Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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 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. 21-25, 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 plaintiff-appellee 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, plaintiff-appellee 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 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 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 plaintiff-appellee.

Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon,
JJ., concur.
Bengzon, C.J., concurs in the result.

3 SCRA 596 Mercantile Law Negotiable Instruments Law Rights of the Holder What
Constitutes a Holder in Due Course Is a payee a holder in due course?

Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De Ocampo.
She incurred a debt amounting to P441.75. Her husband, Manuel Gonzales designed a
scheme in order to pay off this debt: In 1953, Manuel went to a certain Anita Gatchalian.
Manuel purported himself to be selling the car of Vicente De Ocampo. Gatchalian was
interested in buying said car but Manuel told her that De Ocampo will only sell the car if
Gatchalian shows her willingness to pay for it. Manuel advised Gatchalian to draw a check
of P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo and that
Manuel in the meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel
the check. After that, Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as
payment of her bills with the clinic. De Ocampo received the check and even gave Matilde
her change (sukli). On the other hand, since Gatchalian never saw Manuel again, she
placed a stop-payment on the P600.00 check so De Ocampo was not able to cash on the
check. Eventually, the issue reached the courts and the trial court ordered Gatchalian to pay
De Ocampo the amount of the check.

Gatchalian argued that De Ocampo is not entitled to payment because there was no valid
indorsement. De Ocampo argued tha he is a holder in due course because he is the named
payee.

ISSUE: Whether or not De Ocampo is a holder in due course.

HELD: No. Section 52 of the 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 Supreme Court emphasized that if one is such a holder in due course, it is immaterial
that he was the payee and an immediate party to the instrument. The Supreme Court
however ruled that De Ocampo is not a holder in due course for his lack of good faith. De
Ocampo should have inquired as to the legal title of Manuel to the said check. The fact that
Gatchalian has no obligation to De Ocampo and yet hes named as the payee in the check
hould have apprised De Ocampo; that the check did not correspond to Matilde Gonzales
obligation with the clinic because of the fact that it was for P600.00 more than the
indebtedness; that why was Manuel in possession of the check all these gave De
Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of the
latters title to the check was or the nature of his possession.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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. 84-22515. 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:

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.

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 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.
 145 SCRA 497 Mercantile Law Negotiable Instruments Law Rights of the Holder
What Constitutes a Holder in Due Course Stolen Check

Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00

from Associated Bank to another bank but he realized that he does not want to be carrying
that cash so he bought a cashiers check from Associated Bank worth P800,000.00.
Associated Bank then issued the check but Jose Go forgot to get the check so it was left on
top of the desk of the bank manager. The bank manager, when he found the check,
entrusted it to Albert Uy for the later to safe keep it. The check was however stolen from Uy
by a certain Alexander Lim.

Jose Go learned that the check was stolen son he made a stop payment order against the
check. Meanwhile, Associated Bank received the subject check from Prudential Bank for
clearing. Apparently, the check was presented by a certain Marcelo Mesina for payment.
Associated Bank dishonored the check.

When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, whos
already at large, paid the check to him for a certain transaction.

ISSUE: Whether or not Mesina is a holder in due course.

HELD: No. Admittedly, Mesina became the holder of the cashiers check as endorsed by
Alexander Lim who stole the check. Mesina however refused to say how and why it was
passed to him. Mesina had therefore notice of the defect of his title over the check from the
start. The holder of a cashiers check who is not a holder in due course cannot enforce such
check against the issuing bank which dishonors the same. The check in question suffers
from the infirmity of not having been properly negotiated and for value by Jose Go who is
the real owner of said instrument.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,

vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-
appellants.

Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.

Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court
the issue issued therein being one purely of law.

On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that
in case on non-payment of any of the installments, the total principal sum then remaining unpaid
shall become due and payable with an additional interest equal to twenty-five percent of the total
amount due.

On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company
of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated
and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the
following indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:

RODOLFO G. NONILLO Asst. General Manager

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on
October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee
of said note of the fact that the same has been dishonored and demanded payment.

Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of
money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but
contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been
declared insolvent.

During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24,
1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21,
Rule 3 of the Rules of Court. 1

On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12,
1973, the dispositive portion of which reads as follows:

WHEREFORE, judgment is rendered:

 (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00
plus the legal rate of interest from October 30, 1969;

(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and

(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:

The trial court erred in not dismissing the complaint by finding defendant appellant
Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof.

Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants
the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior
parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.

The appeal is without merit.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words "without recourse" or any words of similar
import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is
dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of
the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note
"with recourse" and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is
primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement
is that the note was indorsed without qualification. A person who indorses without qualification engages
that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the
note without qualification is made even more apparent by the fact that the notice of demand, dishonor,
protest and presentment were an waived. The words added by said appellant do not limit his liability, but
rather confirm his obligation as a general indorser.

Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after
an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be
such and becomes a principal debtor. 5 His liabiliy becomes the same as that of the original
obligor. 6 Consequently, the holder need not even proceed against the maker before suing the indorser.
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.

Metropol vs. Sambok

L-39641 February 28, 1983
De Castro, J.:

Facts:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in case on
non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest. Sambok Motors co., a sister company of Ng
Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment
Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he
failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified
Sambok as indorsee that the promissory note has been dishonored and demanded payment.
Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money.
During the pendency of the case Villaruel died. Sambok argues that by adding the words with
recourse in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant
that in case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue:
Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the
failure of payment of the maker.

Held:
No. A qualified indorserment constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorsers signature the words without recourse or
any words of similar import. Such indorsement relieves the indorser of the general obligation to
pay if the instrument is dishonored but not of the liability arising from warranties on the
instrument as provided by section 65 of NIL. However, Sambok indorsed the note with
recourse and even waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Sambok by indorsing the note with recourse does not make itself a
qualified indorser but a general indorser who is secondarily liable, because by such indorsement,
it agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such
indorsement is that the note was indorsed witout qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid, or both as the
case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words
added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.
ESTER B. MARALIT, petitioner, vs. JESUSA CORAZON L.
IMPERIAL, respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated August 26, 1997,
and the resolution, dated September 29, 1997, of the Regional Trial Court of Naga
City (Branch 21) in Special Civil Case No. RTC 97-3744.

The facts are as follows:

Petitioner Ester B. Maralit filed three complaints for estafa through falsification of
commercial documents through reckless imprudence against respondent Jesusa
Corazon L. Imperial.[1] Maralit alleged that she was assistant manager of the Naga City
branch of the Philippine National Bank (PNB); that on May 20, 1992, June 1, 1992,
and July 1, 1992 respondent Imperial separately deposited in her savings account at
the PNB three United States treasury warrants bearing USTW Nos. 2034-91254963,
2034-91180047, and 2034-33330760 and on the same days withdrew their peso
equivalent of P59,216.86, P130,743.60, and P130,326.00, respectively; and that the
treasury warrants were subsequently returned one after the other by the United States
Treasury, through the Makati branch of the Citibank, on the ground that the amounts
thereof had been altered. Maralit claimed that, as a consequence, she was held
personally liable by the PNB for the total amount of P320,287.30.

In her counter-affidavit, respondent claimed that she merely helped a relative,

Aida Abengoza, encash the treasury warrants; that she deposited the treasury warrants
in her savings account and then withdrew their peso equivalent with the approval of
petitioner; that she gave the money to Aida Abengoza; that she did not know that the
amounts on the treasury warrants had been altered nor did she represent to petitioner
that the treasury warrants were genuine; and that upon being informed of the dishonor
of the warrants she immediately contacted Aida Abengoza and signed an
acknowledgment of debt promising to pay the total amount of the treasury warrants.
 After preliminary investigation, the City Prosecutor of Naga City filed three
informations against respondent in the Municipal Trial Court of Naga City (Branch 3).

On September 26, 1996, judgment was rendered as follows:

WHEREFORE, in view of the foregoing considerations, the Court finds no ground to

hold the accused criminally liable for which she is charged, hence Corazon Jesusa L.
Imperial is ACQUITTED of all the charges against her. The accused however is
civilly liable as indorser of the checks which is (sic) the subject matter of the criminal
action.[2]

The decision having become final and executory, the MTC, on November 11,
1996, ordered the enforcement of the civil liability against the accused arising from
the criminal action.[3] The writ of execution, dated December 9, 1996, directed the
sheriff as follows:[4]

NOW, THEREFORE, you are hereby commanded to cause the execution of the
aforesaid judgment in the amount of THREE HUNDRED TWENTY THOUSAND
TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46) ONLY, equivalent to the
amount of the 3 three US$ checks amounting to $12,621.13, and to levy the goods and
chattels of the defendant/s, except those which are exempt from execution and to
make the sale thereat in accordance with the procedure outlined by Rule 39, Revised
Rules of Court and such cases made and provided, together with all your lawful fees
for the services of this writ.

Accordingly, the sheriff served a notice of garnishment on the PNB.

Respondent at first moved to declare her savings account exempt from execution
on the ground that the same represented her salary as an employee of the Commission
on Audit, which was not even sufficient for her expenses and that of her family. Later,
she moved to quash the writ of execution on the ground that the judgment did not
order the accused to pay [a] specific amount of money to a particular person as it
merely adjudicated the criminal aspect but not the civil aspect hence there was no
judgment rendered which can be the subject of execution.

