1
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.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Aquino, J., is on leave.
SECOND DIVISION
ALLIED BANKING G.R. No. 133179
CORPORATION,
Petitioner, Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO MORALES,
TINGA,
VELASCO, JR., and
CHICO-NAZARIO,* JJ.

LIM SIO WAN, METROPOLITAN
BANK AND TRUST CO., and Promulgated:
PRODUCERS BANK,
Respondents. March 27, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend
over backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court
of Appeals (CAs) Decision promulgated on March 18, 1998[1] in CA-G.R. CV No. 46290
entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the
Decision dated November 15, 1993[2] of the Regional Trial Court (RTC), Branch 63
in Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15,
1983,[3] as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.[4]
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an
officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market
placement, to issue a managers check representing the proceeds of the placement, and
to give the check to one Deborah Dee Santos who would pick up the check. [5] Lim Sio
Wan described the appearance of Santos so that So could easily identify her.[6]
Later, Santos arrived at the bank and signed the application form for a managers check
to be issued.[7] The bank issued Managers Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wans money market placement in the name of Lim
Sio Wan, as payee.[8] The check was cross-checked For Payees Account Only and given
to Santos.[9]
Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), [10] with
the forged signature of Lim Sio Wan as indorser.[11]
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP
2 million with respondent Producers Bank. Santos was the money market trader
assigned to handle FCCs account.[12] Such deposit is evidenced by Official Receipt No.
317568[13] and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of
FCC, acknowledging receipt of the placement.[14] The placement matured on October 25,
1983 and was rolled-over until December 5, 1983 as evidenced by a Letter
dated October 25, 1983.[15] When the placement matured, FCC demanded the payment
of the proceeds of the placement.[16] On December 5, 1983, the same date that So
received the phone call instructing her to pre-terminate Lim Sio Wans placement, the
2
managers check in the name of Lim Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCCs money market placement with Producers
Bank.[17] In other words, the Allied check was deposited with Metrobank in the account of
FCC as Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing
House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on
the check, which reads: All prior endorsements and/or lack of endorsement
guaranteed.[18]
The check was sent to Allied through the PCHC. Upon the presentment of the check,
Allied funded the check even without checking the authenticity of Lim Sio Wans
purported indorsement. Thus, the amount on the face of the check was credited to the
account of FCC.[19]
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market
placement to mature on January 9, 1984.[20]
On December 14, 1983, upon the maturity date of the first money market placement, Lim
Sio Wan went to Allied to withdraw it.[21] She was then informed that the placement had
been pre-terminated upon her instructions. She denied giving any instructions and
receiving the proceeds thereof. She desisted from further complaints when she was
assured by the banks manager that her money would be recovered. [22]
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio
Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed
So to roll-over the placement for another 30 days.[23] On January 24, 1984, Lim Sio Wan,
realizing that the promise that her money would be recovered would not materialize, sent
a demand letter to Allied asking for the payment of the first placement.[24] Allied refused
to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos.[25]
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
1984[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds of her
first money market placement. Sometime in February 1984, she withdrew her second
placement from Allied.
Allied filed a third party complaint[27] against Metrobank and Santos. In turn, Metrobank
filed a fourth party complaint[28] against FCC. FCC for its part filed a fifth party
complaint[29] against Producers Bank. Summonses were duly served upon all the parties
except for Santos, who was no longer connected with Producers Bank.[30]
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged. [31] Thus, Metrobank withheld the
amount represented by the check from FCC. Later on, Metrobank agreed to release the
amount to FCC after the latter executed an Undertaking, promising to indemnify
Metrobank in case it was made to reimburse the amount.[32]
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a
party-defendant, along with Allied.[33] The RTC admitted the amended complaint despite
the opposition of Metrobank.[34] Consequently, Allieds third party complaint against
Metrobank was converted into a cross-claim and the latters fourth party complaint
against FCC was converted into a third party complaint.[35]

After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the
amount of P1,158,648.49 plus 12% interest per annum from March 16,
1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of
P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of
P173,792.20 by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is
DISMISSED.
Likewise defendant Metrobanks third-party complaint as against
Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against
Producers Bank is also DISMISSED.
