personal service
II.
Whether petitioner had the obligation to
notify respondents immediately before it
filed its Sworn Statement with the Treasurer
III.
Whether or not the allocated funds may be
escheated in favor of the Republic
Discussion
Petitioner bank assails[7] the CA judgments insofar as
they ruled that notice by personal service upon respondents is
a jurisdictional requirement in escheat proceedings. Petitioner
contends that respondents were not the owners of the
unclaimed balances and were thus not entitled to notice from
the RTC Clerk of Court. It hinges its claim on the theory that
the funds represented by the Managers Check were deemed
transferred to the credit of the payee or holder upon its
issuance.
We quote the pertinent provision of Act No. 3936, as
amended, on the rule on service of processes, to wit:

Sec.
3.
Whenever
the Solicitor
General shall
be
informed
of
such
unclaimed balances, he shall commence
an action or actions in the name of the
People
of
the
Republic
of
the
Philippinesin the Court of First Instance of
the province or city where the bank, building
and loan association or trust corporation is
located, in which shall be joined as
parties the bank, building and loan
association or trust corporation and all
such creditors or depositors. All or any
of such creditors or depositors or banks,
building and loan association or trust
corporations may be included in one
action. Service of process in such action
or actions shall be made by delivery of a
copy of the complaint and summons to
the president, cashier, or managing
officer of each defendant bank, building
and loan association or trust corporation
and by publication of a copy of such
summons in a newspaper of general
circulation, either in English, in Filipino, or in
a local dialect, published in the locality
where the bank, building and loan
association or trust corporation is situated, if
there be any, and in case there is none, in
the City of Manila, at such time as the court
may order. Upon the trial, the court must
hear all parties who have appeared
therein, and if it be determined that
such
unclaimed
balances
in
any
defendant bank, building and loan
association
or
trust
corporation are
unclaimed as hereinbefore stated, then
the court shall render judgment in
favor of the Government of the
Republic of the Philippines, declaring
that
said
unclaimed
balances
have
escheated to the Government of the
Republic of the Philippines and commanding
said bank, building and loan association or
trust corporation to forthwith deposit the
same with the Treasurer of the Philippines to
credit of the Government of the Republic of
the Philippines to be used as the National
Assembly may direct.
At the time of issuing summons in the
action above provided for, the clerk of
court shall also issue a notice signed by
him, giving the title and number of said
action, and referring to the complaint
therein, and directed to all persons,
other than those named as defendants
therein, claiming any interest in any
unclaimed balance mentioned in said
complaint,
and requiring
them
to
appear within sixty days after the
publication or first publication, if there are
several, of such summons, and show
cause, if they have any, why the
unclaimed balances involved in said
action should not be deposited with
the Treasurer of the Philippines as in
this Act provided and notifying them that
if they do not appear and show cause,
the Government of the Republic of the
Philippines will apply to the court for
the relief demanded in the complaint. A
copy of said notice shall be attached to, and
published with the copy of, said summons
required to be published as above, and at
the end of the copy of such notice so
published, there shall be a statement of the
date of publication, or first publication, if
there are several, of said summons and