Both motions of respondent were denied by the MTC for lack of merit in its order,
dated February 24, 1997.[5] Accordingly, an alias writ of execution was issued.
 On April 14, 1997, respondent filed a petition for certiorari and prohibition in the
Regional Trial Court of Naga City, contending that the writ of execution issued by the
MTC was at variance with the judgment in the criminal cases.

The RTC issued a writ of preliminary injunction enjoining enforcement of the writ
of execution issued by the MTC. On August 26, 1997, it rendered a decision, which,
among other things, made permanent the injunction. The RTC held that the decision of
the MTC did not really find respondent liable for P320,286.46 because in fact it was
petitioner who was found responsible for making the defraudation possible.

Petitioner moved for reconsideration alleging that respondent filed her petition
for certiorari and prohibition more than three months after the MTC had ordered
execution of its decision on November 11, 1996. However, her motion was denied on
September 28, 1997.[6] The RTC held that the three-month period should be counted
from April 1, 1997, when the alias writ of execution was issued, or from April 7,
1997, when the MTC denied private respondents motion for reconsideration of the
order denying her motion to quash the writ of execution. The RTC likewise found the
second ground of petitioners motion for reconsideration, i.e., that its decision was
contrary to law and jurisprudence, devoid of merit.

Hence, this petition. Petitioner raises the following issues: [7]

1. Whether respondents Petition for Certiorari and Prohibition under Rule 65 of the Rules of
Court was filed out of time;

2. Whether this case warrants the relaxation of the rule that Certiorari is not a substitute for a
lost or lapsed appeal.

3. Whether or not the MTC committed grave abuse of discretion amounting to lack or excess of
jurisdiction, when it issued the Order of Execution, Writ of Execution and Alias Writ of
Execution to implement its final and executory civil judgment in Criminal Cases No. 68697,
68698 and 68699, which reads:. . . The accused however is civilly liable as indorser of the
checks subject matter of the criminal action.

4. Whether or not the MTC merely adjudicated the criminal aspect but not the civil aspect of
Criminal Cases 68697, 68698 and 68699.

5. Whether there was substantial variance as between the dispositive portion of the civil
judgment and the writ of execution issued thereunder.
 6. Whether or not a court exercising certiorari jurisdiction has the authority to modify or alter
the final and executory decision of the lower court even by way of an obiter dictum.

Petitioner contends that the phrase civilly liable in the judgment part of the MTCs
decision also connotes an order to pay on respondents part.

It may fairly be assumed that the decision of the MTC was an adjudication of both
the criminal and civil liability of respondent inasmuch as it does not appear that
petitioner instituted a separate civil action or reserved or waived the right to bring
such action. The question is whether the decision of the MTC finds respondent civilly
liable and, in the affirmative, for how much. As already stated, the RTC held that the
MTC did not really find respondent liable. In reaching that conclusion, the RTC said:

A mere reading of the dispositive portion of the judgment and the writ of execution
will readily show that there is variance between the two. Whereas, the judgment
pronounced [respondent herein] to be civilly liable as indorser of the checks which is
the subject matter of the criminal action, the writ of execution commanded the Sheriff
to cause the execution of the aforesaid judgment in the amount of THREE
HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100
(P320,286.46) ONLY, equivalent to the amount of the 3 three US$ checks amounting
to $12,621.13, . . . . In the judgment, nothing is mentioned about the amount for which
[respondent herein] is liable as indorser, but in the writ of execution, the civil liability
of the [respondent herein] has already been fixed at P320,286.46. The variance,
therefore, between the judgment and the writ of execution is substantial because it
consists of the addition of the amount of the civil liability of the [respondent herein].

....

. . . The [MTCs] findings of facts and conclusions of law as expressed in the body of
the decision do not support the dispositive portion of the judgment that
[respondent herein] is civilly liable. On the contrary a reading of the body of the
judgment in question will show that [respondent] is not civilly liable. For three (3)
times, the Court stated in the body of its decision that it is [petitioner] Maralit
herself who should be faulted and be held responsible for the payment of the
dishonored US Dollar checks.
Hereunder quoted are portions of the body of the decision in question showing that
[respondent] herein should not be held civilly liable and that it was [petitioner]
Maralit who should be blamed and be held responsible:

. . . The Court however is quite intrigue[d] on why the accused was allowed to encash
the peso equivalent despite the fact that the check was deposited for collection and
clearing. It is the established procedure of banks that out of town checks and US
Treasury Warrants should first be cleared before the same is to be paid. More so if the
holder is a second indorser. The private complainant in this regard explained that [as
assistant branch manager] she has the discretion and that there is no hold order
appearing in the savings account of the accused. She likewise explained that she
trusted the accused whom she knew is working in the same building and a
depositor. In short she took the risk of approving the withdrawal of the peso
equivalent, without the check being cleared and if the same is dishonored she should
be responsible. (page 5, judgment).

The information accuses the accused for disregarding the banking laws and procedure
of the PNB. This is a generous statement. In the first place the accused is not an
employee of the bank. She has no control nor supervision over its employees. If there
is anyone who has disregarded banking laws, it is the private complainant for
approving withdrawals before the check were cleared. Mrs. Maralit is more
knowledgeable of the banking procedures of the bank of which she is the assistant
manager. She knows the risk of approving encashment before clearing. She took the
risk therefore she should be responsible for the outcome of the risk she has
taken. (page 6, Judgment).

The Court is of the opinion that there was negligence on both the complainant and the
accused but greater responsibility should be borne by the private
complainant. The accused could not have encashed and deposited the checks without
her approval. If the complainant was not remiss in her duty in imposing the banking
rules strictly, then these things could not have happened. (page 7, Judgment). [8]

This portion of the decision of the MTC actually refers to respondents criminal
liability and not her civil liability. More specifically, the portion in question refers to
the allegations in the three informations that respondent committed falsification of
commercial documents through reckless imprudence by 1) taking advantage of [her]
position as state auditor of the Commission on Audit assigned at the PNB, Naga
Branch, 2) disregard[ing] existing procedure, banking laws, policies, and circulars of
the PNB, 3) . . . not tak[ing] the necessary precaution to determine the genuineness of
the Treasury Warrants and the alteration of the amount[s] therein deposited and [in]
encash[ing] the checks, and 4) . . . [her] negligence, carelessness, and imprudence
[which] caused damage and loss to [petitioner]. [9] Nevertheless, the MTC held that respondent was
civilly liable as the penultimate paragraph of its decision makes clear:

The Court symphatizes with the complainant that there was indeed damage and loss,
but said loss is chargeable to the accused who upon her indorsements warrant that the
instrument is genuine in all respect what it purports to be and that she will pay the
amount thereof in case of dishonor.(Sec. 66 Negotiable Instrument Law) [10]

Thus, while the MTC found petitioner partly responsible for the encashment of
the altered checks, it found respondent civilly liable because of her indorsements of
the treasury warrants, in addition to the fact that respondent executed a notarized
acknowledgment of debt promising to pay the total amount of said warrants.

In this case, to affirm the RTCs decision would be to hold that respondent was
absolved from both criminal and civil liability by the MTC. Such reading of the MTC
decision will not, however, bear analysis. For one, the dispositive portion of the
decision of the MTC expressly declares respondent to be civilly liable as indorser of
the checks which is [sic] the subject matter of the criminal action. To find therefore
that there is no declaration of civil liability of respondent would be to disregard the
judgment of the MTC. Worse, it would be to amend a final and executory decision of
a court.

It is argued that the decision of the MTC did not order respondent, as accused in
the case, to pay a specific amount of money to any particular person such that it could
not be an adjudication of respondents civil liability. However, the ambiguity can easily
be clarified by a resort to the text of the decision or, what is properly called, the
opinion part. Doing so, it is clear that it can only be to petitioner that respondent was
made liable as the former was the offended party in the case. As for what amount
respondent is liable, it can only be for the total amount of the treasury warrants subject
of the case, determined according to their peso equivalent, in the decision of the MTC.
 For another, that respondent should pay petitioner the amounts of the altered
treasury warrants is the logical consequence of the MTCs holding that private
respondent is civilly liable for the treasury warrants subject of the case. [11]

WHEREFORE, the decision of the Regional Trial Court of Naga City (Branch
21) is REVERSED.

SO ORDERED.

REMEDIOS NOTA SAPIERA, petitioner, vs. COURT OF APPEALS and

RAMON SUA, respondents.

DECISION

BELLOSILLO, J.:

REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of
the Court of Appeals[1] which acquitted her of the crime of estafa but held her liable nonetheless for the value of
the checks she indorsed in favor of private respondent Ramon Sua.