SO ORDERED.[36]
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is
MODIFIED. Judgment is rendered ordering and sentencing defendant-
appellant Allied Banking Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorneys fees
and costs of suit adjudged shall likewise be paid by defendant-
appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-
40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.[37]
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
3
The Honorable Court of Appeals erred in holding that Lim Sio
Wan did not authorize [Allied] to pre-terminate the initial placement and
to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers
Bank of any liability for the reimbursement of amount adjudged
demandable.
The Honorable Court of Appeals erred in holding [Allied] liable
to the extent of 60% of amount adjudged demandable in clear
disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank.[38]
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not
authorized to release the proceeds of Lim Sio Wans money market placement
to Santos.Allied clearly raises a question of fact. When the CA affirms the findings of fact
of the RTC, the factual findings of both courts are binding on this Court. [39]
We also agree with the CA when it said that it could not disturb the trial courts findings on
the credibility of witness So inasmuch as it was the trial court that heard the witness and
had the opportunity to observe closely her deportment and manner of testifying. Unless
the trial court had plainly overlooked facts of substance or value, which, if considered,
might affect the result of the case,[40] we find it best to defer to the trial court on matters
pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.[41] Thus, the finding of the RTC, affirmed by the CA, that the respective parties
were negligent in the exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental
and familiar is the doctrine that the relationship between a bank and a client is one of
debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning
simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum.[42] More succinctly, in Citibank, N.A. (Formerly First National City

Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or
mutuum.[43] Further, we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a middle
man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the
petitioner and the private respondent is in the nature of a loan. [44]
Lim Sio Wan, as creditor of the bank for her money market placement, is
entitled to payment upon her request, or upon maturity of the placement, or until the bank
is released from its obligation as debtor. Until any such event, the obligation of Allied to
Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are
considered extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (Emphasis
supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did
not authorize the release of her money market placement to Santos and the bank had
been negligent in so doing, there is no question that the obligation of Allied to pay Lim
Sio Wan had not been extinguished. Art. 1240 of the Code states that payment shall be
made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it. As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if there is no fault or
negligence which can be imputed to the latter. Even when the debtor
acted in utmost good faith and by mistake as to the person of his
creditor, or through error induced by the fraud of a third person, the
payment to one who is not in fact his creditor, or authorized to receive
4
such payment, is void, except as provided in Article 1241. Such
payment does not prejudice the creditor, and accrual of interest is
not suspended by it.[45](Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the
bank still has an obligation to pay her at six percent (6%) interest from March 16,
1984until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans
money. It points out that Metrobank guaranteed all prior indorsements inscribed on the
managers check, and without Metrobanks guarantee, the present controversy would
never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of
the check is paid to the proper party is, aside from being an efficient
intervening cause, also the last negligent act, x x x contributory to the
injury caused in the present case, which thereby leads to the
conclusion that it is the collecting bank, Metrobank that is the
proximate cause of the alleged loss of the plaintiff in the instant
case.[46]
We are not persuaded.
Proximate cause 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.[47] Thus, there is an efficient supervening event if the event breaks the
sequence leading from the cause to the ultimate result. To determine the proximate
cause of a controversy, the question that needs to be asked is: If the event did not
happen, would the injury have resulted? If the answer is NO, then the event is the
proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the
money represented by the check would still be lost because of Metrobanks negligence in
indorsing the check without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 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. Warranty where negotiation by delivery, so
forth.Every person negotiating an instrument by delivery or by a
qualified indorsement, warrants:
a) That the instrument is genuine and in all
respects what it purports to be;
b) That he has a good title of 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.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply
to persons negotiating public or corporation securities, other than bills
and notes. (Emphasis supplied.)