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notice. Any
person
interested
may
appear in said action and become a
party thereto. Upon the publication or
the completion of the publication, if
there are several, of the summons and
notice, and the service of the summons on
the defendant banks, building and loan
associations or trust corporations, the
court shall have full and complete
jurisdiction in the Republic of the
Philippines over the said unclaimed
balances and over the persons having
or claiming any interest in the said
unclaimed balances, or any of them,
and shall have full and complete
jurisdiction to hear and determine the
issues
herein,
and
render
the
appropriate
judgment
thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of
processes is made by delivery of a copy of the complaint and
summons upon the president, cashier, or managing officer of
the defendant bank.[8] On the other hand, as to depositors
or other claimants of the unclaimed balances, service is
made by publication of a copy of the summons in a
newspaper of general circulation in the locality where the
institution is situated.[9] A notice about the forthcoming
escheat proceedings must also be issued and published,
directing and requiring all persons who may claim any interest
in the unclaimed balances to appear before the court and
show cause why the dormant accounts should not be
deposited with the Treasurer.
Accordingly, the CA committed reversible error when
it ruled that the issuance of individual notices upon
respondents was a jurisdictional requirement, and that failure
to effect personal service on them rendered the Decision and
the Order of the RTC void for want of jurisdiction. Escheat
proceedings are actions in rem,[10] whereby an action is
brought against the thing itself instead of the person.[11] Thus,
an action may be instituted and carried to judgment without
personal service upon the depositors or other claimants.
[12]
Jurisdiction is secured by the power of the court over
the res.[13] Consequently, a judgment of escheat is conclusive
upon persons notified by advertisement, as publication is
considered a general and constructive notice to all persons
interested.[14]
Nevertheless, we find sufficient grounds to affirm the
CA on the exclusion of the funds allocated for the payment of
the Managers Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in
which the state, by virtue of its sovereignty, steps in and
claims abandoned, left vacant, or unclaimed property, without
there being an interested person having a legal claim thereto.
[15]
In the case of dormant accounts, the state inquires into the
status, custody, and ownership of the unclaimed balance to
determine whether the inactivity was brought about by the
fact of death or absence of or abandonment by the depositor.
[16]
If after the proceedings the property remains without a
lawful owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to selfservice by the first comers.[17] However, if interested parties
have come forward and lain claim to the property, the courts
shall determine whether the credit or deposit should pass to
the claimants or be forfeited in favor of the state. [18] We
emphasize that escheat is not a proceeding to penalize
depositors for failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state compels the
surrender to it of unclaimed deposit balances when there is
substantial ground for a belief that they have been
abandoned, forgotten, or without an owner.[19]
Act No. 3936, as amended, outlines the proper
procedure to be followed by banks and other similar
institutions in filing a sworn statement with the Treasurer
concerning dormant accounts:
Sec. 2. Immediately after the taking effect
of this Act and within the month of January
of every odd year, all banks, building and

loan
associations,
and
trust
corporations shall
forward
to
the
Treasurer
of
the
Philippines
a
statement, under oath, of their respective
managing officers, of all credits and
deposits held by them in favor of
persons known to be dead, or who have
not
made
further
deposits
or
withdrawals during the preceding ten
years or more, arranged in alphabetical
order according to the names of creditors
and depositors, and showing:
(a)
The names and last known place of
residence or post office addresses of
the persons in whose favor such
unclaimed balances stand;
(b)

The amount and the date of the

outstanding unclaimed balance and
whether the same is in money or in
security, and if the latter, the nature of
the same;

(c)

The date when the person in whose

favor the unclaimed balance stands
died, if known, or the date when he
made his last deposit or withdrawal;
and

(d)

The interest due on such unclaimed

balance, if any, and the amount
thereof.
A copy of the above sworn statement
shall be posted in a conspicuous place
in the premises of the bank, building and
loan association, or trust corporation
concerned for at least sixty days from the
date
of
filing
thereof: Provided,
That immediately before filing the
above
sworn
statement, the bank,
building and loan association, and trust
corporation shall communicate with the
person in whose favor the unclaimed
balance stands at his last known place
of residence or post office address.
It shall be the duty of the Treasurer of the
Philippines to inform the Solicitor General
from time to time the existence of
unclaimed balances held by banks, building
and
loan
associations,
and
trust
corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a
detailed system for notifying depositors of unclaimed
balances. This notification is meant to inform them that their
deposit could be escheated if left unclaimed. Accordingly,
before filing a sworn statement, banks and other similar
institutions are under obligation to communicate with owners
of dormant accounts. The purpose of this initial notice is for a
bank to determine whether an inactive account has indeed
been unclaimed, abandoned, forgotten, or left without an
owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and
dominion over the dormant account, then the bank is no
longer obligated to include the account in its sworn
statement.[20] It is not the intent of the law to force depositors
into unnecessary litigation and defense of their rights, as the
state is only interested in escheating balances that have been
abandoned and left without an owner.
In case the bank complies with the provisions of the
law and the unclaimed balances are eventually escheated to
the Republic, the bank shall not thereafter be liable to any
person for the same and any action which may be brought by
any person against in any bank xxx for unclaimed balances so
deposited xxx shall be defended by the Solicitor General
without cost to such bank.[21] Otherwise, should it fail to
comply with the legally outlined procedure to the prejudice of