On several occasions petitioner Remedios Nota Sapiera, a sari-sari store owner, purchased
from Monrico Mart certain grocery items, mostly cigarettes, and paid for them with checks
issued by one Arturo de Guzman: (a) PCIB Check No. 157059 dated 26 February 1987
for P140,000.00;(b) PCIB Check No. 157073 dated 26 February 1987 for P28,000.00; (c) PCIB
Check No. 157057 dated 27 February 1987 for P42,150.00; and, d) Metrobank Check No. DAG -
045104758 PA dated 2 March 1987 for P125,000.00. These checks were signed at the back by
petitioner. When presented for payment the checks were dishonored because the drawers account
was already closed. Private respondent Ramon Sua informed Arturo de Guzman and petitioner
about the dishonor but both failed to pay the value of the checks. Hence, four (4) charges of
estafa were filed against petitioner with the Regional Trial Court of Dagupan City, docketed as
Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731. Arturo de Guzman was charged with
two (2) counts of violation of B.P. Blg. 22, docketed as Crim. Cases Nos. D-8733 and D-
8734. These cases against petitioner and de Guzman were consolidated and tried jointly.
 On 27 December 1989 the court a quo[2] acquitted petitioner of all the charges of estafa but did not rule
on whether she could be held civilly liable for the checks she indorsed to private respondent. The trial court found
Arturo de Guzman guilty of Violation of B.P. Blg. 22 on two (2) counts and sentenced him to suffer imprisonment of
six (6) months and one (1) day in each of the cases, and to pay private respondent P167,150.00 as civil indemnity.

Private respondent filed a notice of appeal with the trial court with regard to the civil aspect
but the court refused to give due course to the appeal on the ground that the acquittal of
petitioner was absolute. Private respondent then filed a petition for mandamus with the Court of
Appeals, docketed as CA-GR SP No. 24626, praying that the court a quo be ordered to give due
course to the appeal on the civil aspect of the decision. The Court of Appeals granted the petition
and ruled that private respondent could appeal with respect to the civil aspect the judgment of
acquittal by the trial court.

On 22 January 1996, the Court of Appeals in CA-GR CV No. 36376 rendered the assailed
Decision insofar as it sustained the appeal of private respondent on the civil aspect and ordering
petitioner to pay private respondent P335,000.00 representing the aggregate face value of the
four (4) checks indorsed by petitioner plus legal interest from the notice of dishonor.

Petitioner filed a motion for reconsideration of the Decision. On 19 March 1997 the Court of
Appeals issued a Resolution noting the admission of both parties that private respondent had
already collected the amount of P125,000.00 from Arturo de Guzman with regard to his civil
liability in Crim. Cases Nos. 8733 and 8734. The appellate court noted that private respondent
was the same offended party in the criminal cases against petitioner and against de
Guzman. Criminal Cases Nos. 8733 and 8734 against De Guzman, and Crim. Cases Nos. 8730
and 8729 against petitioner, involved the same checks, to wit: PCIB Checks Nos. 157057
for P42,150.00 and Metrobank Check No. DAG-045104758 PA for P125,000.00.

Thus, the Court of Appeals ruled that private respondent could not recover twice on the
same checks. Since he had collected P125,000.00 as civil indemnity in Crim. Cases Nos. 8733
and 8734, this amount should be deducted from the sum total of the civil indemnity due him
arising from the estafa cases against petitioner. The appellate court then corrected its previous
award, which was erroneously placed at P335,000.00, to P335,150.00 as the sum total of the
amounts of the four (4) checks involved. Deducting the amount of P125,000.00 already collected
by private respondent, petitioner was adjudged to pay P210,150.00 as civil liability to private
respondent. Hence, this petition alleging that respondent Court of Appeals erred in holding
petitioner civilly liable to private respondent because her acquittal by the trial court from charges
of estafa in Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731 was absolute, the trial court
having declared in its decision that the fact from which the civil liability might have arisen did
not exist.

We cannot sustain petitioner. The issue is whether respondent Court of Appeals committed
reversible error in requiring petitioner to pay civil indemnity to private respondent after the trial
court had acquitted her of the criminal charges. Section 2, par. (b), of Rule 111 of the Rules of
Court, as amended, specifically provides: "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.

The judgment of acquittal extinguishes the liability of the accused for damages only when it
includes a declaration that the fact from which the civil liability might arise did not exist. Thus,
the civil liability is not extinguished by acquittal where: (a) 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.[3] Thus, under Art. 29 of the Civil Code -

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.

In a criminal case where 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 acquittal is due to that ground.

An examination of the decision in the criminal cases reveals these findings of the trial court
-

Evidence for the prosecution tends to show that on various occasions, Remedios Nota
Sapiera purchased from Monrico Mart grocery items (mostly cigarettes) which
purchases were paid with checks issued by Arturo de Guzman; that those purchases
and payments with checks were as follows:

(a) Sales Invoice No. 20104 dated February 26, 1987 in the amount of P28,000.00;
that said items purchased were paid with PCIBank Check No. 157073 dated February
26, 1987;

(b) Sales Invoice No. 20108 dated February 26, 1987 in the amount of P140,000.00;
that said items purchased were paid with PCIBank No. 157059 dated February 26,
1987;
(c) Sales Invoice No. 20120 dated February 27, 1987 in the amount of P42,150.00;
that said items were paid with PCIBank Check No. 157057 dated February 27, 1987;

(d) Sales Invoice No. 20148 and 20149 both dated March 2, 1987 in the amount
of P120,103.75; said items were paid with Metrobank Check No. 045104758 dated
March 2, 1987 in the amount of P125,000.00.

That all these checks were deposited with the Consolidated Bank and Trust
Company, Dagupan Branch, for collection from the drawee bank;

That when presented for payment by the collecting bank to the drawee bank, said
checks were dishonored due to account closed, as evidenced by check return slips; x x
x x.

From the evidence, the Court finds that accused Remedios Nota Sapiera is the owner
of a sari-sari store inside the public market; that she sells can(ned) goods, candies
and assorted grocery items; that she knows accused Arturo De Guzman, a customer
since February 1987; that de Guzman purchases from her grocery items including
cigarettes; that she knows Ramon Sua; that she has business dealings with him for 5
years; that her purchase orders were in clean sheets of paper; that she never pays in
check; that Ramon Sua asked her to sign subject checks as identification of the
signature of Arturo de Guzman; that she pays in cash; sometimes delayed by several
days; that she signed the four (4) checks on the reverse side; that she did not know the
subject invoices; that de Guzman made the purchases and he issued the checks; that
the goods were delivered to de Guzman; that she was not informed of dishonored
checks; and that counsel for Ramon Sua informed de Guzman and told him to pay x x
xx

In the case of accused Remedios Nota Sapiera, the prosecution failed to prove
conspiracy.

Based on the above findings of the trial court, the exoneration of petitioner of the charges of
estafa was based on the failure of the prosecution to present sufficient evidence showing
conspiracy between her and the other accused Arturo de Guzman in defrauding private
respondent.However, by her own testimony, petitioner admitted having signed the four (4)
checks in question on the reverse side. The evidence of the prosecution shows that petitioner
purchased goods from the grocery store of private respondent as shown by the sales invoices
issued by private respondent; that these purchases were paid with the four (4) subject checks
issued by de Guzman; that petitioner signed the same checks on the reverse side; and when
presented for payment, the checks were dishonored by the drawee bank due to the closure of the
drawers account; and, petitioner was informed of the dishonor.

We affirm the findings of the Court of Appeals that despite the conflicting versions of the
parties, it is undisputed that the four (4) checks issued by de Guzman were signed by petitioner at
the back without any indication as to how she should be bound thereby and, therefore, she is
deemed to be an indorser thereof. The Negotiable Instruments Law clearly provides -

Sec. 17. Construction where instrument is ambiguous. - Where the language of the
instrument is ambiguous, or there are admissions therein, the following rules of
construction apply: x x x x (f) Where a signature is so placed upon the instrument that
it is not clear in what capacity the person making the same intended to sign, he is
deemed an indorser. x x x x

Sec. 63. When person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.

Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course: (a) The matters and
things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and
(b) That the instrument is, at the time of the indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid or

both, as the case may be, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser who may be compelled to pay it.

The dismissal of the criminal cases against petitioner did not erase her civil liability since
the dismissal was due to insufficiency of evidence and not from a declaration from the court that
the fact from which the civil action might arise did not exist. [4] An accused acquitted of estafa may
nevertheless be held civilly liable where the facts established by the evidence so warrant. The accused should be
adjudged liable for the unpaid value of the checks signed by her in favor of the complainant.[5]

The rationale behind the award of civil indemnity despite a judgment of acquittal when
evidence is sufficient to sustain the award was explained by the Code Commission in connection
with Art. 29 of the Civil Code, to wit:
The old rule that the acquittal of the accused in a criminal case also releases him
from civil liability is one of the most serious flaws in the Philippine legal system. It
has given rise to numberless instances of miscarriage of justice, where the acquittal
was due to a reasonable doubt in the mind of the court as to the guilt of the
accused. The reasoning followed is that inasmuch as the civil responsibility is derived
from the criminal offense, when the latter is not proved, civil liability cannot be
demanded.