The warranty that the instrument is genuine and in all respects what it purports to be
covers all the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged. We held in a line of
cases that a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor. [48]
However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. Thus, in the cases cited above
where the collecting bank is generally held liable, in two of the cases where the checks
were negligently issued, this Court held the institution issuing the check just as liable as
or more liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the
payees on the strength of forged indorsements, we held the collecting bank solely liable
for the whole amount of the checks involved for having indorsed the same. In Republic
Bank v. Ebrada,[49] the check was properly issued by the Bureau of Treasury. While
in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking
Corporation,[50] Banco de Oro admittedly issued the checks in the name of the correct
payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,[51] the checks
were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee
bank is liable for 60% of the amount on the face of the negotiable instrument and the
collecting bank is liable for 40%. We also noted the relative negligence exhibited by two
banks, to wit:
Both banks were negligent in the selection and supervision of
their employees resulting in the encashment of the forged checks by
5
an impostor. Both banks were not able to overcome the presumption of
negligence in the selection and supervision of their employees. It was
the gross negligence of the employees of both banks which resulted in
the fraud and the subsequent loss. While it is true that petitioner BPIs
negligence may have been the proximate cause of the loss,
respondent CBCs negligence contributed equally to the success of the
impostor in encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect
that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. (See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks,
we rule that the demands of substantial justice are satisfied by
allocating the loss of P2,413,215.16 and the costs of the arbitration
proceeding in the amount of P7,250.00 and the cost of litigation on a
60-40 ratio.[52]
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and
the collecting bank should equally share the liability for the loss of amount represented
by the checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty
percent-fifty percent (50%-50%). Due to the negligence of the Province
of Tarlac in releasing the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier to receive the
checks for the payee hospital for a period close to three years and in
not properly ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition to the hospitals real
cashier, respondent Province contributed to the loss amounting to
P203,300.00 and shall be liable to the PNB for fifty (50%) percent
thereof. In effect, the Province of Tarlac can only recover fifty percent
(50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB
for fifty (50%) percent of P203,300.00. It is liable on its warranties as
indorser of the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena Canlas. Associated
Bank was also remiss in its duty to ascertain the genuineness of the
payees indorsement.[53]
A reading of the facts of the two immediately preceding cases would reveal that the
reason why the bank or institution which issued the check was held partially liable for the
amount of the check was because of the negligence of these parties which resulted in
the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers
check and in transmitting it to Santos without even a written authorization.[54] In fact,
Allied did not even ask for the certificate evidencing the money market placement or call
up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could

have prevented the whole fraudulent transaction from unfolding. Allieds negligence must
be considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In fact, there
would have been no issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of
the check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations[55] without verifying the authenticity of Lim Sio Wans indorsement and when
it accepted the check despite the fact that it was cross-checked payable to payees
account only,[56] its negligent and cavalier indorsement contributed to the easier release
of Lim Sio Wans money and perpetuation of the fraud. Given the relative participation of
Allied and Metrobank to the instant case, both banks cannot be adjudged as equally
liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA,
must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio
Wans indorsement, can raise the real defense of forgery as against both banks. [57]
As to Producers Bank, Allied Banks argument that Producers Bank must be
held liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art.
2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee
has committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the
Revised Penal Code in the instant case. Such liability on the part of the employer for the
civil aspect of the criminal act of the employee is based on the conviction of the
employee for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank,
the same is correct. Allied correctly claims in its petition that Producers Bank should
reimburse Allied for whatever judgment that may be rendered against it pursuant to Art.
22 of the Civil Code, which provides: Every person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the
expense of the latter without just cause or legal ground, shall return the same to him.
The above provision of law was clarified in Reyes v. Lim, where we ruled that
[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience.[58]
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus:
Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.[59]
In the instant case, Lim Sio Wans money market placement in Allied Bank was
pre-terminated and withdrawn without her consent. Moreover, the proceeds of the
placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans
placement should be deposited in FCCs account purportedly as payment for FCCs
6
money market placement and interest in Producers Bank. With such payment, Producers
Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly,
Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the
facts and circumstances of the case, Producers Bank should reimburse Allied and
Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be
considered as having been unjustly enriched. It must be remembered that FCCs money
market placement with Producers Bank was already due and demandable; thus,
Producers Banks payment thereof was justified. FCC was entitled to such payment. As
earlier stated, the fact that the indorsement on the check was forged cannot be raised
against FCC which was not a part in any stage of the negotiation of the check. FCC was
not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of
the entire controversy. Unfortunately, since summons had not been served on Santos,
the courts have not acquired jurisdiction over her.[60] We, therefore, cannot ascribe to her
liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the
amount of the check plus 12% interest per annum, moral damages, attorneys fees, and
costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a
proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA
Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil
Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as
follows:
WHEREFORE, premises considered, the decision appealed from is
MODIFIED. Judgment is rendered ordering and sentencing defendant-
appellant Allied Banking Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorneys fees
and costs of suit adjudged shall likewise be paid by defendant-
appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-
40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered
to pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties
are concurrent and independent of each other.