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the depositor, the bank may not raise the defense provided
under Section 5 of Act No. 3936, as amended.
Petitioner asserts[22] that the CA committed a
reversible error when it required RCBC to send prior notices to
respondents about the forthcoming escheat proceedings
involving the funds allocated for the payment of the Managers
Check. It explains that, pursuant to the law, only those whose
favor such unclaimed balances stand are entitled to receive
notices. Petitioner argues that, since the funds represented by
the Managers Check were deemed transferred to the credit of
the payee upon issuance of the check, the proper party
entitled to the notices was the payee Rosmil and not
respondents. Petitioner then contends that, in any event, it is
not liable for failing to send a separate notice to the payee,
because it did not have the address of Rosmil. Petitioner avers
that it was not under any obligation to record the address of
the payee of a Managers Check.
In contrast, respondents Hi-Tri and Bakunawa
allege[23] that they have a legal interest in the fund allocated
for the payment of the Managers Check. They reason that,
since the funds were part of the Compromise Agreement
between respondents and Rosmil in a separate civil case, the
approval and eventual execution of the agreement effectively
reverted the fund to the credit of respondents. Respondents
further posit that their ownership of the funds was evidenced
by their continued custody of the Managers Check.
An ordinary check refers to a bill of exchange drawn
by a depositor (drawer) on a bank (drawee), [24] requesting the
latter to pay a person named therein (payee) or to the order
of the payee or to the bearer, a named sum of money. [25] The
issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit
of the drawer.[26] Here, the bank becomes liable only after it
accepts or certifies the check. [27] After the check is accepted
for payment, the bank would then debit the amount to be paid
to the holder of the check from the account of the depositordrawer.
There
are
checks
of
a
special
type
called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the
name of the bank, against the bank itself. [28] Typically, a
managers or a cashiers check is procured from the bank by
allocating a particular amount of funds to be debited from the
depositors account or by directly paying or depositing to the
bank the value of the check to be drawn. Since the bank
issues the check in its name, with itself as the drawee, the
check is deemed accepted in advance. [29] Ordinarily, the check
becomes the primary obligation of the issuing bank and
constitutes its written promise to pay upon demand. [30]
Nevertheless, the mere issuance of a managers
check does not ipso facto work as an automatic transfer of
funds to the account of the payee. In case the procurer of the
managers or cashiers check retains custody of the instrument,
does not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on
undelivered instruments under the Negotiable Instruments
Law applicable:[31]
Sec. 16. Delivery; when effectual;
when presumed. Every contract on a
negotiable instrument is incomplete and
revocable
until
delivery
of
the
instrument for the purpose of giving
effect thereto. As between immediate
parties and as regards a remote party other
than a holder in due course, the delivery,
in order to be effectual, must be made
either by or under the authority of the
party making, drawing, accepting, or
indorsing, as the case may be; and, in such
case, the delivery may be shown to have
been conditional, or for a special purpose
only, and not for the purpose of transferring
the property in the instrument. But where
the instrument is in the hands of a holder in
due course, a valid delivery thereof by all
parties prior to him so as to make them
liable to him is conclusively presumed. And