This is one of those cases where confused thinking leads to unfortunate and
deplorable consequences. Such reasoning fails to draw a clear line of demarcation
between criminal liability and civil responsibility, and to determine the logical result
of the distinction. The two liabilities are separate and distinct from each other. One
affects the social order and the other private rights. One is for punishment or
correction of the offender while the other is for reparation of damages suffered by the
aggrieved party x x x x It is just and proper that for the purposes of imprisonment of
or fine upon the accused, the offense should be proved beyond reasonable doubt. But
for the purpose of indemnifying the complaining party, why should the offense also be
proved beyond reasonable doubt? Is not the invasion or violation of every private
right to be proved only by preponderance of evidence? Is the right of the aggrieved
person any less private because the wrongful act is also punishable by the criminal
law?[6]

Finally, with regard to the computation of the civil liability of petitioner, the finding of the
Court of Appeals that petitioner is civilly liable for the aggregate value of the unpaid four (4)
checks subject of the criminal cases in the sum of P335,150.00, less the amount of P125,000.00
already collected by private respondent pending appeal, resulting in the amount of P210,150.00
still due private respondent, is a factual matter which is binding and conclusive upon this Court.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 22
January 1996 as amended by its Resolution dated 19 March 1997 ordering petitioner Remedios
Nota Sapiera to pay private respondent Ramon Sua the remaining amount of P210,150.00 as civil
liability, is AFFIRMED. Costs against petitioners.

SO ORDERED.
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF
APPEALS and BENJAMIN C. NAPIZA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision of the Court of

[1]

Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139, which dismissed the complaint filed by
[2]

petitioner Bank of the Philippine Islands against private respondent Benjamin

C. Napiza for sum of money. Sdaad

On September 3, 1987, private respondent deposited in Foreign Currency

Deposit Unit (FCDU) Savings Account No. 028-187 which he maintained in
[3]

petitioner banks Buendia Avenue Extension Branch, Continental Bank

Managers Check No. 00014757 dated August 17, 1984, payable to "cash" in
[4]

the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side. It appears that the check
[5]

belonged to a certain Henry Chan who went to the office of private respondent
and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with
the understanding that as soon as the check is cleared, both of them would go
to the bank to withdraw the amount of the check upon private respondents
presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on

October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal
slip shows that the amount was payable to Ramon A. de Guzman and Agnes
C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo.
[6]
On November 20, 1984, petitioner received communication from the Wells
Fargo Bank International of New York that the said check deposited by private
respondent was a counterfeit check because it was "not of the type or style of
[7]

checks issued by Continental Bank International." Consequently, Mr. Ariel

[8]

Reyes, the manager of petitioners Buendia Avenue Extension Branch,

instructed one of its employees, Benjamin D. Napiza IV, who is private
respondents son, to inform his father that the check bounced. Reyes himself
[9]

sent a telegram to private respondent regarding the dishonor of the check. In

turn, private respondents son wrote to Reyes stating that the check had been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also
said that upon learning of the dishonor of the check, his father immediately
tried to contact Chan but the latter was out of town. [10]

Private respondents son undertook to return the amount of $2,500.00 to

petitioner bank. On December 18, 1984, Reyes reminded private respondent
of his sons promise and warned that should he fail to return that amount within
seven (7) days, the matter would be referred to the banks lawyers for
appropriate action to protect the banks interest. This was followed by a letter
[11]

of the banks lawyer dated April 8, 1985 demanding the return of the
$2,500.00. [12]

In reply, private respondent wrote petitioners counsel on April 20,

1985 stating that he deposited the check "for clearing purposes" only to
[13]

accommodate Chan. He added:

"Further, please take notice that said check was deposited on

September 3, 1984 and withdrawn on October 23, 1984, or a total
period of fifty (50) days had elapsed at the time of withdrawal.
Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the
reason why the transaction is not reflected in the passbook of the
account. Besides, I did not receive its proceeds as may be
gleaned from the withdrawal slip under the captioned signature of
recipient.
 If at all, my obligation on the transaction is moral in nature, which
(sic) I have been and is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who is directly liable under
the circumstances. Scsdaad

xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent,

praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise
alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank drafts clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to
withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioners employees. Private respondent added that he
had "given the Plaintiff fifty one (51) days with which to clear the bank draft in
question." Petitioner should have disallowed the withdrawal because his
passbook was not presented. He claimed that petitioner had no one to blame
except itself "for being grossly negligent;" in fact, it had allegedly admitted
having paid the amount in the check "by mistake" x x x "if not altogether due
to collusion and/or bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00,
exemplary damages of P50,000.00 and attorneys fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per
appearance in court.

Private respondent also filed a motion for admission of a third party complaint
against Chan. He alleged that "thru strategem and/or manipulation," Chan
was able to withdraw the amount of $2,500.00 even without private
respondents passbook. Thus, private respondent prayed that third party
defendant Chan be made to refund to him the amount withdrawn and to pay
attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, wherein it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case
asserting that private respondents claim could be ventilated in another case.

Private respondent replied that for the parties to obtain complete relief and to
avoid multiplicity of suits, the motion to admit third party complaint should be
granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on May
18, 1988, dismissed the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The

lower court held that petitioner could not hold private respondent liable based
on the checks face value alone. To so hold him liable "would render inutile the
requirement of clearance from the drawee bank before the value of a
particular foreign check or draft can be credited to the account of a depositor
making such deposit." The lower court further held that "it was incumbent
upon the petitioner to credit the value of the check in question to the account
of the private respondent only upon receipt of the notice of final payment and
should not have authorized the withdrawal from the latters account of the
value or proceeds of the check." Having admitted that it committed a "mistake"
in not waiting for the clearance of the check before authorizing the withdrawal
of its value or proceeds, petitioner should suffer the resultant loss. Supremax

On appeal, the Court of Appeals affirmed the lower courts decision. The
appellate court held that petitioner committed "clear gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondents passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondents account. It stressed that the
mere deposit of a check in private respondents account did not mean that the
check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore,
petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a
passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect
the bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC, where this Court stated that a personal check is not legal tender
[14]

or money, and held that the check deposited in this case must be cleared
before its value could be properly transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals

Decision, petitioner filed this petition for review on certiorari, raising the
following issues:

1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE

UNDER HIS WARRANTIES AS A GENERAL INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS

CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN
GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY

NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):
 "SEC. 66. Liability of general indorser. Every indorser who
indorses without qualification, warrants to all subsequent holders
in due course

(a)......The matters and things mentioned in subdivisions (a), (b),

and (c) of the next preceding section; and

(b)......That the instrument is at the time of his indorsement, valid

and subsisting.

And, in addition, he engages that on due presentment, it shall be

accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it."

Section 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified indorsement: (a)
that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it, and (c) that all prior parties had capacity to
contract. In People v. Maniego, this Court described the liabilities of an
[15] [16]

indorser as follows: Juris

"Appellants contention that as mere indorser, she may not be

liable on account of the dishonor of the checks indorsed by her, is
likewise untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to enforce payment of the
instrument for the full amount thereof against all parties liable
thereon. Among the parties liable thereon is an indorser of the
instrument, i.e., a person placing his signature upon an instrument
otherwise than as a maker, drawer or acceptor * * unless he
clearly indicated by appropriate words his intention to be bound in
some other capacity. Such an indorser who indorses without
qualification, inter alia engages that on due presentment, * * (the
instrument) shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored, and the
 necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or any subsequent indorser who
may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts, i.e., a person who
has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his
name to some other person. As such, she is under the law liable
on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew * * (her) to be
only an accommodation party, although she has the right, after
paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them is in effect that of
principal and surety, the accommodation party being the surety."

It is thus clear that ordinarily private respondent may be held liable as an

indorser of the check or even as an accommodation party. However, to hold
[17]

private respondent liable for the amount of the check he deposited by the
strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent

"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondents son and the lapse of more than fifty (50)
days from date of deposit of the Continental Bank draft, without the same
being returned yet." We hold, however, that the propriety of the withdrawal
[18]

should be gauged by compliance with the rules thereon that both petitioner
bank and its depositors are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following

rules on withdrawal of deposits appear:

"4.......Withdrawals must be made by the depositor personally but

in some exceptional circumstances, the Bank may allow
withdrawal by another upon the depositors written authority duly
 authenticated; and neither a deposit nor a withdrawal will be
permitted except upon the presentation of the depositors savings
passbook, in which the amount deposited withdrawn shall be
entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic

transfer in currency of the account at the request of the depositor
in writing on the withdrawal slip or by authenticated cable. Such
request must indicate the name of the payee/s, amount and the
place where the funds are to be paid. Any stamp, transmission
and other charges related to such withdrawals shall be for the
account of the depositor and shall be paid by him/her upon
demand. Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).