SO ORDERED.

FIRST DIVISION
G.R. No. 136202 January 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of
the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the
Court of Appeals in CA-G.R. CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money
with damages against herein petitioner Bank of the Philippine Islands (BPI) on December
5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The
complaint was later amended by substituting the name of Annabelle A. Salazar as the
real party in interest in place of A.A. Salazar Construction and Engineering Services.
Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-
Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70)
debited by petitioner BPI from her account. She likewise prayed for damages and
attorney’s fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo,
third-party defendant and herein also a private respondent, demanded from the former
payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two
Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3)
checks, which were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazar’s account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No.
0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of
Account No. 0203-1187-67 where the checks were deposited, since this account was
already closed by private respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but they
did not arrive at any settlement. As it appeared that private respondent Salazar was not
entitled to the funds represented by the checks which were deposited and accepted for
deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No.
0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a
cashier’s check. The difference between the value of the checks (P267,692.50) and the
amount actually debited from her account (P267,707.70) represented bank charges in
connection with the issuance of a cashier’s check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him of P267,692.50 and argued that said payment was to correct the
malicious deposit made by private respondent Salazar to her private account, and that
petitioner bank’s negligence and tolerance regarding the matter was violative of the
primary and ordinary rules of banking. He likewise contended that the debiting or taking
of the reimbursed amount from the account of private respondent Salazar by petitioner
BPI was a matter exclusively between said parties and may be pursuant to banking rules
and regulations, but did not in any way affect him. The debiting from another account of
private respondent Salazar, considering that her other account was effectively closed,
was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
7
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the
latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16,
1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorney’s fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for
lack of merit.
Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby
likewise DISMISSED for lack of factual basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding
the lack of endorsement thereon by the payee. The CA concluded that Salazar and
Templonuevo had previously agreed that the checks payable to JRT Construction and
Trading5 actually belonged to Salazar and would be deposited to her account, with
petitioner acquiescing to the arrangement.6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the
Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on
Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions of
Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the amount
of P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on
speculations, surmises or conjectures, that there was an agreement between SALAZAR
and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on
speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower
court against BPI and dismissing SALAZAR’s complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the
third-party complaint of BPI.7
The issues center on the propriety of the deductions made by petitioner from private
respondent Salazar’s account. Stated otherwise, does a collecting bank, over the
objections of its depositor, have the authority to withdraw unilaterally from such

depositor’s account the amount it had previously paid upon certain unendorsed order
instruments deposited by the depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in
the possession of a person who is neither a payee nor the indorsee thereof, has
been lawfully transferred for value. Hence, the CA should not have presumed
that Salazar was a transferee for value within the contemplation of Section 49 of
the Negotiable Instruments Law,8 as the latter applies only to a holder defined
under Section 191of the same.9
2. Salazar failed to adduce sufficient evidence to prove that her possession of
the three checks was lawful despite her allegations that these checks were
deposited pursuant to a prior internal arrangement with Templonuevo and that
petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation
because in deducting the subject amount from Salazar’s account, petitioner was
merely rectifying the undue payment it made upon the checks and exercising its
prerogative to alter or modify an erroneous credit entry in the regular course of
its business.
4. The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been
originally credited to the personal account of Salazar because A.A. Salazar
Construction and Engineering Services, an unincorporated single proprietorship,
had no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazar’s account was improper, the CA should
not have dismissed petitioner’s third-party complaint against Templonuevo
because the latter would have the legal duty to return to petitioner the proceeds
of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made by
the CA. The CA’s conclusion that the deductions from the bank account of A.A. Salazar
Construction and Engineering Services were improper stemmed from its finding that
there was no ineffective payment to Salazar which would call for the exercise of
petitioner’s right to set off against the former’s bank deposits. This finding, in turn, was
drawn from the pleadings of the parties, the evidence adduced during trial and upon the
admissions and stipulations of fact made during the pre-trial, most significantly the
following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the
amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August
28, 1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were
payable to the order of JRT Construction and Trading, the name and style under
which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such
checks, Salazar was able to deposit the checks in her personal savings account
with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
8
(e) That Templonuevo only protested the purportedly unauthorized encashment
of the checks after the lapse of one year from the date of the last check.10
Petitioner concedes that when it credited the value of the checks to the account of private
respondent Salazar, it made a mistake because it failed to notice the lack of
endorsement thereon by the designated payee. The CA, however, did not lend credence
to this claim and concluded that petitioner’s actions were deliberate, in view of its
admission that the "mistake" was committed three times on three separate occasions,
indicating acquiescence to the internal arrangement between Salazar and Templonuevo.