where the instrument is no longer in the

possession of a party whose signature
appears thereon, a valid and intentional
delivery by him is presumed until the
contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check was
procured by respondents, and that the amount to be paid for
the check would be sourced from the deposit account of Hi-Tri.
[32]
When Rosmil did not accept the Managers Check offered by
respondents, the latter retained custody of the instrument
instead of cancelling it. As the Managers Check neither went
to the hands of Rosmil nor was it further negotiated to other
persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the
instrument.[33]
Since there was no delivery, presentment of the
check to the bank for payment did not occur. An order to debit
the account of respondents was never made. In fact,
petitioner confirms that the Managers Check was never
negotiated or presented for payment to its Ermita Branch, and
that the allocated fund is still held by the bank. [34] As a result,
the assigned fund is deemed to remain part of the account of
Hi-Tri, which procured the Managers Check. The doctrine that
the deposit represented by a managers check automatically
passes to the payee is inapplicable, because the instrument
although accepted in advance remains undelivered. Hence,
respondents should have been informed that the deposit had
been left inactive for more than 10 years, and that it may be
subjected to escheat proceedings if left unclaimed.
After a careful review of the RTC records, we find that
it is no longer necessary to remand the case for hearing to
determine whether the claim of respondents was valid. There
was no contention that they were the procurers of the
Managers Check. It is undisputed that there was no effective
delivery of the check, rendering the instrument incomplete. In
addition, we have already settled that respondents retained
ownership of the funds. As it is obvious from their foregoing
actions that they have not abandoned their claim over the
fund, we rule that the allocated deposit, subject of the
Managers Check, should be excluded from the escheat
proceedings. We reiterate our pronouncement that the
objective of escheat proceedings is state forfeiture of
unclaimed balances. We further note that there is nothing in
the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an
indication of disinterest in pursuing the escheat proceedings
in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26
November 2009 Decision and 27 May 2010 Resolution of the
Court of Appeals in CA-G.R. SP No. 107261 are
hereby AFFIRMED.
SO ORDERED.

EN BANC
G.R. No. L-38816

November 3, 1933

INSULAR DRUG CO., INC., plaintiff-appellee,

vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants.
THE PHILIPPINE NATIONAL BANK, appellant.
Camus and Delgado for appellant.
Franco and Reinoso for appellee.

MALCOLM, J.:

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This is an appeal taken by Philippine National Bank from a

judgment of the Court of First Instance of Manila requiring
bank to pay to the Insular Drug Co., Inc., the sum of
P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend,
President and Manager of the Insular Drug Co., Inc., and of
exhibits obtained from the Philippine National Bank showing
transactions of U.E. Foerster with the bank. The Philippine
National Bank was content to submit the case without
presenting evidence in its behalf. The meagre record and the
statement of facts agreed upon by the attorneys for the
contending parties disclose the following facts:
The Insular Drug Co., Inc., is a Philippine corporation with
offices in the City of Manila. U.E. Foerster was formerly a
salesman of drug company for the Islands of Panay and
Negros. Foerster also acted as a collector for the company. He
was instructed to take the checks which came to his hands for
the drug company to the Iloilo branch of the Chartered Bank
of India, Australia and China and deposit the amounts to the
credit of the drug company. Instead, Foerster deposited
checks, including those of Juan Llorente, Dolores Salcedo,
Estanislao Salcedo, and a fourth party, with the Iloilo branch
of the Philippine National Bank. The checks were in that bank
placed in the personal account of Foerster. Some of the
checks were drawn against the Bank of Philippine National
Bank. After the indorsement on the checks was written
"Received payment prior indorsement guaranteed by
Philippine National bank, Iloilo Branch, Angel Padilla,
Manager." The indorsement on the checks took various forms,
some being "Insular Drug Company, Inc., By: (Sgd.) U.
Foerster, Agent. (Sgd.) U. Foerster" other being "Insular Drug
Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.)
Carmen E. de Foerster"; others "Insular Drug Co., Inc., By:
(Sgd.) Carmen E. de Foerster, Carmen E. de Froster"; others
"(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster";
one (Sgd.) U. Foerster. (Sgd.) U. Foerster"; others; "Insular
Drug Co., Inc., Carmen E. de Foerster, By: (Sgd.) V. Bacaldo,"
etc. In this connection it should be explained that Carmen E.
de Foerster was his stenographer. As a consequence of the
indorsements on checks the amounts therein stated were
subsequently withdrawn by U. E., Foerster and Carmen E. de
Foerster.
Eventually the Manila office of the drug company investigated
the transactions of Foerster. Upon the discovery of anomalies,
Foerster committed suicide. But there is no evidence showing
that the bank knew that Foerster was misappropriating the
funds of his principal. The Insular Drug Company claims that it
never received the face value of 132 checks here in the
question covering a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven
facts. The case of Fulton Iron Works Co., vs. China Banking
Corporation ([1930], 55 Phil., 208), mentioned by both parties
rest on a different states of facts. However, there are
elementary principles governing the relationship between a
bank and its customers which are controlling.