6.......Deposits shall not be subject to withdrawal by check, and

may be withdrawn only in the manner above provided, upon
presentation of the depositors savings passbook and with the
withdrawal form supplied by the Bank at the counter." Scjuris
[19]

Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly
filled-up withdrawal slip, and (b) the depositors passbook. Private respondent
admits that he signed a blank withdrawal slip ostensibly in violation of Rule
No. 6 requiring that the request for withdrawal must name the payee, the
amount to be withdrawn and the place where such withdrawal should be
made. That the withdrawal slip was in fact a blank one with only private
respondents two signatures affixed on the proper spaces is buttressed by
petitioners allegation in the instant petition that had private respondent
indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that
"(i)n failing to do so (i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any amount and to collect the
same." [20]
Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to "Ramon
A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners
personnel should have been duly warned that Gayon, who was also employed
in petitioners Buendia Ave. Extension branch, was not the proper payee of
[21]

the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman

should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the amount indicated in the
check. Private respondent does not deny having signed such authority.
However, considering petitioners clear admission that the withdrawal slip was
a blank one except for private respondents signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have
been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No.
6 set out by petitioner so that, for the protection of the banks interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositors
passbook. The fact that private respondents passbook was not presented
during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date
he deposited the controversial check in the amount of $2,500.00. [22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is

printed in the passbook. Thus:

"2.......All deposits will be received as current funds and will be

repaid in the same manner; provided, however, that deposits
 of drafts, checks, money orders, etc. will be accepted as subject
to collection only and credited to the account only upon receipt of
the notice of final payment. Collection charges by the Banks
foreign correspondent in effecting such collection shall be for the
account of the depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the account. If, for
any reason, the proceeds of the deposited checks, drafts, money
orders, etc., cannot be collected or if the Bank is required to return
such proceeds, the provisional entry therefor made by the Bank in
the savings passbook and its records shall be deemed
automatically cancelled regardless of the time that has elapsed,
and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute
immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first
opportunity to reflect such cancellation." (Italics and underlining
supplied.) Jurissc

As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated
therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting
bank. This is in consonance with the rule that a negotiable instrument, such as
a check, whether a managers check or ordinary check, is not legal tender. As [23]

such, after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondents account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking
practices and with this Courts pronouncement that "the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements." The rule finds more meaning in this case where the check
[24]

involved is drawn on a foreign bank and therefore collection is more difficult

than when the drawee bank is a local one even though the check in question
is a managers check. Misjuris
[25]

In Banco Atlantico v. Auditor General, Banco Atlantico, a commercial bank in

[26]

Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did
so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlanticos foreign department. The
Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts involved were large."
Accordingly, the Court approved the Auditor Generals denial of Banco
Atlanticos claim for payment of the value of the checks that was withdrawn by
Boncan.

Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship." As such, in dealing with its
[27]

depositors, a bank should exercise its functions not only with the diligence of a
good father of a family but it should do so with the highest degree of care.[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents

deposit, failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioners personnel negligently handled private
respondents account to petitioners detriment. As this Court once said on this
matter:

"Negligence is the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would do. The seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, provides
the test by which to determine the existence of negligence in a
particular case which may be stated as follows: Did the defendant
in doing the alleged negligent act use that reasonable care and
 caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreetpater-familias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that." [29]

Petitioner violated its own rules by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private respondents
dollar deposits that had yet to be cleared. The banks ledger on private
respondents account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00. Upon private respondents
[30]

deposit of $2,500.00 on September 3, 1984, that amount was credited in his

ledger as a deposit resulting in the corresponding total balance of $3,250.00.
On September 10, 1984, the amount of $600.00 and the additional charges
[31]

of $10.00 were indicated therein as withdrawn thereby leaving a balance of

$2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the
ledger and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92. On November 19, 1984 the word
[32]

"hold" was written beside the balance of $109.92. That must have been the
[33]

time when Reyes, petitioners branch manager, was informed unofficially of the
fact that the check deposited was a counterfeit, but petitioners Buendia Ave.
Extension Branch received a copy of the communication thereon from Wells
Fargo Bank International in New York the following day, November 20, 1984.
According to Reyes, Wells Fargo Bank International handled the clearing of
[34]

checks drawn against U.S. banks that were deposited with petitioner. Jjlex
[35]

From these facts on record, it is at once apparent that petitioners personnel

allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00
although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes contention that after
the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take
a long time before a depositor could make a withdrawal, is untenable. Said [36]

practice amounts to a disregard of the clearance requirement of the banking

system.

While it is true that private respondents having signed a blank withdrawal slip
set in motion the events that resulted in the withdrawal and encashment of the
counterfeit check, the negligence of petitioners personnel was the proximate
cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and
precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred." The proximate cause of the
[37]

withdrawal and eventual loss of the amount of $2,500.00 on petitioners part

was its personnels negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of

the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED. Newmiso

PRUDENTIAL BANK, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R.
CHI, respondents.

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate
Court (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15
June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (now Regional Trial
Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted by the petitioner for the
recovery of a sum of money representing the amount paid by it to the Nissho Company Ltd. of Japan for
textile machinery imported by the defendant, now private respondent, Philippine Rayon Mills, Inc.
(hereinafter Philippine Rayon), represented by co-defendant Anacleto R. Chi.

The facts which gave rise to the instant controversy are summarized by the public respondent as
follows:

On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a

contract with Nissho Co., Ltd. of Japan for the importation of textile machineries
under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits, p 2).
To effect payment for said machineries, the defendant-appellant applied for a
commercial letter of credit with the Prudential Bank and Trust Company in favor of
Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No.
DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts
were drawn and issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76),
which were all paid by the Prudential Bank through its correspondent in Japan, the
Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibit X and X-
1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president,
Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).

Upon the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the defendant-appellant which accepted delivery of the same. To
enable the defendant-appellant to take delivery of the machineries, it executed, by
prior arrangement with the Prudential Bank, a trust receipt which was signed by
Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company
(Exhibit C, Ibid., p. 13).

At the back of the trust receipt is a printed form to be accomplished by two sureties
who, by the very terms and conditions thereof, were to be jointly and severally liable
to the Prudential Bank should the defendant-appellant fail to pay the total amount or
any portion of the drafts issued by Nissho and paid for by Prudential Bank. The
defendant-appellant was able to take delivery of the textile machineries and installed
the same at its factory site at 69 Obudan Street, Quezon City.

Sometime in 1967, the defendant-appellant ceased business operation (sic). On

December 29, 1969, defendant-appellant's factory was leased by Yupangco Cotton
Mills for an annual rental of P200,000.00 (Exhibit I, Ibid., p. 22). The lease was
renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the
textile machineries in the defendant-appellant's factory were sold to AIC
Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).

The obligation of the defendant-appellant arising from the letter of credit and the trust
receipt remained unpaid and unliquidated. Repeated formal demands (Exhibits U, V,
and W, Ibid., pp. 62, 63, 64) for the payment of the said trust receipt yielded no result
Hence, the present action for the collection of the principal amount of P956,384.95
was filed on October 3, 1974 against the defendant-appellant and Anacleto R. Chi. In
their respective answers, the defendants interposed identical special defenses, viz.,
 the complaint states no cause of action; if there is, the same has prescribed; and the
plaintiff is guilty of laches. 2

On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine

Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, the amounts due under
Exhibits "X" & "X-1", with interest at 6% per annum beginning September 15, 1974
until fully paid.

Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the
same not having been accepted by defendant Philippine Rayon Mills, Inc., plaintiff's
cause of action thereon has not accrued, hence, the instant case is premature.

Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is

ordered to pay defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees.

With costs against defendant Philippine Rayon Mills, Inc.

SO ORDERED. 3

Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to
reverse or modify the decision, petitioner alleged in its Brief that the trial court erred in (a)
disregarding its right to reimbursement from the private respondents for the entire unpaid balance of
the imported machines, the total amount of which was paid to the Nissho Company Ltd., thereby
violating the principle of the third party payor's right to reimbursement provided for in the second
paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing
to hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13
of P.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trust
receipt (Exhibit "C"); (c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not a
guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at least a simple
guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is a
simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and
jurisprudence which provide that such liability had already attached; (f) contravening the judicial
admissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved
in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring acceptance
by Philippine Rayon before the latter could be held liable thereon. 4

In its decision, public respondent sustained the trial court in all respects. As to the first and last
assigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code,
applies only if there is no express contract between the parties and there is a clear showing that the
payment is justified. In the instant case, the relationship existing between the petitioner and
Philippine Rayon is governed by specific contracts, namely the application for letters of credit, the
promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-
2" to "X-11") which had not been presented to and were not accepted by Philippine Rayon, petitioner
was not justified in unilaterally paying the amounts stated therein. The public respondent did not
agree with the petitioner's claim that the drafts were sight drafts which did not require presentment
for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior
acceptance of the drafts. Since the ten (10) drafts were not presented and accepted, no valid
demand for payment can be made.

Public respondent also disagreed with the petitioner's contention that private respondent Chi is
solidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his
signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first
contention, the public respondent ruled that the civil liability provided for in said Section 13 attaches
only after conviction. As to the second, it expressed misgivings as to whether Chi's signature on the
trust receipt made the latter automatically liable thereon because the so-called solidary guaranty
clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by
two (2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is
not acknowledged before a notary public. Besides, even granting that it was executed and
acknowledged before a notary public, Chi cannot be held liable therefor because the records fail to
show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all
legal remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and
2054 of the Civil Code, the obligation of a guarantor is merely accessory and subsidiary,
respectively. Chi's liability would therefore arise only when the principal debtor fails to comply with
his obligation. 5

Its motion to reconsider the decision having been denied by the public respondent in its Resolution
of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal
issues:

I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT
AGAINST THE PRIVATE RESPONDENTS FOR THE PAYMENT PETITIONER
MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT
UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER
THE GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT;

II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE

TRUST RECEIPT (EXH. C);

III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF

RESPONDENT CHI HE IS LIABLE THEREON AND TO WHAT EXTENT;

IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR;

AND IF SO; HAS HIS LIABILITY AS SUCH ALREADY ATTACHED;

V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF

RESPONDENT PHIL. RAYON RESPONDENT CHI IS PERSONALLY LIABLE
PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115;
 VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE
PETITIONER UNDER THE TRUST RECEIPT (EXH. C);

VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS

RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE
DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;

VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM

RESPONDENT PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO
PETITIONER. 7

In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by
private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit their respective
memoranda which they subsequently complied with.