The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not
indorsed. Three times she deposited them to her account and three times the amounts
borne by these checks were credited to the same. And in those separate occasions, the
bank did not return the checks to her so that she could have them indorsed. Neither did
the bank question her as to why she was depositing the checks to her account
considering that she was not the payee thereof, thus allowing us to come to the
conclusion that defendant-appellant BPI was fully aware that the proceeds of the three
checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is
most unlikely that appellant BPI (or any bank for that matter) would have accepted the
checks for deposit on three separate times nary any question. Banks are most finicky
over accepting checks for deposit without the corresponding indorsement by their payee.
In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they
know very well.11
The CA likewise sustained Salazar’s position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as
follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the
three questioned checks, it baffles us why it was only on August 31, 1991 or more than a
year after the third and last check was deposited that he demanded for the refund of the
total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded payment by his
debtor from the moment the same became due and demandable. More so if the sum
involved runs in hundreds of thousand of pesos. By and large, every person, at the very
moment he learns that he was deprived of a thing which rightfully belongs to him, would
have created a big fuss. He would not have waited for a year within which to do so. It is
most inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45
of the Rules of Court.13Factual findings of the CA are entitled to great weight and
respect, especially when the CA affirms the factual findings of the trial court. 14 Such
questions on whether certain items of evidence should be accorded probative value or
weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the
other are clear and convincing and adequate to establish a proposition in issue, are
questions of fact. The same holds true for questions on whether or not the body of proofs
presented by a party, weighed and analyzed in relation to contrary evidence submitted by
the adverse party may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to
give said proofs weight – all these are issues of fact which are not reviewable by the
Court.15
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b)
when the inference made is manifestly mistaken, absurd, or impossible; c) when there is
a grave abuse of discretion; d) when the judgment is based on a misapprehension of
facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings,

went beyond the issues of the case and the same are contrary to the admissions of both
appellant and appellee; g) when the findings of the CA are contrary to those of the trial
court; h) when the findings of fact are conclusions without citation of specific evidence on
which they are based; i) when the finding of fact of the CA is premised on the supposed
absence of evidence but is contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion. 16
In the present case, the records do not support the finding made by the CA and the trial
court that a prior arrangement existed between Salazar and Templonuevo regarding the
transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the
value of the instruments is based on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument payable to his
order transfers it for value without indorsing it, the transfer vests in the transferee such
title as the transferor had therein, and the transferee acquires in addition, the right to
have the indorsement of the transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made. 17
It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available among
prior parties. Thus, if the transferor had legal title, the transferee acquires such title and,
in addition, the right to have the indorsement of the transferor and also the right, as
holder of the legal title, to maintain legal action against the maker or acceptor or other
party liable to the transferor. The underlying premise of this provision, however, is that a
valid transfer of ownership of the negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such instruments. The weight of
authority is that the mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or of the right
of one who has made payment to be discharged from liability. Thus, something more
than mere possession by persons who are not payees or indorsers of the instrument is
necessary to authorize payment to them in the absence of any other facts from which the
authority to receive payment may be inferred.18
The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-
year delay in demanding reimbursement for the proceeds of the same. To the Court’s
mind, however, such period of delay is not of such unreasonable length as to estop
Templonuevo from asserting ownership over the checks especially considering that it
was readily apparent on the face of the instruments 19 that these were crossed checks.