the loss suffered by the drug company is not nearly as clear

as it should be, it is a sufficient answer to state that no such
special defense was relied upon by the bank in the trial court.
The drug company saw fit to stand on the proposition that
checks drawn in its favor were improperly and illegally cashed
by the bank for Foerster and placed in his personal account,
thus making it possible for Foerster to defraud the drug
company, and the bank did not try to go back of this
proposition.
The next point relied upon by the bank, to the effect that
Foerster had implied authority to indorse all checks made out
in the name of the Insular Drug Co., Inc., has even less force.
Not only did the bank permit Foerster to indorse checks and
then place them to his personal account, but it went farther
and permitted Foerster's wife and clerk to indorse the checks.
The right of an agent to indorse commercial paper is a very
responsible power and will not be lightly inferred. A salesman
with authority to collect money belonging to his principal does
not have the implied authority to indorse checks received in
payment. Any person taking checks made payable to a
corporation, which can act only by agent does so at his peril,
and must same by the consequences if the agent who
indorses the same is without authority. (Arcade Realty Co. vs.
Bank of Commerce [1919], 180 Cal., 318; Standard Steam
Specialty Co., vs. Corn Exchange Bank [1917], 220 N.Y., 278;
People vs. Bank of North America [1879], 75 N.Y., 547;
Graham vs. United States Savings Institution [1870], 46 Mo.,
186.) Further speaking to the errors specified by the bank, it is
sufficient to state that no trust fund was involved; that the
fact that bank acted in good faith does not relieve it from
responsibility; that no proof was adduced, admitting that
Foerster had right to indorse the checks, indicative of right of
his wife and clerk to do the same , and that the checks drawn
on the Bank of the Philippine Islands can not be differentiated
from those drawn on the Philippine National Bank because of
the indorsement by the latter.
In brief, this is a case where 132 checks made out in the name
of the Insular Drug Co., Inc., were brought to the branch office
of the Philippine National Bank in Iloilo by Foerster, a
salesman of the drug company, Foerster's wife, and Foerster's
clerk. The bank could tell by the checks themselves that the
money belonged to the Insular Drug Co., Inc., and not to
Foerster or his wife or his clerk. When the bank credited those
checks to the personal account of Foerster and permitted
Foerster and his wife to make withdrawals without there being
made authority from the drug company to do so, the bank
made itself responsible to the drug company for the amounts
represented by the checks. The bank could relieve itself from
responsibility by pleading and proving that after the money
was withdrawn from the bank it passed to the drug company
which thus suffered no loss, but the bank has not done so.
Much more could be said about this case, but it suffices to
state in conclusion that bank will have to stand the loss
occasioned by the negligence of its agents.
Overruling the errors assigned, judgment of the trial court will
be affirmed, the costs of this instance to be paid by appellant.

In first place, the bank argues that the drug company was
never defrauded at all. While the evidence on the extent of

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