As We see it, the issues may be reduced as follows:

1. Whether presentment for acceptance of the drafts was

indispensable to make Philippine Rayon liable thereon;

2. Whether Philippine Rayon is liable on the basis of the trust receipt;

3. Whether private respondent Chi is jointly and severally liable with

Philippine Rayon for the obligation sought to be enforced and if not,
whether he may be considered a guarantor; in the latter situation,
whether the case should have been dismissed on the ground of lack
of cause of action as there was no prior exhaustion of Philippine
Rayon's properties.

Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the
two (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted by the latter
after due presentment. The liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11"
inclusive) did not arise because the same were not presented for acceptance. In short, both courts
concluded that acceptance of the drafts by Philippine Rayon was indispensable to make the latter
liable thereon. We are unable to agree with this proposition. The transaction in the case at bar
stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in
the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile
machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner
approved the application. As correctly ruled by the trial court in its Order of 6 March 1975: 9

. . . By virtue of said Application and Agreement for Commercial Letter of Credit,

plaintiff bank 10 was under obligation to pay through its correspondent bank in Japan the
drafts that Nisso (sic) Company, Ltd., periodically drew against said letter of credit from
1963 to 1968, pursuant to plaintiff's contract with the defendant Philippine Rayon Mills,
Inc. In turn, defendant Philippine Rayon Mills, Inc., was obligated to pay plaintiff bank the
amounts of the drafts drawn by Nisso (sic) Company, Ltd. against said plaintiff bank
together with any accruing commercial charges, interest, etc. pursuant to the terms and
 conditions stipulated in the Application and Agreement of Commercial Letter of Credit
Annex "A".

A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit. 11 Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the bank the amount of funds
mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In the instant
case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were
presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts.
Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL). 13 The said section reads:

Sec. 143. When presentment for acceptance must be made. Presentment for
acceptance must be made:

(a) Where the bill is payable after sight, or in any

other case, where presentment for acceptance is
necessary in order to fix the maturity of the
instrument; or

(b) Where the bill expressly stipulates that it shall be

presented for acceptance; or

(c) Where the bill is drawn payable elsewhere than at

the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any

party to the bill liable.

Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of the
drawer; 14 this may be done in writing by the drawee in the bill itself, or in a separate instrument. 15

The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts.
Said the latter:

. . . In the instant case the drafts being at sight, they are supposed to be payable
upon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc. time
within which to pay the same. The first two drafts (Annexes C & D, Exh. X & X-1)
were duly accepted as indicated on their face (sic), and upon such acceptance
should have been paid forthwith. These two drafts were not paid and although
Philippine Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16

Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:
 Sec. 7. When payable on demand. An instrument is payable on demand

(a) When so it is expressed to be payable on demand,

or at sight, or on presentation; or

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards

the person so issuing, accepting, or indorsing it, payable on demand. (emphasis
supplied)

Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any
accepted draft, bill of exchange or indebtedness shall not be extinguished or
modified" 17 does not, contrary to the holding of the public respondent, contemplate prior
acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even
necessary in the first place because the drafts which were eventually issued were sight drafts And
even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner
and not Philippine Rayon which had to accept the same for the latter was not the drawee.
Presentment for acceptance is defined an the production of a bill of exchange to a drawee for
acceptance. 18 The trial court and the public respondent, therefore, erred in ruling that
presentment for acceptance was an indispensable requisite for Philippine Rayon's liability on the
drafts to attach. Contrary to both courts' pronouncements, Philippine Rayon immediately became
liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued
by the petitioner. A different conclusion would violate the principle upon which commercial letters
of credit are founded because in such a case, both the beneficiary and the issuer, Nissho
Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon
even if the latter had already received the imported machinery and the petitioner had fully paid for
it. The typical setting and purpose of a letter of credit are described inHibernia Bank and Trust
Co. vs. J. Aron & Co., Inc., 19 thus:

Commercial letters of credit have come into general use in international sales
transactions where much time necessarily elapses between the sale and the receipt
by a purchaser of the merchandise, during which interval great price changes may
occur. Buyers and sellers struggle for the advantage of position. The seller is
desirous of being paid as surely and as soon as possible, realizing that the vendee at
a distant point has it in his power to reject on trivial grounds merchandise on arrival,
and cause considerable hardship to the shipper. Letters of credit meet this condition
by affording celerity and certainty of payment. Their purpose is to insure to a seller
payment of a definite amount upon presentation of documents. The bank deals only
with documents. It has nothing to do with the quality of the merchandise. Disputes as
to the merchandise shipped may arise and be litigated later between vendor and
vendee, but they may not impede acceptance of drafts and payment by the issuing
bank when the proper documents are presented.

The trial court and the public respondent likewise erred in disregarding the trust receipt and in not
holding that Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the
nature of a trust receipt by quoting In re Dunlap Carpet Co., 21 thus:
 By this arrangement a banker advances money to an intending importer, and thereby
lends the aid of capital, of credit, or of business facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this trade could hardly be carried on by any
other means, and therefore it is of the first importance that the fundamental factor in
the transaction, the banker's advance of money and credit, should receive the
amplest protection. Accordingly, in order to secure that the banker shall be repaid at
the critical point that is, when the imported goods finally reach the hands of the
intended vendee the banker takes the full title to the goods at the very beginning;
he takes it as soon as the goods are bought and settled for by his payments or
acceptances in the foreign country, and he continues to hold that title as his
indispensable security until the goods are sold in the United States and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to
the banker, for the importer has never owned the goods, and moreover he is not able
to deliver the possession; but the security is the complete title vested originally in the
bankers, and this characteristic of the transaction has again and again been
recognized and protected by the courts. Of course, the title is at bottom a security
title, as it has sometimes been called, and the banker is always under the obligation
to reconvey; but only after his advances have been fully repaid and after the importer
has fulfilled the other terms of the contract.

As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:

. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided

by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the
imported merchandise as soon an he has paid its price. The ownership of the
merchandise continues to be vested in the owner thereof or in the person who has
advanced payment, until he has been paid in full, or if the merchandise has already
been sold, the proceeds of the sale should be turned over to him by the importer or
by his representative or successor in interest.

Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January
1973, a trust receipt transaction is defined as "any transaction by and between a person referred to
in this Decree as the entruster, and another person referred to in this Decree as the entrustee,
whereby the entruster, who owns or holds absolute title or security interests' over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon the
latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein
the entrustee binds himself to hold the designated goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation
to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trusts receipt, or
for other purposes substantially equivalent to any one of the following: . . ."

It is alleged in the complaint that private respondents "not only have presumably put said machinery
to good use and have profited by its operation and/or disposition but very recent information that
(sic) reached plaintiff bank that defendants already sold the machinery covered by the trust receipt to
Yupangco Cotton Mills," and that "as trustees of the property covered by the trust receipt, . . . and
therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty to account for
the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease, sale
or other disposition of the same that they may have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or converted to their own use any money realized from the
lease, sale, and other disposition of said machinery." 23 While there is no specific prayer for the delivery
to the petitioner by Philippine Rayon of the proceeds of the sale of the machinery covered by the trust
receipt, such relief is covered by the general prayer for "such further and other relief as may be just and
equitable on the premises."24 And although it is true that the petitioner commenced a criminal action for
the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability
arising out of the trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the
failure of an entrustee to turn over the proceeds of the sale of goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster or as appear in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article
315, paragraph 1(b) of the Revised Penal Code. 25 Under Article 33 of the Civil Code, a civil action for
damages, entirely separate and distinct from the criminal action, may be brought by the injured party in
cases of defamation, fraud and physical injuries. Estafa falls under fraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the public
respondent, that private respondent Chi's signature in the dorsal portion of the trust receipt did not
bind him solidarily with Philippine Rayon. The statement at the dorsal portion of the said trust receipt,
which petitioner describes as a "solidary guaranty clause", reads:

In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with

the foregoing, we jointly and severally agree and undertake to pay on demand to the
PRUDENTIAL BANK AND TRUST COMPANY all sums of money which the said
PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of
or pertaining to, and/or in any event connected with the default of and/or non-
fulfillment in any respect of the undertaking of the aforesaid:

PHILIPPINE RAYON MILLS, INC.

We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not
have to take any steps or exhaust its remedy against aforesaid:

before making demand on me/us.

(Sgd.)
Anaclet
o R. Chi
ANACL
ETO R.
CHI 26
Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we
jointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, Chi's
liability therein is solidary.