In State Investment House v. IAC,20 the Court enumerated the effects of crossing a
check, thus: (1) that the check may not be encashed but only deposited in the bank; (2)
that the check may be negotiated only once - to one who has an account with a bank;
and (3) that the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that such holder must inquire if the
check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with
Salazar’s possession of the checks, it cannot be said that the presumption of ownership
in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This
is consistent with the principle that if instruments payable to named payees or to their
order have not been indorsed in blank, only such payees or their indorsees can be
holders and entitled to receive payment in their own right.21
9
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of Salazar
because the term "given" does not pertain merely to a transfer of physical possession of
the instrument. The phrase "given or indorsed" in the context of a negotiable instrument
refers to the manner in which such instrument may be negotiated. Negotiable
instruments are negotiated by "transfer to one person or another in such a manner as to
constitute the transferee the holder thereof. If payable to bearer it is negotiated by
delivery. If payable to order it is negotiated by the indorsement completed by
delivery."22The present case involves checks payable to order. Not being
a payee or indorsee of the checks, private respondent Salazar could not be
a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the
instrument without indorsement. Precisely because the situation is abnormal, it is but fair
to the maker and to prior holders to require possessors to prove without the aid of an
initial presumption in their favor, that they came into possession by virtue of a legitimate
transaction with the last holder.23 Salazar failed to discharge this burden, and the return
of the check proceeds to Templonuevo was therefore warranted under the circumstances
despite the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the
fact that petitioner stamped on the back of the checks the words: "All prior endorsements
and/or lack of endorsements guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the liability of a
general indorser, petitioner’s liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account
for the value of the checks it previously credited in her favor. It is of no moment that the
account debited by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly belonged to Salazar, the
former being the account of the sole proprietorship which had no separate and distinct
personality from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's
account for the value of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides
that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may
take place "when all the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount it
paid to Templonuevo against the deposit of Salazar, the issue of whether it acted
judiciously is an entirely different matter.25 As businesses affected with public interest,
and because of the nature of their functions, banks are under obligation to treat the
accounts of their depositors with meticulous care, always having in mind the fiduciary
 10

nature of their relationship.26In this regard, petitioner was clearly remiss in its duty to damages are not meant to enrich a complainant at the expense of defendant. It is only
private respondent Salazar as its depositor. intended to alleviate the moral suffering she has undergone. The award of exemplary
To begin with, the irregularity appeared plainly on the face of the checks. Despite the damages is justified, on the other hand, when the acts of the bank are attended by
obvious lack of indorsement thereon, petitioner permitted the encashment of these malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper
checks three times on three separate occasions. This negates petitioner’s claim that it where exemplary damages are awarded. It is proper where depositors are compelled to
merely made a mistake in crediting the value of the checks to Salazar’s account and litigate to protect their interest.32
instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3,
ownership of checks and acted deliberately in paying the same, contrary to ordinary 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R.
banking policy and practice. It must be emphasized that the law imposes a duty of CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and
determining their genuineness and regularity. The collecting bank, being primarily Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which
engaged in banking, holds itself out to the public as the expert on this field, and the law portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
thus holds it to a high standard of conduct.27 The taking and collection of a check without No costs.
the proper indorsement amount to a conversion of the check by the bank. 28 SO ORDERED.
More importantly, however, solely upon the prompting of Templonuevo, and with full SECOND DIVISION
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited
the account held in the name of the sole proprietorship of Salazar without even serving G.R. No. 97753 August 10, 1992
due notice upon her. This ran contrary to petitioner’s assurances to private respondent CALTEX (PHILIPPINES), INC., petitioner,
Salazar that the account would remain untouched, pending the resolution of the vs.
controversy between her and Templonuevo.29 In this connection, the CA cited the letter COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner bank’s Bito, Lozada, Ortega & Castillo for petitioners.
Pasig/Ortigas branch, to private respondent Salazar informing her that her account had Nepomuceno, Hofileña & Guingona for private.
been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201- REGALADO, J.:
0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with This petition for review on certiorari impugns and seeks the reversal of the decision
Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming
precise) from the time that letter was written, [petitioner] bank issued a cashier’s check in with modifications, the earlier decision of the Regional Trial Court of Manila, Branch
the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum XLII, 2 which dismissed the complaint filed therein by herein petitioner against
of P267,692.50 (Exhibit "8") and debited said amount from Ms. Arcilla’s account No. respondent bank.