In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whether the
mere signature of defendant-appellee Chi of (sic) the guaranty agreement, Exhibit
"C-1", will make it an actionable document. It should be noted that Exhibit "C-1" was
prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that it
was to be signed and executed by two persons. It was signed only by defendant-
appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in
that capacity. The last sentence of the guaranty clause is incomplete. Furthermore,
the plaintiff-appellant also failed to have the purported guarantee clause
acknowledged before a notary public. All these show that the alleged guaranty
provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed
and acknowledged still defendant-appellee Chi cannot be held liable thereunder
because the records show that the plaintiff-appellant had neither exhausted the
property of the defendant-appellant nor had it resorted to all legal remedies against
the said defendant-appellant as provided in Article 2058 of the Civil Code. The
obligation of a guarantor is merely accessory under Article 2052 of the Civil Code
and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the
defendant-appellee arises only when the principal debtor fails to comply with his
obligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the
obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which
speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space
therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of
the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may
be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary
guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the
guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the
two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to
the undertaking between either one or both of them on the one hand and the petitioner on the other
with respect to the liability described under the trust receipt. Elsewise stated, their liability is not
divisible as between them, i.e., it can be enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be
resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty
clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited
to the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28 as such, it must be
strictly construed against the party responsible for its preparation. 29
Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause
was effectively disregarded simply because it was not signed and witnessed by two (2) persons and
acknowledged before a notary public. While indeed, the clause ought to have been signed by two (2)
guarantors, the fact that it was only Chi who signed the same did not make his act an idle ceremony
or render the clause totally meaningless. By his signing, Chi became the sole guarantor. The
attestation by witnesses and the acknowledgement before a notary public are not required by law to
make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are present;
however, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that it be proved in a certain way, that requirement is absolute and
indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or default of
another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it
would be unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public
is required to make the same a public document, under Article 1358 of the Civil Code, a contract of
guaranty does not have to appear in a public document.

And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi,
namely the criminal proceedings against the latter for the violation of P.D. No. 115. Petitioner claims
that because of the said criminal proceedings, Chi would be answerable for the civil liability arising
therefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because
such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice
to the civil liability arising from the criminal offense." Both are wrong. The said section reads:

Sec. 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is committed
by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees
or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.

A close examination of the quoted provision reveals that it is the last sentence which provides for the
correct solution. It is clear that if the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense. The penalty referred to is
imprisonment, the duration of which would depend on the amount of the fraud as provided for in
Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be put in jail. However, it is these entities which are
made liable for the civil liability arising from the criminal offense. This is the import of the clause
"without prejudice to the civil liabilities arising from the criminal offense." And, as We stated earlier,
since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code, petitioner
was acting well within its rights in filing an independent civil action to enforce the civil liability arising
therefrom against Philippine Rayon.

The remaining issue to be resolved concerns the propriety of the dismissal of the case against
private respondent Chi. The trial court based the dismissal, and the respondent Court its affirmance
thereof, on the theory that Chi is not liable on the trust receipt in any capacity either as surety or
as guarantor because his signature at the dorsal portion thereof was useless; and even if he
could be bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the
Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor,
Philippine Rayon. The records fail to show that petitioner had done so 33 Reliance is thus placed on
Article 2058 of the Civil Code which provides:

Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor, and has resorted to all the legal
remedies against the debtor.

Simply stated, there is as yet no cause of action against Chi.

We are not persuaded. Excussion is not a condition sine qua non for the institution of an action
against a guarantor. In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:

4. Although an ordinary personal guarantor not a mortgagor or pledgor may

demand the aforementioned exhaustion, the creditor may, prior thereto, secure a
judgment against said guarantor, who shall be entitled, however, to a deferment of
the execution of said judgment against him until after the properties of the principal
debtor shall have been exhausted to satisfy the obligation involved in the case.

There was then nothing procedurally objectionable in impleading private respondent Chi as a co-
defendant in Civil Case No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of
the Rules of Court on permissive joinder of parties explicitly allows it. It reads:

Sec. 6. Permissive joinder of parties. All persons in whom or against whom any
right to relief in respect to or arising out of the same transaction or series of
transactions is alleged to exist, whether jointly, severally, or in the alternative, may,
except as otherwise provided in these rules, join as plaintiffs or be joined as
defendants in one complaint, where any question of law or fact common to all such
plaintiffs or to all such defendants may arise in the action; but the court may make
such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he may
have no interest.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to
permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. It
will save the parties unnecessary work, trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories
thereof including judicial costs; with respect to the latter, he shall only be liable for those costs
incurred after being judicially required to pay. 36 Interest and damages, being accessories of the
principal obligation, should also be paid; these, however, shall run only from the date of the filing of the
complaint. Attorney's fees may even be allowed in appropriate cases. 37

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by
Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full
extent of the latter's liability. All things considered, he can be held liable for the sum of P10,000.00 as
attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against
private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees.

In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the
petitioner

WHEREFORE, the instant Petition is hereby GRANTED.

The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733
and, necessarily, that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in
Civil Case No. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby
entered:

1. Declaring private respondent Philippine Rayon Mills, Inc. liable on

the twelve drafts in question (Exhibits "X", "X-1" to "X-11", inclusive)
and on the trust receipt (Exhibit "C"), and ordering it to pay petitioner:
(a) the amounts due thereon in the total sum of P956,384.95 as of 15
September 1974, with interest thereon at six percent (6%) per annum
from 16 September 1974 until it is fully paid, less whatever may have
been applied thereto by virtue of foreclosure of mortgages, if any; (b)
a sum equal to ten percent (10%) of the aforesaid amount as
attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chi secondarily liable on

the trust receipt and ordering him to pay the face value thereof, with
interest at the legal rate, commencing from the date of the filing of the
complaint in Civil Case No. Q-19312 until the same is fully paid as
well as the costs and attorney's fees in the sum of P10,000.00 if the
writ of execution for the enforcement of the above awards against
Philippine Rayon Mills, Inc. is returned unsatisfied.

Costs against private respondents.

SO ORDERED.
LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the decision dated October 28, 1994 of the Court of Appeals in
C.A. G.R. CR 11856[1] which affirmed the decision of the Regional Trial Court of Cebu City,
Branch 17, convicting petitioner on three (3) counts of Batas Pambansa Blg. 22 (the Bouncing
Checks Law) violations, and sentencing him to imprisonment of four (4) months for each count,
and to pay private respondent the amounts of P5,500.00, P6,410.00 and P3,375.00, respectively,
corresponding to the value of the checks involved, with the legal rate of interest from the time of
filing of the criminal charges, as well as to pay the costs.

The factual antecedents of the case are as follows:

Petitioner Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. LPI
would print sample calendars, then give them to agents to present to customers. The agents
would get the purchase orders of customers and forward them to LPI. After printing the
calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would
come around to collect the payments. Petitioner, however, had a history of unremitted
collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife.
[2]
Hence, petitioners customers were required to issue postdated checks before LPI would accept
their purchase orders.

In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated
December 30, 1985 and drawn payable to the order of LPI, as follows:

(1) Allied Banking Corporation (ABC) Check No. 660143464-C for P6,410.00
(Exh. B);

(2) ABC Check No. 660143460-C for P 540.00 (Exh. C);

(3) ABC Check No. PA660143451-C for P5,500.00 (Exh. D);

 (4) ABC Check No. PA660143465-C for P1,100.00 (Exh. E);

(5) ABC Check No. PA660143463-C for P3,375.00 (Exh. F);

(6) ABC Check No. PA660143452-C for P1,100.00 (Exh. G).

These checks were initially intended to guarantee the calendar orders of customers who
failed to issue post-dated checks. However, following company policy, LPI refused to accept the
checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners
unremitted collections for 1984 amounting to P18,077.07.[3] LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks
and promised to replace them within 30 days. However, petitioner reneged on his
promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking
Corporation (RCBC). The checks were returned for the reason account closed. The dishonor of
the checks was evidenced by the RCBC return slip.

On June 20, 1986, complainant through counsel notified the petitioner of the dishonor.
Petitioner failed to make arrangements for payment within five (5) banking days.

On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg.
22 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00,
[4]

and P6,410.00.[5]

The Information in Criminal Case No. CBU-12055 reads as follows:[6]

That on or about the 30th day of December, 1985 and for sometime subsequent
thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable
Court, the said accused, knowing at the time of issue of the check she/he does not
have sufficient funds in or credit with the drawee bank for the payment of such check
in full upon its presentment, with deliberate intent, with intent of gain and of causing
damage, did then and there issue, make or draw Allied Banking Corporation Check
No. 660143451 dated 12-30-85 in the amount of P5,500.00 payable to Manuel T.
Limtong which check was issued in payment of an obligation of said accused, but
when the said check was presented with said bank, the same was dishonored for
reason ACCOUNT CLOSED and despite notice and demands made to redeem or
make good said check, said accused failed and refused, and up to the present time still
fails and refuses to do so, to the damage and prejudice of said Manuel T. Limtong in
the amount of P5,500.00 Philippine Currency.
Contrary to law.

Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No.
660143463 in the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No.
660143464 for P6,410.00. Both cases were raffled to the same trial court.

Upon arraignment, Wong pleaded not guilty. Trial ensued.

Manuel T. Limtong, general manager of LPI, testified on behalf of the company. Limtong
averred that he refused to accept the personal checks of petitioner since it was against company
policy to accept personal checks from agents. Hence, he and petitioner simply agreed to use the
checks to pay petitioners unremitted collections to LPI. According to Limtong, a few days before
maturity of the checks, Wong requested him to defer the deposit of said checks for lack of
funds. Wong promised to replace them within thirty days, but failed to do so. Hence, upon advice
of counsel, he deposited the checks which were subsequently returned on the ground of account
closed.

The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985
calendar bookings of his customers. According to petitioner, he issued the checks not as payment
for any obligation, but to guarantee the orders of his customers. In fact, the face value of the six
(6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers
of the accused, namely, Golden Friendship Supermarket, Inc. (P6,410.00), New Society Rice and
Corn Mill (P5,500.00), Cuesta Enterprises (P540.00), Pelrico Marketing (P1,100.00), New Asia
Restaurant (P3,375.00), and New China Restaurant (P1,100.00). Although these customers had
already paid their respective orders, petitioner claimed LPI did not return the said checks to him.

On August 30, 1990, the trial court issued its decision, disposing as follows:[7]

Wherefore, premises considered, this Court finds the accused Luis S. Wong GUILTY
beyond reasonable doubt of the offense of Violations of Section 1 of Batas Pambansa
Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of
FOUR (4) MONTHS for each count; to pay Private Complainant Manuel T. Limtong
the sums of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four
Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred Seventy-Five
(P3,375.00) Pesos corresponding to the amounts indicated in Allied Banking Checks
Nos. 660143451, 66[0]143464 and 660143463 all issued on December 30, 1985
together with the legal rate of interest from the time of the filing of the criminal
charges in Court and pay the costs.[8]
 Petitioner appealed his conviction to the Court of Appeals. On October 28, 1994, it affirmed
the trial courts decision in toto.[9]

Hence, the present petition.[10] Petitioner raises the following questions of law -[11]

May a complainant successfully prosecute a case under BP 22 --- if there is no

more consideration or price or value -- ever the binding tie that it is in contracts in
general and in negotiable instruments in particular -- behind the checks? -- if even
before he deposits the checks, he has ceased to be a holder for value because the
purchase orders (PO's) guaranteed by the checks were already paid?

Given the fact that the checks lost their reason for being, as above stated, is it not
then the duty of complainant -- knowing he is no longer a holder for value -- to
return the checks and not to deposit them ever? Upon what legal basis then may
such a holder deposit them and get paid twice?

Is petitioner, as the drawer of the guarantee checks which lost their reason for
being, still bound under BP 22 to maintain his account long after 90 days from
maturity of the checks?

May the prosecution apply the prima facie presumption of knowledge of lack of
funds against the drawer if the checks were belatedly deposited by the
complainant 157 days after maturity, or will it be then necessary for the
prosecution to show actual proof of lack of funds during the 90-day term?

Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders
(POs) of his customers. He contends that private respondent is not a holder for value considering
that the checks were deposited by private respondent after the customers already paid their
orders. Instead of depositing the checks, private respondent should have returned the checks to
him. Petitioner further assails the credibility of complainant considering that his answers to
cross-examination questions included: I cannot recall, anymore and We have no more record.

In his Comment,[12] the Solicitor General concedes that the checks might have been initially
intended by petitioner to guarantee payments due from customers, but upon the refusal of LPI to
accept said personal checks per company policy, the parties had agreed that the checks would be
used to pay off petitioners unremitted collections. Petitioners contention that he did not demand
the return of the checks because he trusted LPIs good faith is contrary to human nature and
sound business practice, according to the Solicitor General.
 The issue as to whether the checks were issued merely as guarantee or for payment of
petitioners unremitted collections is a factual issue involving as it does the credibility of
witnesses. Said factual issue has been settled by the trial court and Court of Appeals. Although
initially intended to be used as guarantee for the purchase orders of customers, they found the
checks were eventually used to settle the remaining obligations of petitioner with LPI. Although
Manuel Limtong was the sole witness for the prosecution, his testimony was found sufficient to
prove all the elements of the offense charged.[13] We find no cogent reason to depart from findings
of both the trial and appellate courts. In cases elevated from the Court of Appeals, our review is
confined to alleged errors of law. Its findings of fact are generally conclusive. Absent any
showing that the findings by the respondent court are entirely devoid of any substantiation on
record, the same must stand.[14] The lack of accounting between the parties is not the issue in this
case. As repeatedly held, this Court is not a trier of facts. [15] Moreover, in Llamado v. Court of
Appeals,[16] we held that [t]o determine the reason for which checks are issued, or the terms and
conditions for their issuance, will greatly erode the faith the public reposes in the stability and
commercial value of checks as currency substitutes, and bring about havoc in trade and in
banking communities. So what the law punishes is the issuance of a bouncing check and not the
purpose for which it was issued nor the terms and conditions relating to its issuance. The mere
act of issuing a worthless check is malum prohibitum. Nothing herein persuades us to hold
otherwise.

The only issue for our resolution now is whether or not the prosecution was able to establish
beyond reasonable doubt all the elements of the offense penalized under B.P. Blg. 22.

There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a
check to apply on account or for value knowing at the time of issue that the check is not
sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank at the
time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full
amount of the check when presented to the drawee bank within a period of ninety (90) days.[17]

The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are:[18]

(1) The making, drawing and issuance of any check to apply for 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) The 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.
 Petitioner contends that the first element does not exist because the checks were not issued
to apply for account or for value. He attempts to distinguish his situation from the usual cut-and-
dried B.P. 22 case by claiming that the checks were issued as guarantee and the obligations they
were supposed to guarantee were already paid. This flawed argument has no factual basis, the
RTC and CA having both ruled that the checks were in payment for unremitted collections, and
not as guarantee. Likewise, the argument has no legal basis, for what B.P. Blg. 22 punishes is the
issuance of a bouncing check and not the purpose for which it was issued nor the terms and
conditions relating to its issuance.[19]

As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second
element prima facie exists when the first and third elements of the offense are present.[20] Thus,
the makers knowledge is presumed from the dishonor of the check for insufficiency of funds.[21]

Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157
days after the December 30, 1985 maturity date, the presumption of knowledge of lack of funds
under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be
expected to keep his bank account active and funded beyond the ninety-day period.

Section 2 of B.P. Blg. 22 provides:

Evidence of knowledge of insufficient funds. -- The making, drawing and issuance of a

check payment of which is refused by the drawee 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 arrangements 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.

An essential element of the offense is knowledge on the part of the maker or drawer of the
check of the insufficiency of his funds in or credit with the bank to cover the check upon its
presentment. Since this involves a state of mind difficult to establish, the statute itself creates
a prima faciepresumption of such knowledge where payment of the check is refused by the
drawee because of insufficient funds in or credit with such bank when presented within ninety
(90) days from the date of the check. To mitigate the harshness of the law in its application, the
statute provides that such presumption shall not arise if within five (5) banking days from receipt
of the notice of dishonor, the maker or drawer makes arrangements for payment of the check by
the bank or pays the holder the amount of the check.[22]

Contrary to petitioners assertions, nowhere in said provision does the law require a maker to
maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to
establish a prima facie presumption of knowledge of such insufficiency of funds under the
following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor
of the check and failure of the maker to make arrangements for payment in full within 5 banking
days after notice thereof. That the check must be deposited within ninety (90) days is simply one
of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not
an element of the offense. Neither does it discharge petitioner from his duty to maintain
sufficient funds in the account within a reasonable time thereof. Under Section 186 of the
Negotiable Instruments Law, a check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay. By current banking practice, a check becomes stale after more than six (6)
months,[23] or 180 days. Private respondent herein deposited the checks 157 days after the date of
the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of
insufficiency of funds was lost, but such knowledge could still be proven by direct or
circumstantial evidence. As found by the trial court, private respondent did not deposit the
checks because of the reassurance of petitioner that he would issue new checks. Upon his failure
to do so, LPI was constrained to deposit the said checks. After the checks were dishonored,
petitioner was duly notified of such fact but failed to make arrangements for full payment within
five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks. And despite petitioners insistent plea of innocence, we find no error in the
respondent courts affirmance of his conviction by the trial court for violations of the Bouncing
Checks Law.

However, pursuant to the policy guidelines in Administrative Circular No. 12-2000, which
took effect on November 21, 2000, the penalty imposed on petitioner should now be modified to
a fine of not less than but not more than double the amount of the checks that were dishonored.

WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable for
violation of Batas Pambansa Blg. 22 but the penalty imposed on him is hereby MODIFIED so
that the sentence of imprisonment is deleted. Petitioner is ORDERED to pay a FINE of
(1) P6,750.00, equivalent to double the amount of the check involved in Criminal Case No.
CBU-12057, (2) P12,820.00, equivalent to double the amount of the check involved in Criminal
Case No. CBU-12058, and (3) P11,000.00, equivalent to double the amount of the check
involved in Criminal Case No. CBU-12055, with subsidiary imprisonment [24] in case of
insolvency to pay the aforesaid fines. Finally, as civil indemnity, petitioner is also ordered to pay
to LPI the face value of said checks totaling P18,025.00 with legal interest thereon from the time
of filing the criminal charges in court, as well as to pay the costs.

SO ORDERED.