0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to The undisputed background of this case, as found by the court a quo and adopted by
Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard respondent court, appears of record:
of the right of its depositor. 1. On various dates, defendant, a commercial banking institution,
The records further bear out the fact that respondent Salazar had issued several checks through its Sucat Branch issued 280 certificates of time deposit (CTDs)
drawn against the account of A.A. Salazar Construction and Engineering Services prior in favor of one Angel dela Cruz who deposited with herein defendant
to any notice of deduction being served. The CA sustained private respondent Salazar’s the aggregate amount of P1,120,000.00, as follows: (Joint Partial
claim of damages in this regard: Stipulation of Facts and Statement of Issues, Original Records, p. 207;
The act of the bank in freezing and later debiting the amount of P267,692.50 from the Defendant's Exhibits 1 to 280);
account of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee CTD CTD
great damage and prejudice particularly when she had already issued checks drawn Dates Serial Nos. Quantity Amount
against the said account. As can be expected, the said checks bounced. To prove this, 22 Feb. 82 90101 to 90120 20 P80,000
plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, 26 Feb. 82 74602 to 74691 90 360,000
October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively) 30 2 Mar. 82 74701 to 74740 40 160,000
These checks, it must be emphasized, were subsequently dishonored, thereby causing 4 Mar. 82 90127 to 90146 20 80,000
private respondent Salazar undue embarrassment and inflicting damage to her standing 5 Mar. 82 74797 to 94800 4 16,000
in the business community. Under the circumstances, she was clearly not given the 5 Mar. 82 89965 to 89986 22 88,000
opportunity to protect her interest when petitioner unilaterally withdrew the above amount 5 Mar. 82 70147 to 90150 4 16,000
from her account without informing her that it had already done so. 8 Mar. 82 90001 to 90020 20 80,000
For the above reasons, the Court finds no reason to disturb the award of damages 9 Mar. 82 90023 to 90050 28 112,000
granted by the CA against petitioner. This whole incident would have been avoided had 9 Mar. 82 89991 to 90000 10 40,000
petitioner adhered to the standard of diligence expected of one engaged in the banking 9 Mar. 82 90251 to 90272 22 88,000
business. A depositor has the right to recover reasonable moral damages even if the ——— ————
bank’s negligence may not have been attended with malice and bad faith, if the former Total 280 P1,120,000
suffered mental anguish, serious anxiety, embarrassment and humiliation. 31 Moral ===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to
herein plaintiff in connection with his purchased of fuel products from
the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, that he lost all the certificates of
time deposit in dispute. Mr. Tiangco advised said depositor to execute
and submit a notarized Affidavit of Loss, as required by defendant
bank's procedure, if he desired replacement of said lost CTDs (TSN,
February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit
281). On the basis of said affidavit of loss, 280 replacement CTDs
were issued in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit
562) which stated, among others, that he (de la Cruz) surrenders to
defendant bank "full control of the indicated time deposits from and
after date" of the assignment and further authorizes said bank to pre-
terminate, set-off and "apply the said time deposits to the payment of
whatever amount or amounts may be due" on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch
and presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff "as
security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's
Exhibit 563) from herein plaintiff formally informing it of its possession
of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant
to furnish the former "a copy of the document evidencing the
guarantee agreement with Mr. Angel dela Cruz" as well as "the details
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to
apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and
claim for payment of the value of the CTDs in a letter dated February
7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and
applied the time deposits in question to the payment of the matured
loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate value of the
certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant
complaint. 3
11
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the
complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that
the subject certificates of deposit are non-negotiable despite being clearly negotiable
instruments; (2) that petitioner did not become a holder in due course of the said
certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of
Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in
this Bank the sum of PESOS: FOUR THOUSAND
ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon
presentation and surrender of this certificate, with
interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in
the CTDs issued, it is important to note that after the word "BEARER"
stamped on the space provided supposedly for the name of the
depositor, the words "has deposited" a certain amount follows. The
document further provides that the amount deposited shall be
"repayable to said depositor" on the period indicated. Therefore, the
text of the instrument(s) themselves manifest with clarity that they are
payable, not to whoever purports to be the "bearer" but only to the
specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites for an instrument to become
negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability.
The parties' bone of contention is with regard to requisite (d) set forth above. It is noted
that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified
in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la
Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per
books of the bank, the depositor referred (sic) in
these certificates states that it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show
that Angel dela Cruz was the one who cause (sic)
the amount.
Atty. Calida:
q And no other person or entity or company, Mr.
Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of
these certificates of time deposit insofar as the bank
is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument
itself.9 In the construction of a bill or note, the intention of the parties is to control, if it can
be legally ascertained. 10 While the writing may be read in the light of surrounding
circumstances in order to more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must be determined by
what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor. And
who, according to the document, is the depositor? It is the "bearer." The documents do
not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of
the documents or, for that matter, whosoever may be the bearer at the time of
presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz
only, it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for
the name of the depositor in each CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor
"insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer
12
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs
to go behind the plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is
sought to be avoided by the Negotiable Instruments Law and calls for the application of
the elementary rule that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the
answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner
chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For, although petitioner
seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered
as payment for the fuel products or as a security has been dissipated and resolved in
favor of the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law of
evidence, whenever a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be permitted
to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's
credit manager could have easily said so, instead of using the words "to guarantee" in
the letter aforequoted. Besides, when respondent bank, as defendant in the court below,
moved for a bill of particularity therein 17 praying, among others, that petitioner, as
plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or
dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b)
whether or not it issued a receipt showing that the CTDs were delivered to it by De la
Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly
was the fact, that the CTDs were delivered as payment and not as security. Having
opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et
al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
The character of the transaction between the parties
is to be determined by their intention, regardless of
what language was used or what the form of the
transfer was. If it was intended to secure the
payment of money, it must be construed as a
pledge; but if there was some other intention, it is not
a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute,

its object and character might still be qualified and
explained by contemporaneous writing declaring it to
have been a deposit of the property as collateral
security. It has been said that a transfer of property
by the debtor to a creditor, even if sufficient on its
face to make an absolute conveyance, should be
treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily
importing conveyance of absolute ownership will not
be given that effect in such a transaction if they are
also commonly used in pledges and mortgages and
therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and
unambiguous language or other circumstances
excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz
(and we even disregard the fact that the amount involved was not disclosed) could at the
most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such security, in the
event of non-payment of the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As such
holder of collateral security, he would be a pledgee but the requirements therefor and the
effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights, 24 which
inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
may also be pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner failed
to produce any document evidencing any contract of pledge or guarantee agreement
between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not
legally vest in petitioner any right effective against and binding upon respondent bank.
The requirement under Article 2096 aforementioned is not a mere rule of adjective law
prescribing the mode whereby proof may be made of the date of a pledge contract, but a
rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other mode
of transfer, the Civil Code specifically declares:
13
Art. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public instrument,
or the instrument is recorded in the Registry of Property in case the
assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of
its credit or the extent of its lien nor the execution of any public instrument which could
affect or bind private respondent. Necessarily, therefore, as between petitioner and
respondent bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the case of
lost negotiable instruments and the issuance of replacement certificates therefor, on the
ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties and in
the statement of issues submitted by them to the trial court. 29 The issues agreed upon
by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by
the CTDs against the depositor's loan by virtue of the assignment
(Annex "C").
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account
with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the
CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees
and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal
authorities, the foregoing enumeration does not include the issue of negligence on the
part of respondent bank. An issue raised for the first time on appeal and not raised timely
in the proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal
must be within the issues framed by the parties and, consequently, issues not raised in
the trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition
of a case are properly raised. Thus, to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact which they intend
to raise at the trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration of other questions
on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be
considered encompassed by the issues on its right to preterminate and receive the
proceeds of the CTDs would be tantamount to saying that petitioner could raise on
appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates can be premised on
a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would
render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions
of the Code of Commerce laying down the rules to be followed in case of lost instruments
payable to bearer, which it invokes, will reveal that said provisions, even assuming their
 14

applicability to the CTDs in the case at bar, are merely permissive and not mandatory.
The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction, asking
that the principal, interest or dividends due or about to become due, be
not paid a third person, as well as in order to prevent the ownership of
the instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating
liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code
of Commerce, on which petitioner seeks to anchor respondent bank's supposed
negligence, merely established, on the one hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of
the same, and, on the other, an option in favor of the party liable thereon who, for some
valid ground, may elect to refuse to issue a replacement of the instrument. Significantly,
none of the provisions cited by petitioner categorically restricts or prohibits the issuance a
duplicate or replacement instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the
appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.